-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IcaCa9uJWtAx+MMpSPVzUabmCx616tqnBBtz+JdvQkQ/n/3U8ALrPlQAlM6uXujA qMOjY6Q8nTd3Fj7mXM8Rrw== 0000912057-00-010863.txt : 20000313 0000912057-00-010863.hdr.sgml : 20000313 ACCESSION NUMBER: 0000912057-00-010863 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 20000310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IXATA GROUP INC CENTRAL INDEX KEY: 0000929425 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 341833574 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-83526 FILM NUMBER: 565316 BUSINESS ADDRESS: STREET 1: 8080 DAGGETT STREET SUITE 220 CITY: SAN DIEGO STATE: CA ZIP: 92111 BUSINESS PHONE: 6196775580 MAIL ADDRESS: STREET 1: 8080 DAGGETT STREET SUITE 220 CITY: SAN DIEGO STATE: CA ZIP: 92111 FORMER COMPANY: FORMER CONFORMED NAME: SECURFONE AMERICA INC DATE OF NAME CHANGE: 19971114 FORMER COMPANY: FORMER CONFORMED NAME: MATERIAL TECHNOLOGY INC DATE OF NAME CHANGE: 19970326 FORMER COMPANY: FORMER CONFORMED NAME: MATERIAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19970313 10QSB 1 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) /x/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1999. / / 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 34-1833574 - --------------------------------------- ---------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 8080 DAGGET, SUITE 220 SAN DIEGO, CALIFORNIA 92111 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) SECURFONE AMERICA, INC. - ------------------------------------------------------------------------------- (Former Name) 619-677-5580 - ------------------------------------------------------------------------------- (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 / / No /X/ 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: 11,888,142 (AS OF JANUARY 1, 2000) - ------------------------------------------------------------------------------ Transition Small Business Disclosure Format (check one): Yes / / No /X/ THE IXATA GROUP, INC. Quarterly Report on Form 10-QSB For the Quarter Ended June 30, 1999 - ------------------------------------------------------------------------------- THE IXATA GROUP, INC. QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1999 TABLE OF CONTENTS
Item Page - ---- ---- PART I --FINANCIAL INFORMATION 2 Item 1. Financial Statements. 2 Item 2. Management's Discussion and Analysis or Plan of Operations. 16 Overview 16 Results of Operations: 19 Second Quarter of 1999 Compared to Second Quarter of 1998 19 First Half of 1999 Compared to First Half of 1998 20 Liquidity and Capital Resources 21 Year 2000 22 Related Party Transactions 22 Forward-Looking Statements 22 PART II--OTHER INFORMATION 27 Item 1. Legal Proceedings. 27 Item 2. Changes in Securities and Use of Proceeds. 27 Item 3. Defaults Upon Senior Securities. 27 Item 4. Submission of Matters to a Vote of Security Holders. 27 Item 5. Other Information. 27 Item 6. Exhibits and Reports on Form 8-K. 27
- ------------------------------------------------------------------------------ Page 1 THE IXATA GROUP, INC. Quarterly Report on Form 10-QSB For the Quarter Ended June 30, 1999 - ------------------------------------------------------------------------------- PART I -- FINANCIAL INFORMATIOn
ITEM 1. FINANCIAL STATEMENTS. Consolidated Balance Sheets..............................................................................3 Consolidated Statements of Operations....................................................................4 Consolidated Statements of Stockholders' Equity..........................................................5 Consolidated Statements of Cash Flows....................................................................6 Notes to Financial Statements.........................................................................7-15
- ------------------------------------------------------------------------------- Page 2 THE IXATA GROUP, INC. Quarterly Report on Form 10-QSB For the Quarter Ended June 30, 1999 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET JUNE 30, 1999 AND 1998
1999 1998 ------------ ------------ ASSETS CURRENT ASSETS: Cash & cash equivalents $ 7,818 $ 36,123 Accounts receivable, net 4,501 63,427 Marketable securities 150,000 770,000 Prepaid expenses -- 105,100 ------------ ------------ 162,319 974,650 PROPERTY AND EQUIPMENT, net of accumulated depreciation 83,757 215,267 OTHER ASSETS: Note receivable-IXATA, Inc. 150,000 -- Intangible assets, net of accumulated amortization -- 230,201 Deposits 1,225 1,225 ------------ ------------ Total other assets 151,225 231,426 ------------ ------------ Total assets $ 397,301 $ 1,421,343 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (ACCUMULATED DEFICIT) 1999 1998 ------------ ------------ CURRENT LIABILITIES: Current portion of long term liabilities $ 72,419 $ 61,463 Accounts payable 300,908 342,782 Accrued interest 173,653 16,569 Accrued payroll 158,678 46,664 Notes payable 578,250 50,000 ------------ ------------ Total current liabilities 1,283,908 517,478 ------------ ------------ LONG-TERM LIABILITIES: Advances payable -- 827,000 Notes payable-net of current portion 1,000,000 4,181 Obligation under capital leases-net of current portion 34,323 70,248 ------------ ------------ Total long term liabilities 1,034,323 901,429 ------------ ------------ Total liabilities 2,318,231 1,418,907 ------------ ------------ STOCKHOLDERS' EQUITY (ACCUMULATED DEFICIT): Common stock-SecurFone America, Inc. 6,275 5,880 $.001 par value, authorized 100,000,000 shares, outstanding 6,275,169 shares at June 30, 1999 and 5,965,216 shares at June 30, 1998 Additional paid-in capital 4,709,138 4,330,145 Additional paid-in capital-stock options 2,874,475 2,869,525 Unrealized holding (loss) on marketable securities (150,000) 770,000 Deficit accumulated during the development stage (9,360,818) (7,973,114) ------------ ------------ Total stockholders' equity (accumulated deficit) (1,920,930) 2,436 ------------ ------------ Total liabilities and stockholders' equity (accumulated deficit) $ 397,301 $ 1,421,343 ------------ ------------
See accompanying notes. - -------------------------------------------------------------------------------- Page 3 THE IXATA GROUP, INC. Quarterly Report on Form 10-QSB For the Quarter Ended June 30, 1999 - --------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND THE PERIOD MAY 20, 1996 (DATE OF INCEPTION) TO JUNE 30, 1999
1999 1998 May 20, 1996 ------------------------ ------------------------- (Inception Date) Three Months Six Months Three Months Six Months June 30, 1999 ------------ ---------- ------------ ----------- ---------------- REVENUES $ -- $ -- $ -- $ -- $ -- OPERATING EXPENSES -- -- -- -- -- ------------ ---------- ------------ ----------- ---------------- Gross profit -- -- -- -- -- ------------ ---------- ------------ ----------- ---------------- OPERATING EXPENSES Selling, general and administrative 69,274 141,976 -- -- 141,976 Restructuring charge 143,932 505,832 661,451 2,814,331 10,008,577 ------------ ---------- ------------ ----------- ---------------- Total Operating Expenses 213,206 647,808 661,451 2,814,331 10,150,553 Income (Loss) from Continuing Operations (213,206) (647,808) (661,451) (2,814,331) (10,150,553) ------------ ---------- ------------ ----------- ---------------- OTHER INCOME (EXPENSE): Gain on disposal of cellular assets 708,419 708,419 -- -- 708,419 Realized stock gains -- -- -- -- 50,000 Interest expense - capital lease -- (1,206) -- -- (23,835) Interest income -- -- -- -- 14,949 ------------ ---------- ------------ ----------- ---------------- Total other income (expense) 708,419 707,213 -- -- 749,533 ------------ ---------- ------------ ----------- ---------------- Income (Loss) Before Income Taxes and Extraordinary Item 495,213 59,405 (661,451) (2,814,331) (9,401,020) ------------ ---------- ------------ ----------- ---------------- PROVISION FOR INCOME TAXES -- 1,600 1,649 1,649 3,249 ------------ ---------- ------------ ----------- ---------------- Income (Loss) before extraordinary items 495,213 57,805 (663,100) (2,815,980) (9,404,269) ------------ ---------- ------------ ----------- ---------------- EXTRAORDINARY ITEMS Gain on debt extinguishment ------------ ---------- ------------ ----------- ---------------- (less $0 Income tax) -- 43,451 43,451 ------------ ---------- ------------ ----------- ---------------- Net income (loss) 495,213 101,256 (663,100) (2,815,980) (9,360,818) OTHER COMPREHENSIVE INCOME (LOSS): Unrealized (loss) gain on securities (150,000) (150,000) 490,000 770,000 (150,000) ------------ ---------- ------------ ----------- ---------------- Comprehensive income (loss) $ 345,213 $ (48,744) $ (173,100) $(2,045,980) $ (9,510,818) ============ ========== =========== =========== ================ Net (loss) per share - basic Income (loss) from continuing operations $ (0.03) $ (0.11) $ (0.11) $ (0.47) =========== ========== =========== =========== Loss before extraordinary items $ 0.08 $ 0.01 $ (0.11) $ (0.47) =========== ========== =========== =========== Gain (loss) on extraordinary items $ - $ 0.01 $ - $ - =========== ========== =========== =========== Net income (loss) $ 0.08 $ 0.02 $ (0.11) $ (0.47) Comprehensive income (loss) $ 0.05 $ (0.01) $ (0.03) $ (0.34) ----------- ---------- ----------- ----------- Net (loss) per share - fully diluted Income (loss) from continuing operations $ (0.03) $ (0.11) $ (0.11) $ (0.47) =========== ========== =========== =========== Loss before extraordinary items $ 0.08 $ 0.01 $ (0.11) $ (0.47) =========== ========== =========== =========== Gain (loss) on extraordinary items $ - $ 0.01 $ - $ - =========== ========== =========== =========== Net income (loss) $ 0.08 $ 0.02 $ (0.11) $ (0.47) Comprehensive income (loss) $ 0.05 $ (0.01) $ (0.03) $ (0.34) ----------- ---------- ----------- -----------
See accompanying notes. - ------------------------------------------------------------------------------- Page 4 THE IXATA GROUP, INC. Quarterly Report on Form 10-QSB For the Quarter Ended June 30, 1999 - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY MAY 20, 1996 THROUGH JUNE 30, 1999
Additional Deficit Paid-in Accumulated Accumulated Additional Capital- during the Other Common Paid-in Stock Development Comprehensive Stock Capital Options Stage Income (Loss) Total -------- ----------- ---------- ------------ ------------- ----------- Initial issuance of common Stock, May 20, 1996 $ 3 $ 975,797 $ -- $ -- $ -- $ 975,800 Stock split 1,333.33 to 1 - March 6, 1997 39,970 (39,970) -- -- -- -- Sale of stock - 1997 1,200 118,800 -- -- -- 120,000 Acquisition - August 1, 1997 (36,173) 36,173 -- -- -- -- Stock options granted August-November, 1997 -- -- 1,227,250 -- -- 1,227,250 Contingent shares issued - December 31, 1997 and March 18, 1998 740 3,099,260 -- -- -- 3,100,000 Stock options exercised - March 19, 1998 225 -- 22,275 -- -- 22,500 Stock options granted - January 6, 1998 -- -- 1,620,000 -- -- 1,620,000 Stock issued - May 12, 1998 35 139,965 -- -- -- 140,000 Stock options exercised - August 6, 1998 50 -- 4,950 -- -- 5,000 Stock issued - November 17, 1998 42 33,290 -- -- -- 33,332 Stock issued - May 11-19, 1999 122 242,066 -- -- -- 242,188 Stock issued - June 30, 1999 61 103,757 -- -- -- 103,818 Unrealized holding gains on securities - June 30, 1999 -- -- -- -- (150,000) (150,000) Deficit accumulated June 30, 1999 -- -- -- (9,360,818) -- (9,360,818) -------- ----------- ---------- ------------ ------------- ----------- Balance June 30, 1999 $ 6,275 $4,709,138 $2,874,475 $(9,360,818) $ (150,000) $(1,920,930) -------- ----------- ---------- ------------ ------------- -----------
See accompanying notes. - -------------------------------------------------------------------------------- Page 5 THE IXATA GROUP, INC. Quarterly Report on Form 10-QSB For the Quarter Ended June 30, 1999 - --------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND THE PERIOD MAY 20, 1996 (DATE OF INCEPTION) TO JUNE 30, 1999
1999 1998 May 20, 1996 ------------------------ -------------------------- (Date of Inception) Three Months Six Months Three Months Six Months to June 30, 1999 ------------ ---------- ------------ ------------ ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 495,213 $ 101,256 $ (663,100) $(2,815,980) $ (9,360,818) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 7,743 27,499 29,623 59,246 216,504 Sale of subsidiary (708,419) (708,419) -- -- (708,419) Stock options granted and contingent shares issued -- -- -- 1,620,000 4,327,250 Decrease (increase) in accounts receivable 4,352 2,637 (2,101) (28,323) (4,501) Decrease (increase) in notes receivable -- -- -- 89,353 5,833 Decrease (increase) in royalties receivable -- -- -- 100,000 -- Decrease (increase) in inventory -- -- -- 22,153 -- Decrease (increase) in intangible and other assets -- -- -- -- (56,680) Decrease (increase) in prepaid expenses -- 35,000 (104,800) (105,100) -- (Decrease) increase in accounts payable, payroll payable and accrued expenses (39,745) (47,973) 143,571 233,144 598,238 (Decrease) increase in deferred royalty revenue -- -- -- (100,000) -- ------------ ---------- ------------ ------------ ---------------- NET CASH PROVIDED IN (USED) OPERATING ACTIVITIES (240,856) (590,000) (596,807) (925,507) (4,982,593) ------------ ---------- ------------ ------------ ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sale of subsidiary and related assets 472,257 472,257 -- -- 472,257 Investment in subsidiary (150,000) (150,000) -- -- (150,000) Purchase of property and equipment -- (157) (6,701) (12,457) (314,474) ------------ ---------- ------------ ------------ ---------------- NET CASH PROVIDED IN (USED) INVESTING ACTIVITIES 322,257 322,100 (6,701) (12,457) 7,783 ------------ ---------- ------------ ------------ ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Contribution to paid-in capital 345,823 345,823 140,000 162,500 1,589,667 Issuance of stock options and contingent shares -- -- -- -- 1,647,500 Issuance of stock for debt 183 183 -- -- 183 Proceeds from capital lease -- -- -- -- 159,650 Proceeds from advances payable -- -- 500,000 827,000 -- Proceeds from notes payable 54,003 416,231 (3,880) (7,699) 2,101,273 Repayments on advances (338,000) (338,000) -- -- (338,000) Repayments on notes payable (137,718) (143,095) -- -- (143,095) Repayments under capital lease (3,743) (6,946) (6,155) (15,221) (83,206) ------------ ---------- ------------ ------------ ---------------- NET CASH PROVIDED IN (USED) FINANCING ACTIVITIES (79,452) 274,186 629,965 966,580 4,933,972 ------------ ---------- ------------ ------------ ---------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,949 6,286 26,457 28,616 (40,838) BEGINNING CASH AND CASH EQUIVALENTS 5,869 1,532 9,666 7,507 -- ------------ ---------- ------------ ------------ ---------------- CASH AND CASH EQUIVALENTS AT JUNE 30 $ 7,818 $ 7,818 $ 36,123 $ 36,123 $ (40,838) ============ ========== ============ ============ ================ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for interest $ 3,839 $ 27,806 $ 29,545 $ 49,851 $ 384,114 ============ ========== ============ ============ ================ Cash paid during the period for income taxes $ -- $ 1,600 $ 1,649 $ 1,649 $ 2,400 ============ ========== ============ ============ ================ SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS Amortization of prepaid loan fees paid by stock issued $ -- $ 35,000 $ 35,000 $ 35,000 $ 140,000 ============ ========== ============ ============ ================ Issuance of stock for operating services $ 346,006 $ 346,006 -- -- $ 346,006 ============ ========== ============ ============ ================ (Decrease) Increase in fair value of marketable securities $ (150,000) $ (150,000) $ 490,000 $ 490,000 $ -- ============ ========== ============ ============ ================ Purchase of stock and options in exchange for sale of subsidiary $ 300,000 $ 300,000 -- -- $ 300,000 ------------ ---------- ------------ ------------ ----------------
See accompanying notes. - -------------------------------------------------------------------------------- Page 6 THE IXATA GROUP, INC. Quarterly Report on Form 10-QSB For the Quarter Ended June 30, 1999 - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND THE PERIOD MAY 20, 1996 (DATE OF INCEPTION) TO JUNE 30, 1999 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of The IXATA Group, Inc. and its wholly owned subsidiary, SecurFone Services, Inc. (collectively referred to as the "Company"). Inter-company transactions and balances have been eliminated in the consolidated financial statements. NATURE OF OPERATIONS During the period reported, the Company was principally engaged in the sale of prepaid cellular phone services. The Company provided these services in some markets and, in other markets, licensed the Company's resources to unrelated parties. The Company offered three main products: - - Buy-The-Minute -TM- - a software modified handset for which the Company provides underlying national airtime, activation, and administrative services for end users. - - SFA Local Network Solution - the Company's flagship product that telephonically connects directly to the underlying wireless service provider to accomplish call routing and completion. - - Carrier Network Services - the wholesale prepaid wireless platform service that the Company sells directly to wireless carriers that do not wish to create their own platform 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 to SecurFone America, Inc. In April of 1999 the name of SecurFone, Inc was changed to SecurFone Services, Inc. and a new subsidiary was formed named SecurFone, Inc. This new subsidiary was subsequently sold. On January 31, 2000, SecurFone America, Inc. changed its name to The IXATA Group, Inc. DEVELOPMENT STAGE OPERATIONS The Company was organized to develop and market prepaid wireless products and services in various U.S. markets. The Company invested significant capital and effort in development of its network, software, routing and carrier interface technology throughout 1997 and 1998. In 1998, the Company began its initial introduction of services to various U.S. markets. During development and market testing the industry experienced price reductions, new competition and other margin pressures. In late 1998 the Company revised its business plan to reflect the significant additional funding that would be required to achieve the business scale required to create significant shareholder value. Recognizing the explosive growth of the internet and e-commerce markets, and the long term prospects for integrating new wireless and internet-based services, the Company established a new objective to pursue opportunities in the internet and e-commerce market sectors. To meet this objective, the Company has, since late 1998, pursued the sale of portions of its wireless business, acquired a new Internet-based e-commerce subsidiary, IXATA.COM, and raised additional funding. CASH AND CASH EQUIVALENTS For the purpose of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash accounts in three commercial banks. Accounts are guaranteed by the Federal Deposit Insurance Company (FDIC) up to $100,000. - ------------------------------------------------------------------------------- Page 7 CONCENTRATION OF 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 occasionally maintains deposits in excess of federally insured limits. Management believes that the risk is limited by maintaining all deposits in high quality financial institutions. PROPERTY AND EQUIPMENT The cost of property and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is calculated using the accelerated depreciation method for both financial reporting and income tax purposes. For the quarters ended June 30, 1999 and 1998 depreciation expense of $7,743 and $14,077 was charged to operations, respectively. For the six months ended June 30, 1999 and 1998 depreciation expense of $27,499 and $28,154 was charged to operations, respectively. REVENUE AND EXPENSE RECOGNITION The Company recognizes revenue from sales of cellular airtime, net of an allowance for uncollectible amounts, when substantially all significant services to be provided by the Company have been performed. Expenses are recognized in the period in which they are incurred. An allowance has been provided for uncollectible accounts based on management's evaluation of the accounts and their history. CHANGE IN ACCOUNTING PRINCIPLE Effective December 1, 1998, the Company retroactively changed its method of recognizing start-up costs in its consolidated financial statements to conform with a recent pronouncement of the AICPA, SOP 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 new pronouncement requires start-up costs to be expensed as incurred. As a result, the cumulative effect of applying the new method retroactively as of January 1, 1997 was charged to 1998 earnings as required by SOP 98-5. Amortization in the amount of $15,546 was charged to expense for the quarter ended June 30, 1998. Amortization in the amount of $31,092 was charged to expense for the six months ended June 30, 1998. USE OF ESTIMATES In preparing the Company's consolidated financial statements, management is required to make estimates and assumptions that effect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management's knowledge and experience. Accordingly, actual results could differ from those estimates. COMPENSATED ABSENCES The Company does not have a vacation policy as of June 30, 1999. Unpaid vacation has not been accrued since it is considered immaterial. RECLASSIFICATIONS Certain accounts in the prior-year consolidated financial statements have been reclassified for comparative purposes to conform with the presentation in the current-year consolidated financial statements. - ------------------------------------------------------------------------------- Page 8 Note 2. MARKETABLE SECURITIES Cost and fair value of marketable securities available for sale at June 30, 1999 and 1998 consisted of equities as follows:
------------------------ ----------------------------- ---------------------------- ------------------- Cost Unrealized Gain (Loss) Fair Value ------------------------ ----------------------------- ---------------------------- ------------------- June 30, 1999 $ 300,000 $(150,000) $ 150,000 ------------------------ ----------------------------- ---------------------------- ------------------- June 30, 1998 $ 0 $ 770,000 $ 770,000 ------------------------ ----------------------------- ---------------------------- -------------------
At June 30, 1999 and 1998 the Company held securities that have unrealized losses and gains of $(150,000) and $770,000, respectively. Due to the net loss carry forwards there is no tax expense (benefit) on the realization of this loss or gain. Note 3. PROPERTY AND EQUIPMENT Property and equipment at June 30, 1999 and 1998 is comprised of the following:
June June 1999 1998 ---- ---- Office Furniture and Equipment $ 31,105 $ 35,043 Computer Software 1,138 88,802 Computer Hardware 160,819 190,691 -------- ------- 193,062 314,536 Accumulated Depreciation (109,305) (99,269) -------- ------- $ 83,757 $ 215,267 ======== =======
Note 4. NOTE RECEIVABLE The note receivable at June 30, 1999 consists of advances made to IXATA, Inc. ("IXATA.COM") for operating expenses. IXATA.COM became a subsidiary in July 1999. See Note 14 - Subsequent Events. Note 5. SHORT TERM NOTES PAYABLE As of June 30, 1999 and 1998 notes payable, other obligations and short term debt consisted of the following:
1999 1998 ---- ---- Note payable to Material Technology, Inc. $ -- $ 165,000 Notes payable (formerly treated as an advances payable) to unrelated parties for advances of $130,000 that was due January 30, 1999, with 10% interest. The note is unsecured. $ 130,000 $ -- Notes payable dated September 1, 1998 for advances made to the Company by a Nevada corporation and an individual bearing 10% interest per annum, principal and interest payable August 31, 1999 298,250 -- Note payable for a settlement to the Company's former CEO to resolve all outstanding Company obligations related to his employment due April 1, 1999. 50,000 -- Note payable to a limited partnership bearing 15% interest, principal and interest due November 1, 1999 secured by a 100,000 -- --------- ------- - ------------------------------------------------------------------------------------------------------------------------ Page 9 certain stock pledge agreement $ 578,250 $ 50,000 ======= ======
Note 5. LONG TERM DEBT As of June 30, 1999 and 1998 notes payable, other obligations and long term debt consisted of the following:
1999 1998 ---- ---- 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 $ --- $ 827,000 Convertible debenture in the amount of $1,000,000 issued August 21, 1998 for advances made to the Company. The debenture has 12% interest rate payable quarterly. The 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 August 21, 2003. 1,000,000 -- Note payable with a vendor under an agreement dated October 1997 is a two year, unsecured note with an annual interest rate of 6% and monthly payments of $1,407 including interest. The balance at June 30, 1999 requires payment within six months 6,928 20,295 CAPITAL LEASE In March 1997, the Company entered into a sale-leaseback arrangement under which computer equipment capitalized at $159,649 is being accounted for as a capital lease. Under the agreement, the Company sold certain equipment and leased it back for a period of 48 months, at which time the Company will repurchase the equipment from the lessor 99,814 115,597 ------ ------- Total 1,106,742 962,892 Less: Current Portion of notes and other maturities (72,419) (61,463) ------- ------- Total long term liabilities $ 1,034,323 $ 901,429 ========= =======
Minimum future lease payments under non-cancelable capital leases for the next five years are as follows: June 30, 2000 $65,491 June 30, 2001 34,323 ------ Total minimum future lease payments $99,814 ========
- ------------------------------------------------------------------------------- Page 10 The note payable maturities on long term debt for the next five years are as follows: 1999 $106,928 2000 0 2001 1,000,000 ---- --------- Total $ 1,106,928 ===== ===========
Note 6. COMMON STOCK At December 31, 1996, 30,000 shares 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 split. Prior to the reorganization between SecurFone America, Inc. and Material Technology, Inc., Material Technology, Inc. had as of July 31, 1997 100,000,000 shares authorized and 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 America, 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 shares authorized. 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 November 13, 1997, the Company registered with the Securities and Exchange Commission on Form S-8 (the "S-8 filing") 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 Director Non-qualified Stock Option Plan was made. At various dates the Company granted stock options under the two stock option 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 are exercisable during 1997 and 1998. These shares were recorded as $1,227,250 selling, general & administrative (SG&A) expense and additional paid-in capital - stock options at the grant date in accordance with Statement of Financial Accounting Standards NO. 123 (SFAS 123) "Accounting for Stock-Based Compensation." 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 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 SG&A expense, and common stock and additional paid in capital accounts at the issue date. 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 are exercisable immediately and are recorded as $1,620,000 SG&A expense and additional paid in capital - stock options at the grant date in accordance with Statement of Financial Accounting Standards NO. 123 (SFAS 123) "Accounting for Stock-Based Compensation." On February 18, 1999 the 350,000 unexercised options were returned. On March 19, 1998, an additional 345,000 shares were issued as a result of the following transactions: 225,000 shares of stock issued pursuant to warrants exercised by the individuals providing credit accommodations in connection with letters of credit issued by the Company; 120,000 shares were the result of two stock subscriptions in private placements. - ------------------------------------------------------------------------------ Page 11 On May 12, 1998, 35,000 shares were issued in connection with credit accommodations provided to the Company by investors (see Note 1). On August 6, 1998, 50,000 shares were issued on the exercise of stock options. On November 17, 1998, the Company issued 41,665 shares of unregistered common stock in exchange for investment banking services and bridge funding and a cash payment of $2,500. On April 23, 1999, the Company granted a director 20,000 fully vested stock options under the 1997 Stock Option Plan that are exercisable at $.125 per share and expire April 23, 2009. On May 11, 1999, the Company converted $50,000 debt for legal services by issuance of 50,000 unregistered shares of common stock. On May 12, 1999, the Company converted debt to an unrelated individual in the amount of $25,000 by issuance of 12,500 unregistered shares of common stock. On May 19, 1999, the Company converted $118,532 of debt including a note payable of $115,000 due to Young Management Company by issuance of 59,266 unregistered shares of the Company's common stock. On June 30, 1999, the Company settled a dispute with Associated Barter Services, Inc. ("ABS") for advertising services in the amount of $103,818 by issuance of 61,522 shares of the Company's common stock. On June 30, 1999, the Company granted 50,000 stock options (fully vested June 30, 2000) under the 1997 Directors Stock Option Plan to a director exercisable at $1.28 per share with an expiration date of June 30, 2009. As of June 30, 1999, a total of 100,000,000 shares of common stock were authorized and 6,275,169 shares were issued and outstanding. Note 7. RELATED PARTIES The Secretary of the Company is also a partner in the law firm that represents the Company in its legal matters. The accrued payroll is due to officers and directors of the Company. The expense recognized for the quarters ended June 30, 1999 and 1998 is $67,509 and $17,499, respectively. The expense recognized for the six months ended June 30, 1999 and 1998 is $140,211 and $46,664, respectively. Note 8. LOSS ON SECURFONE NEW YORK In August 1996 the Company entered into a licensing agreement with SecurFone New York, Inc (SFNY). As part 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. Note 9. INCOME TAXES Income taxes are provided based on earnings reported for financial statement purposes pursuant to the provisions of Statement of Financial Accounting Standards No. 109 (FASB 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. FASB 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. For the year ended December 31, 1998, the Company had net operating loss carry forwards for federal income and state income tax purposes. These carry forwards may provide future tax benefits. The federal net operating loss will begin to expire in 2011, if not utilized to offset taxable income. Various state net operating loss carry forwards will - ------------------------------------------------------------------------------ Page 12 begin to expire earlier. Future changes in ownership, as defined by Section 382 of the Internal Revenue Code, could limit the amount of net operating loss carry forwards used in any one year. An allowance has been provided for by the Company that reduced the tax benefits accrued by the Company for its net operating losses to zero. It cannot be determined when, or if, the tax benefits derived from these losses will materialize. Income taxes in the amounts of $0 and $819 were paid in the quarters ended June 30, 1999 and 1998, respectively. Income taxes in the amounts of $1,600 and $1,649 were paid in the six months ended June 30, 1999 and 1998, respectively. Note 10. SALE OF SUBSIDIARY (net of tax effect) EXTINGUISHMENT On January 30, 1999 the Company executed an agreement with Teledata World Services, Inc., a publicly traded company ("TWOS"), 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 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 than $2.50 per share. As of June 30, 1999, no value has been recorded for the option. 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. Subsequent to the sale of certain prepaid cellular assets to TWOS and given the B2B e-commerce opportunity presented in conjunction with the IXATA acquisition, the Company ceased its prepaid cellular operations, effective June 30, 1999. The net loss from operations of the ceased cellular operations is a reflection of the historic financial performance of this business line, which the Company has elected not to pursue further. This net loss is represented as a Restructuring Charge under continuing operations for the current and previous periods. The Company retains the net operating loss carry forwards from this disposed business line. Note 11. EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT The extraordinary gain is a result of the settlement agreement with the Company's former CEO to resolve all outstanding Company obligations related to his employment with the Company in exchange for a payment of $50,000 payable not later than April 1,1999. As a result of the net operating losses sustained by the Company, there is no tax effect. Note 12. COMMITMENTS AND CONTINGENCIES The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. However, the Company has sustained losses totaling $9,327,509 since its inception, of which $5,157,131 represents expenses associated with stock-based compensation plans as noted at Note 6. The continuing losses resulting from operations, and not necessarily those costs associated with stock-based compensation plans, are an indication that the Company may not be able to continue to operate without an additional cash infusion. The Company has been and is currently seeking private and public equity and bridge loans in order to finance operations. The Company has retained business advisory firms to assist the Company in meeting its financing needs. Paul Silverman executed an employment agreement assuming the role of Chief Executive Officer as of November 1, 1998 and was elected to the Board of Directors on December 11, 1998. Mr. Silverman was also granted options to acquire 100,000 shares of the Company's stock at $0.10 per share upon execution of the employment agreement, and qualified incentive stock options to acquire up to 300,000 additional shares of the Company's stock based on achievement of Company goals established by the Board of Directors. Mr. Silverman was granted options to acquire 50,000 shares of the Company's stock at $0.28 per share under the Company's 1997 Directors Option Plan. Total deferred compensation as of June 30, 1999 is approximately $89,000. - ------------------------------------------------------------------------------ Page 13 Note 13. QUARTERLY INFORMATION Following is computational information for earnings per share information calculated under Statement of Financial Accounting Standards No. 130, Earnings Per Share (EPS) which is effective for periods beginning after December 15, 1997.
QUARTER ENDED JUNE 30, 1999 QUARTER ENDED JUNE 30, 1998 --------------------------- --------------------------- Income (Loss) Shares Per Share Income (Loss) Shares Per Share (Numerator) (Denominator) Amount (Numerator) (DENOMINATOR) AMOUNT BASIC EPS Income (loss) available to common Stockholders $ 495,213 6,152,764 $.08 $(663,100) 5,982,716 $(.11) EFFECT OF DILUTIVE SECURITIES Stock Options 375,642 0* ------------- ------------- DILUTED EPS Income available to common stockholders and assumed conversions $543,869 6,528,406 $.08 $(663,100) 5,982,716 $(.11)
* SFAS 128 requires the use of weighted averages for stock outstanding during the quarter. Although stock options issued under Company plans had exercise prices which were below the average market price of the common shares, they were not computed in calculating diluted earnings per share because SFAS 128 does not include stock dilutions that would reduce per share losses. If computed, outstanding stock options would have increased outstanding shares by 536,535. As of June 30, 1999 1,350,900 stock options were issued, 700,900 were vested, 500,000 had been forfeited and 50,000 had been exercised. Note 14. SUBSEQUENT EVENTS Subsequent to the sale of certain prepaid cellular assets to TWOS the Company effectively discontinued its prepaid cellular operations. See Note 10 - Sale of Subsidiary (net of tax effect) Extinguishment. On May 7, 1999, the Company executed an agreement to acquire all outstanding common stock of IXATA.COM, Inc., a privately held provider of Internet-based e-commerce services targeting the travel industry, in exchange for 4,500,000 shares of the Company. The acquisition was finalized on July 1, 1999. As of June 30, 1999 IXATA's financial statement showed the following results for the period February 1 through June 30, 1999: revenue $901, net loss $510,335. The Company has agreed to pay Global One, Inc. (Global) 600,000 shares of common stock for brokering services as a part of the purchase of IXATA.COM. Global is an international business corporation in Nevis, British Virgin Islands. The Company intends to issue the shares to Global in the first quarter of 2000. In October 1999 the Company agreed to issue 50,000 unregistered shares of the Company's common stock to eliminate total debts to Kohrman Jackson & Krantz P.L.L. ("KJK"), the Company's legal counsel, in the amount of $50,000. The Company issued the shares to KJK in the fourth quarter of 1999. On August 18, 1999, an individual exercised options under the Directors Option Plan for 9,500 shares of common stock. In November of 1999, the Company offered equity investments to private parties. As of January 1, 2000, the Company had sold 1,177,003 shares of its unregistered common stock for $0.85 a share in connection with the offering. Proceeds to the Company were $ 941,602 after the deduction of Scott & Stringfellow, Inc.'s placement agent fee of $0.05 per share. As of January 1, 2000, 1,053,473 shares were issued. The purchasers in the offering - ------------------------------------------------------------------------------- Page 14 were granted the right in certain instances to include their shares in future offerings of registered stock by the Company. Effective January 31, 2000, the Company changed its name to The IXATA Group, Inc. from SecurFone America, Inc. - -------------------------------------------------------------------------------- Page 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS. The following describes certain factors which produced changes in the results of operations of The IXATA Group, Inc. (the "Company") during the three and six months ended June 30, 1999 and as compared with the three and six months ended June 30, 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 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 (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 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. See "The Company's Business Case for New Electronic Commerce and Internet Business Directions." Throughout 1997 and 1998, the Company developed and marketed prepaid wireless products and services in various markets throughout the United States. By late 1998, the Company had substantially completed development of all major aspects of its prepaid wireless network systems, and previously planned to implement the marketing and sales programs necessary to create a sustainable revenue base. The Company invested significant capital and effort to develop its network, software, routing and carrier interface technology, for the hiring and development of an experienced management team, and the initial introduction of services to the roll-out markets. The products and services that the Company developed during its start-up phase were initially introduced to a limited number of U.S. cities to fully test the network, administrative, engineering and marketing infrastructure prior to full-scale roll-out. To effectively manage the Company's growth and maintain quality controls over its services and network, the Company needed to expand its internal management, technical resources, accounting and other administrative support systems, all of which required additional investment. In the third quarter 1998, the Company developed a business plan showing the investment required to develop a full-scale program for commercial product launch and broad marketing and distribution program in 1999. Significant additional funding was required to support these activities. On January 30, 1999, the Company executed an agreement with Teledata World Services, Inc. ("Teledata") (OTC/BB:TWOS), to sell certain prepaid cellular assets to Teledata for cash and Teledata common stock. The transaction was closed on April 22, 1999. Under the terms of the agreement, the Company sold its wholly-owned subsidiary, SecurFone, Inc., to Teledata for $498,000 in cash, 600,000 shares of Teledata common stock, and the option to sell the stock back to Teledata at a price of $2.50 per share effective one year from the date of the transaction if the market price of the Teledata stock is less than $2.50 per share. SecurFone, Inc. assets include certain cellular service resale agreements, the Company's Miami customer service center, rights to the Buy-The-Minute-TM- ("BTM") product and selected distribution channels. The asset sale improved the Company's balance - ----------------------------------------------------------------------------- Page 16 sheet and was consistent with the Company's new business objective of pursuing opportunities in the Internet and electronic commerce markets. 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 targeting the travel industry. The acquisition was finalized on July 1, 1999 and is consistent with the Company's new business objectives. The Company is now operating IXATA.COM as a wholly-owned subsidiary and plans to significantly expand IXATA.COM's operations to offer new enhanced information services in the travel market, targeting existing and new corporate clients. By closing the IXATA.COM acquisition, the Company has established itself as a provider of Internet-based, electronic commerce services in rapidly growing market for travel information services, serving an expanding base of more than twenty major Fortune 500 firms and other organizations. IXATA.COM's principal service, RFP Express, 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, 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 offering can be used to address similar needs in other vertical markets. Subsequent to the sale of the prepaid cellular assets to Teledata, 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 discontinuing 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. 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 business-to-business ("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, business-to-business e-commerce is expected to increase to $1.3 trillion, - ----------------------------------------------------------------------------- Page 17 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 business-to-business, 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 business-to-business e-commerce services described above. IXATA.COM's RFP Express 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 of more than 20 major firms, demonstrate 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. The Company is now 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. 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." ADDITIONAL ISSUANCE OF SECURITIES For rendering brokering services and as a part of the transaction to purchase IXATA.COM, the Company agreed to pay Global One, Inc. ("Global") 600,000 shares of common stock of the Company. Global is an international business corporation in Nevis, British Virgin Islands. The Company intends to issue the shares to Global in the first quarter of 2000. In 1999, agreement was secured from Kohrman Jackson & Krantz P.L.L. ("KJK"), the Company's legal counsel, to convert existing debt to unregistered shares of the Company's common stock. On October 19, 1999, KJK agreed to receive 50,000 unregistered shares of the Company's common stock to eliminate total debts of $50,000. The Company issued the shares to KJK in the fourth quarter of 1999. 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 January 21, 2000, the Company had sold 1,344,651 shares of its unregistered common stock for $0.85 a share in connection with the offering. Proceeds to the Company were $1,075,721 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. - ----------------------------------------------------------------------------- Page 18 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. Therefore, detailed comparison of financial results are not meaningful. SECOND QUARTER OF 1999 COMPARED TO SECOND QUARTER OF 1998 REVENUES The Company only began full-scale operations in the first quarter of 1998. The Company discontinued operation of the Company's SFN solution effective as of June 30, 1999 and sold the Company's BTM product line in April of 1999. Accordingly, the Company has recognized no revenue from continuing operations in either the second quarter of 1999 or the second quarter of 1998. COST OF GOODS SOLD The Company had no continuing operations effectively as of June 30, 1999. Accordingly, the Company has recognized no Cost of Goods Sold from continuing operations in either the second quarter of 1999 or the second quarter of 1998. GROSS PROFIT/MARGIN The Company had no continuing operations effectively as of June 30, 1999. Accordingly, the Company has recognized no Gross Profit/Margin from continuing operations in either the second quarter of 1999 or the second quarter of 1998. OPERATING EXPENSES Selling, general and administrative expenses from continuing operations increase to $69,724 in the second quarter of 1999 from $0 in the second quarter of 1998. This increase was due to the declaration of discontinued operation effective June 30, 1999 resulting in operating expenses from continuing operations in the second quarter of 1999 for expenses incurred from ongoing operations related to the general management of the Company as the Company's direction was being refocused. See "The Company's Business Case for New Electronic Commerce and Internet Business Directions." The Company previously engaged in the sale of prepaid cellular phone services. The Company provided these services in some markets and, in other markets, licensed the Company's resources to unrelated parties. In a limited number of instances, certain distribution rights were offered in various markets for a license fee. As of June 30, 1999, the Company effectively ceased these operations and restructured the basic company focus. Net loss for restructured operations decreased to $143,932 in the second quarter of 1999 from $661,451 in the second quarter of 1998. This was due to the Company's effort to control its financial exposure in a business that was under increasing revenue and profitability pressure and the Company limiting its operations as it transitioned to its new B2B e-commerce focus. Loss from continued operations in the second quarter of 1999 decreased to $213,206 from $661,451 in the second quarter of 1998 due to the reduction in the restructuring charge associated with the of the cellular operations. - ----------------------------------------------------------------------------- Page 19 OTHER EXPENSES The Company recorded a gain on the sale of a product line of $708,419 in the second quarter of 1999. The Company did not sell any assets in the second quarter of 1998. The Company does not foresee selling any additional assets in the near future. FIRST HALF OF 1999 COMPARED TO FIRST HALF OF 1998 REVENUES The Company only began full-scale operations in the first quarter of 1998, and discontinued these operations of the Company's SFN solution effective as of June 30, 1999 and sold of the Company's BTM product line in April of 1999. Accordingly, the Company has recognized no revenue from continuing operations in either the first half of 1999 or the first half of 1998. COST OF GOODS SOLD The Company had no continuing operations effectively as of June 30, 1999. Accordingly, the Company has recognized no Cost of Goods Sold from continuing operations in either the first half of 1999 or the first half of 1998. GROSS PROFIT/MARGIN The Company had no continuing operations effectively as of June 30, 1999. Accordingly, the Company has recognized no Gross Profit/Margin from continuing operations in either the first half of 1999 or the first half of 1998. OPERATING EXPENSES Selling, general and administrative expenses from continuing operations increase to $141,976 in first half of 1999 from $0 in the first half of 1998. This increase was due to the declaration of discontinued operation effective June 30, 1999 resulting in operating expenses from continuing operations in the first half of 1999 for expenses incurred from ongoing operations related to the general management of the Company as the Company's direction was being refocused. See "The Company's Business Case for New Electronic Commerce and Internet Business Directions." The Company previously engaged in the sale of prepaid cellular phone services. The Company provided these services in some markets and, in other markets, licensed the Company's resources to unrelated parties. In a limited number of instances, certain distribution rights were offered in various markets for a license fee. As of June 30, 1999, the Company effectively ceased these operations and restructured the basic company focus. Net loss for restructured operations decreased to $505,832 in the first half of 1999 from $2,814,331 in the first half of 1998. This was due to the Company's effort to control its financial exposure in a business that was under increasing revenue and profitability pressure and the Company limiting its operations as it transitioned to its new B2B e-commerce focus. Loss from continued operations in the first half of 1999 decreased to $647,808 from $2,814,331 in the first half of 1998 due to the reduction in the restructuring charge associated with the of the cellular operations. OTHER EXPENSES The Company recorded a gain on the sale of a product line of $708,419 in the first half of 1999. The Company did not sell any assets in the first half of 1998. The Company does not foresee selling any additional assets in the near future. - ----------------------------------------------------------------------------- Page 20 The Company recorded an extraordinary gain on debt of $43,451 in the first half of 1999. This was related to a settlement to the Company's former CEO to resolve all outstanding Company obligations related to his employment. LIQUIDITY AND CAPITAL RESOURCES The Company has incurred significant operating and net losses as a result of the development and operation of its service platform and supporting networks. The Company expected that such losses would continue to increase as the Company focused on the development, construction and expansion of its service platform and underlying networks and expands its customer base. Cash provided by operations would not be sufficient to fund the expansion of the product offerings and resultant subscriber base. The Company is continually reviewing various sources of additional financing to fund its growth. As of June 30, 1999, the Company had received advances in the amount of $1,578,250 from private investors. The Company was required by underlying wireless carriers to post irrevocable letters of credit to secure the purchase of airtime. Prompt payment history, as well as overall financial condition will also effect each carrier's decision to stabilize, increase or eliminate these financial guarantees. The Company has an agreement with two investors that may obtain letters of credit of up to $1.0 million that are secured by their personal assets (the "LC Agreement"). These investors have renewed the LC Agreement through April 1, 1999. As compensation for their initial agreement to provide letters of credit, the Company issued warrants to these investors to purchase a total of 225,000 shares of common stock (the "LC Warrants"). In connection with the renewal of the LC Agreement, the Company issued a total of 35,000 additional shares of common stock to these investors. An amount of $35,000 was recorded as interest expense in the first quarter of 1999 for the issuance of the shares. At June 30, 1999, these Letters of Credit were no longer in effect and are not required because of the Company's sale of the BTM assets to Teledata. At June 30, 1999, the Company had cash and cash equivalents of $7,818. In addition, the Company had accounts receivable totaling $4,501 from the sale of the Company's switch-based debit cellular product. Net cash used by operating activities was $541,344 in the first half of 1999 compared to $925,507 in the first half of 1998. Net cash provided by investing activities in the first half of 1999 was $322,257, consisting of $472,257 provided by the sale of a subsidiary and related assets, $150,000 used for investment in subsidiary, and $157 used to purchase equipment as compared with the use of $12,457 to purchase equipment in the first half of 1998. Net cash provided by financing activities in the first half of 1999 totaled $225,530 which consisted primarily of $416,221 in proceeds from notes payable to the Company from private investors as compared with $966,580 in the first half of 1998 which consisted primarily of proceeds from advances payable of $827,000. On February 4, 1999, the Company executed a Purchase Agreement with All Points Telecom, Inc. ("APT"), a privately-held telecommunications firm, whereby APT would acquire a controlling interest in the Company through the purchase of 4.5 million shares of the Company's common stock from Montpilier Holdings, Inc. ("Montpilier"). Montpilier is the principal stockholder of the Company and is owned indirectly by Michael M. Grand, a Director of the Company. Under the terms of the agreement, APT would also loan up to $1.8 million at the time of closing to the Company. The proceeds of this loan would be used to repay existing debt and provide additional working capital to meet the Company's growth needs. On April 12, 1999, the Company rejected a modified APT proposal, the Company and APT terminated discussions and the Company elected to pursue other alternatives. On October 12, 1999, the Company entered into a relationship with Scott & Stringfellow, Inc., an investment banker, 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 - Additional Issuances of Securities." - ----------------------------------------------------------------------------- Page 21 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. RELATED PARTY 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 as of March 31, 2000. The majority owner of Tel.n.Form is the Gluckman Family Trust, which is a significant shareholder of the Company. 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. 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. 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 such 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 - ----------------------------------------------------------------------------- Page 22 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 with its most recent audit of the Company's financial statements raising 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. - - 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. - - 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: - ----------------------------------------------------------------------------- Page 23 (a) the effectiveness of its marketing strategy and efforts; (b) its product and service quality; (c) its ability to provide timely, effective customer support; (d) its distribution and pricing strategies as compared to its competitors; (e) its industry reputation; and (f) general economic conditions. - - ANY FAILURE OF THE COMPANY'S INTERNET AND E-COMMERCE INFRASTRUCTURE COULD LEAD TO SIGNIFICANT COSTS AND DISRUPTIONS WHICH COULD REDUCE REVENUES AND HARM BUSINESS AND FINANCIAL RESULTS. The Company's success, in particular its ability to automate the RFP process successfully, largely depends on the efficient and uninterrupted operation of its computer and communications hardware and software systems. The Company's systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, break-ins, earthquake and similar events. The Company presently has very limited redundant systems. It does not have a formal disaster recovery plan and carries no business interruption insurance to compensate it for losses that may occur. Temporary or permanent loss of data or systems through casualty or operating malfunction could have a materially adverse effect on the Company's business. - - THE COMPANY COULD LOSE CUSTOMERS AND EXPOSE ITSELF TO LIABILITY IF BREACHES OF ITS NETWORK SECURITY DISRUPT SERVICE TO ITS CUSTOMERS OR JEOPARDIZE THE SECURITY OF CONFIDENTIAL INFORMATION STORED IN ITS COMPUTER SYSTEMS. Despite the implementation of network security measures, the Company's network infrastructure is vulnerable to computer viruses, break-ins and similar disruptive problems caused by its customers or Internet users. Any of these acts could lead to interruptions, delays or cessation in service to the Company's customers and subscribers. Furthermore, such inappropriate use of the network by third parties could also potentially jeopardize the security of confidential information stored in the computer systems and the Company's customers' computer systems, which may result in liability to existing customers and may also deter potential customers. Any security measures the Company implements may be circumvented in the future. The costs and resources required to eliminate computer viruses and alleviate other security problems may result in interruptions or delays to the Company's customers that could cause harm to the Company's reputation as well as its business and financial results. - - RAPID GROWTH IN THE COMPANY'S BUSINESS COULD STRAIN ITS RESOURCES AND HARM ITS BUSINESS AND FINANCIAL results. The planned expansion of the Company's operations will place a significant strain on its management, financial controls, operations systems, personnel and other resources. The Company expects that its customers increasingly will demand additional information, reports and services related to the services and products the Company currently provides. If the Company is successful in implementing its marketing strategy, it also expects the demands on its network infrastructure and technical support resources to grow rapidly, and it may experience difficulties responding to customer demand for its services and providing technical support in accordance with its customers' expectations. The Company may not be able to keep pace with any growth, successfully implement and maintain its operational and financial systems or successfully obtain, integrate and utilize the employees, facilities, third-party vendors and equipment, or management, operational and financial resources necessary to manage a developing and expanding business in an evolving industry. If the Company is unable to manage growth effectively, it may lose customers or fail to attract new customers and its business and financial results will suffer. - - THE COMPANY MAY NOT BE ABLE TO COMPETE IN ITS MARKET SINCE THIS MARKET IS HIGHLY COMPETITIVE. 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. - ----------------------------------------------------------------------------- Page 24 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; (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. - - UNDISCOVERED YEAR 2000 COMPUTER COMPLICATIONS COULD DISRUPT THE COMPANY'S OPERATIONS AND HARM ITS BUSINESS. Although Year 2000 problems did not materially impact internal operations or cause the Company to incur material costs to modify systems, unforeseen Year 2000 problems may still cause significant unanticipated expenses. Further, key vendors or suppliers may suffer from undiscovered Year 2000 problems, which could harm the Company's business and results of operations. - - 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; - ----------------------------------------------------------------------------- Page 25 (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, WILL 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 67% 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. Because of recent changes in the Nasdaq listing rules, the Company's common stock could be delisted from trading on the Nasdaq Over-the-Counter Bulletin Board Service, unless the Company makes 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. Although the Company intends to make the required filings with the Securities and Exchange Commission and 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 26 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. In the opinion of management, the ultimate resolution of these matters has 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. On May 11, 1999, the Company issued 50,000 unregistered shares of common stock in satisfaction of $50,000 in legal fees payable to the Company's counsel. The Company believes the issuance to be exempt under Section 4(2) of the Securities Act. On May 12, 1999, the Company extinguished debt to an unrelated individual in the amount of $25,000 by the issuance of 12,500 unregistered shares common stock. The Company believes the issuance to be exempt under Section 4(2) of the Securities Act. On May 19, 1999, the Company satisfied $118,532 of debt, including a note payable of $115,000, due to Young Management Company, by the issuance of 59,266 unregistered shares of the Company's common stock. The Company believes the issuance to be exempt under Section 4(2) of the Securities Act. On June 30, 1999, the Company settled a dispute with Associated Barter Services, Inc. ("ABS") for advertising services in the amount of $103,818 by the issuance of 61,522 unregistered shares of the Company's common stock. The Company believes the issuance to be exempt under Section 4(2) of the Securities Act. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. No defaults upon senior securities occurred during the second quarter of 1999. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's security holders during the second quarter of 1999. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits being filed with this Quarterly Report: 3.3 Certificate of Amendment of Certificate of Incorporation of SecurFone America, Inc. dated January 31, 2000 10.13 Management Services and Support Agreement dated February 1, 1999, between Tel.n.Form, Inc. and IXATA.COM 10.14 Executive Employment Agreement dated as of August 24, 1999, between Andrew H. Kent and the Company - ----------------------------------------------------------------------------- Page 27 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 10.16 Form of Registration Rights Agreement for November, 1999, private placement equity investment offering 27 Financial Data Schedule (b) The Company is filing a report on Form 8-K relating to the acquisition of IXATA, Inc. simultaneously with the filing of this Form 10-QSB. The Company did not file any reports on Form 8-K during the second quarter of 1999. - ----------------------------------------------------------------------------- Page 28 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: March 10, 2000 /s/ PAUL B. SILVERMAN --------------------- By Paul B. Silverman, Chief Executive Officer EX-3.3 2 EXHIBIT 3.3 EXHIBIT 3.3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SECURFONE AMERICA, INC. SecurFone America, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation, by the unanimous written consent of its members, adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of the Corporation: RESOLVED, that the stockholders hereby authorize the Corporation to file the following Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware: Article FIRST of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows: "FIRST: The name of the Corporation is The IXATA Group, Inc." SECOND: That in lieu of a meeting, the amendment of the Corporation's Certificate of Incorporation was duly adopted by the written consent of the holders of a majority of the outstanding shares of the Corporation entitled to vote on the matter. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its Chief Executive Officer this 31st day of January, 2000. /s/ Paul B. Silverman ----------------------- Paul B. Silverman, Chief Executive Officer EX-10.13 3 EXHIBIT 10.13 EXHIBIT 10.13 Management Services and Support Agreement THIS MANAGEMENT SERVICES AND SUPPORT AGREEMENT, made as of the 1st day of February 1999, by and between Tel n. Form, Inc. ("Tel.n.Form"), a provider of on-line information services, and a California corporation and having its principal business office at 8080 Daggett Street, 2nd Floor, San Diego, CA 92111; and IXATA.COM, Inc. ("IXATA"), a California corporation and provider of Internet-based information services having its principal place of business at 8080 Daggett Street, 2nd Floor, San Diego, CA 92111. WITNESSETH: WHEREAS, IXATA and Tel.n.Form have recently agreed to a transaction whereby IXATA has acquired selected existing communications service assets from Tel.n.Form, and WHEREAS, IXATA and Tel.n.Form will continue to provide and operate selected information services using shared communications systems and information processing platforms, and WHEREAS, IXATA and Tel.n.Form foresee areas of mutual opportunity to reduce operating costs and achieve operational efficiencies with selected support services provided by Tel.n.Form to support IXATA operations, and NOW, THEREFORE, the parties hereto agree as follows: 1. SCOPE OF AGREEMENT A. The enclosed agreement outlines the scope of management and operational support services provided by Tel.n.Form to support IXATA operations through December 31, 1999. 2. SUPPORT SERVICES PROVIDED BY TEL.N.FORM TO IXATA A. Tel.n.Form will provide the following services: - Route incoming dial-up traffic to IXATA processing systems using Tel.n.Form's existing voice switching system and 1-800 facilities - Provide hosting and processing services for RFP Express and related IXATA offerings using Tel.n.Form's existing servers and processing systems - Provide computer, telephone and related support facilities to meet IXATA's needs - Provide senior management and technical support staff services as needed until such time as new staff are hired within IXATA.COM. B. To the extent possible, Tel.n.Form will work with designated IXATA staff to ensure all of the above activities and associated knowledge base are transferred, during a reasonable transitional period, directly to appropriate IXATA staff. C. To the extent needed, Tel.n.Form will also provide specialized software development systems support to assist in the design, development and management of large scale systems for specialized applications. Terms and conditions for provisioning such large-scale systems will be covered by a separate agreement on a project-by-project basis. 3. COSTS FOR SERVICES PROVIDED A. For the services provided to IXATA by Tel.n.Form as outlined in item 2 above,costs are as follows: Monthly Fixed Cost: The monthly allocated costs will be in accordance with Schedule 1 (attached) Monthly Variable Cost: Allocated costs for use of 1-800 lines may vary throughout the period based on usage Period: Through December 31, 1999 renewable under similar terms and condition B. Monthly cost allocations shown in Schedule 1 may be revised as needed upon notice in writing to IXATA at least ten days prior to the start of the month when costs are to be modified. All increases and changes will be subject to mutual agreement of all parties. C. For other ongoing operations costs incurred, IXATA and Tel.n.Form will develop a mutually agreeable cost sharing arrangements as needed. 4. TERMINATION AND RENEWAL: A. Either party my cancel this agreement upon 90 days notification to the other party in writing. B. The agreement will be extended automatically for periods of six months under the same terms and conditions subject to agreement of both parties. Agreed: IXATA.COM, Inc. /s/ FRED GLUCKMAN - ----------------- By: CEO - ------------------ Title: FEBRUARY 1, 1999 - ---------------- Date: Tel.n.Form, Inc. /s/ P. CHRISTOPHER ANDREOLI - --------------------------- By: CEO - --------------------------- Title: FEBRUARY 1, 1999 - --------------------------- Date: ATTACHMENT REVISED: FEBRUARY 1, 1999 SCHEDULE 1-ALLOCATION OF TEL.N.FORM COSTS TO SUPPORT IXATA.COM, INC. OPERATIONS 1. Staffing Support Services Provided Cost To Tel.n.Form Allocation to IXATA John Corkhill $8,000 $4,000 Lois Walters $3,300 $1,200 Christopher Andreoli $10,000 Other Staff -0- SUB-TOTAL: STAFFING SUPPORT $15,200 2. Other Services Services Provided Cost To Tel.n.Form Allocation to IXATA Rent $6,900 $2,300 800 Telephone $23,000 $4,500 Computer Lease $750 Desk, chairs, copy machine, phones $290 Office and kitchen supplies $300 SUB-TOTAL OTHER SERVICES $8,140 TOTAL MONTHLY COST ALLOCATION $23,340
EX-10.14 4 EXHIBIT 10.14 EXHIBIT 10.14 REVISED: SEPTEMBER 9, 1999 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 24th day of August, 1999 between Andrew Kent, (the "Executive"), whose address is 2613 N. Potomac Street, Arlington, VA 22207, and SecurFone America, Inc., a Delaware corporation ("SecurFone" or "Company") whose address is 8080 Daggett Street, Suite 220, San Diego, CA 92111. RECITALS: WHEREAS, SecurFone wishes to obtain the services of the Executive; and WHEREAS,the Executive desires to obtain employment with SecurFone 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 SecurFone agree as follows: 1. EMPLOYMENT. SecurFone will employ the Executive as Vice President and Chief Financial Office of SecurFone. 2. DUTIES. The Executive will devote his full time efforts to the business of SecurFone and its related organizations performing such duties as are customary to his position and as may be reasonably requested by the Chief Executive Officer or Board of Directors of SecurFone. The Executive will at all times conduct himself in conformity with the policies of SecurFone. The Executive is required to perform the following duties and responsibilities: a. Develop and implement SecurFone's overall business and financial plan for securing a leadership position in the market for Internet-based, electronic commerce and related services. b. Assume overall financial responsibility to support SecurFone's filings with the SEC and other government authorities as appropriate -1- c. Assist in managing relationships with financial institutions and funding sources to meet company's funding needs and maximize shareholder value c. Assume overall fiduciary responsibility for SecurFone's consolidated business operations including ensuring proper controls and reporting processes are implemented d. Identify and pursue new acquisition targets which are consistent with SecurFone's strategic plan and maximize shareholder value 3. COMPENSATION. For the performance of his duties during the term of this Agreement, the Executive will earn an annual salary of $120,000 of which the annualized salary will be payable on a weekly basis. Executive agrees to defer $3,000 per month and will be paid $7,000 per month starting August 20, 1999 on a weekly basis. The continued agreement to defer salary is contingent upon the timely and uninterrupted flow of weekly salary payments. Future deferred salary will be eliminated after Board approval and new funding is received by the Company adequate to cover staff salary needs. 4. STOCK OPTION BENEFIT. The Company will grant both Qualified and Non-Qualified 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 Non-Qualified Options for 20,000 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 per share is to be $0.10 per share, or the current market price upon the date of this Agreement, whichever is lower. This Option shall become exercisable one year from the date of this Agreement. The maximum number of shares exercisable under this option is 5,000 shares per month. b. The Company shall grant to the Executive Qualified Incentive Options for 15,000 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 per share is to be the current market price upon the date of this Agreement. The Option shall be exercisable by the Executive upon SecurFone achieving a minimal market capitalization of $50 million based on the average closing market prices for a five-day period. The maximum number of shares exercisable under this option is 5,000 shares per month. c. The Company shall grant to the Executive Qualified Incentive Options for 10,000 shares of the Company's Common Stock. The Option shall be granted pursuant to a Plan adopted by the Company's Board of Directors -2- and approved by the Company's Shareholders. The exercise price of the Option per share is to be the current market price upon the date of this Agreement. The Option shall be exercisable by the Executive within seven days after the Company reports positive cash flow from operations for a minimum 60 day period. The maximum number of shares exercisable under this option is 5,000 shares per month. 5. d. Executive agrees that his sale of the stock received upon exercise of the options granted pursuant to this Agreement will also be subject to the volume limitations contained in Rule 144(e)(1) promulgated under the Securities Act of 1933. Notwithstanding this provision, the maximum number of shares that the Executive can exercise in any thirty day period is 5,000 shares for the options granted above. 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 SecurFone's senior executives, provided he satisfies any applicable eligibility requirements therefor. 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. SecurFone has no current employee benefit plan in existence. Executive shall receive three (3) 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 SecurFone. 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 Section 11 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 ninety (90) consecutive calendar days or (b) the Company shall have received a certificate from a physician reasonably acceptable to both the -3- 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 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 10 or 11 below; (iii) indictment for, conviction of, or 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, except that the Company shall fulfill its obligations to Executive under Section 8 hereof, and except for Executive's obligations under Sections 10 and 11 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 11 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(a) hereof, (ii) the Company shall fulfill its obligations to Executive under Section 8(b) hereof, and (iii) Executive's obligations under Section 11 hereof shall remain effective. For purposes of this Agreement, the Executive will have "Good Reason" if (iv) the Board of Directors of SecurFone shall fail to reelect, or shall remove Executive from the office of Chief Financial Officer of SecurFone, (v) the -4- Board of Directors of SecurFone shall make a significant negative change in the nature of scope of the authorities, powers, functions or duties of Executive hereunder, (vi) the Company shall fail to pay when due any compensation provided for in this Agreement and provided for under previous agreements entered into between the Company and the Executive and such failure is not corrected within thirty (90) days after notice thereof to the Company by the Executive, or (vii) any pattern of conduct done with the approval of the Board of Directors of the Company which impedes the Executive in the exercise of his authorities, powers, functions or duties, hereunder in the manner in which they would normally be exercised by the Chief Financial Officer. e. BY EXECUTIVE WITHOUT GOOD REASON. Executive may terminate his employment with the Company upon not less than thirty (30) 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 10 and 11 hereof; provided, however, that the Company shall not be prohibited from terminating Executive under Section 7(c) above following receipt of a notice of termination from Executive, subject to its obligations thereunder. 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 described in Section 3 above for a period of three (3) months following such termination. If Executive's employment is terminated pursuant to Section 7(b) or 7(e), Executive shall be entitled to the continued payment of the annual salary described in Section 3 until the last date of employment with the company. 9. TERM. This Agreement will continue in effect from July 1, 1999 until July 1, 2000 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. NON-COMPETITION. a. RESTRICTIONS. As consideration for the compensation and benefits to be provided to the Executive under this Agreement, and assuming all conditions set forth in the Agreement are met by Securfone, the Executive will not during the term of this Agreement and for a period of six months (6) thereafter if Executive's employment is terminated pursuant to Section 7(b) or 7(e), directly or indirectly, for himself or for others, in any state of the United States or in any foreign country where SecurFone 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: -5- (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 SecurFone or any of its Affiliates; (3) transact any business in any manner pertaining to suppliers or customers of SecurFone 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 SecurFone or any of its Affiliates; or (4) induce any employee, agent or representative of SecurFone or any of its Affiliates to terminate his or her employment with SecurFone or such Affiliate. b. DEFINITIONS. For purposes of this Section 10, the "Business" will mean the business activities of SecurFone and its 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 SecurFone, including, but not limited to, SecurFone divisions and subsidiaries, and any licensee, franchisee or agent of SecurFone 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 SecurFone 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 10, and that he was encouraged to and had an opportunity to consult an attorney with respect to these provisions. SecurFone and the Executive consider the restrictions contained in this Section 10 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 10 by Executive, SecurFone will be entitled to preliminary and permanent injunctive relief, sufficient to enforce the provisions thereof and SecurFone will be entitled to pursue such other remedies at law or in equity which it deems appropriate. -6- 11. 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 SecurFone, 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 SecurFone 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 SecurFone 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 SecurFone or any of its Affiliates; inventions; 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 11 are of a special and unique character which gives him a peculiar value to SecurFone. The parties recognize that SecurFone 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 SecurFone 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 11. 12. SUCCESSORS. This Agreement is personal to the Executive and will not be assignable by him without the prior written consent of SecurFone, 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 SecurFone, its Affiliates and their successors and assigns. -7- 13. 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 the attached 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. The Company agrees that to the extent the Company's obligations under this paragraph are insurable, the Company agrees to purchase insurance, in the amount of $2,500,000 to secure the Company's obligations hereunder. 14. 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. 15. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the Commonwealth of Virginia 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 Commonwealth of Virgina. 16. MERGER. This Agreement supersedes any and all prior agreements, whether written or oral, with respect to the Executive's employment by SecurFone or any of its Affiliates and contains all of the promises, representations, warranties and agreements between the parties with respect to such employment. 17. MODIFICATION. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties or their respective successors. 18. 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, to the following: If to the Executive: Andrew Kent 2613 N. Potomac Street Arlington, VA 22207 If to SecurFone: SecurFone America, Inc. 8080 Daggett Street, Suite 220 San Diego, CA 92111 -8- With a copy to: Christopher Hubbert, Esq. Kohrman Jackson & Krantz P.L.L. 20th Floor, One Cleveland Center Cleveland, OH 44114 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 Agreement the day and year written above. SECURFONE AMERICA, INC. a Delaware corporation By: Paul B. Silverman ------------------------- Its: CEO /s/ Andrew H. Kent ----------------------- ANDREW KENT -9- EX-10.15 5 EXHIBIT 10.15 EXHIBIT 10.15 November 9, 1999 Mr. Paul B. Silverman 9520 Center Street Vienna, Virginia 22181 Dear Mr. Silverman: The Board of Directors of SecurFone America, Inc. has proposed that the term of the executive employment agreement between you and the Company dated November 1, 1998 be extended to December 31, 1999. All other terms of the agreement would remain unchanged. Please sign below to acknowledge your agreement with the terms of this letter. Sincerely, /s/ Andrew H. Kent - ---------------------------- SecurFone America, Inc. Andrew H. Kent, I agree to the terms of this letter as of the date appearing above. /s/ Paul B. Silverman - ----------------------------- Paul B. Silverman EX-10.16 6 EXHIBIT 10.16 EXHIBIT 10.16 FORM OF REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "AGREEMENT") dated as of October ___, 1999 is entered into by and among SecurFone America, Inc., a Delaware corporation (the "COMPANY"), and the holders of shares of the Company's Common Stock, par value $.001 per share (the "COMMON STOCK"), listed on the signature pages hereto (such holders referred to herein as the "INVESTORS"). WHEREAS, the parties hereto desire to grant to the Investors certain incidental registration rights. NOW THEREFORE, in consideration of the premises and mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "COMMISSION" means the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act. 1.2 "COMMON STOCK" means the number of shares of Common Stock issued to the Investors under the Stock Subscription Agreement (taking into account appropriate adjustments as a result of any stock dividend, stock split, combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise). 1.3 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. 1.4 "QUALIFIED PUBLIC OFFERING" or "QIPO" means an underwritten public offering of the Company's Common Stock pursuant to a Registration Statement in which the aggregate gross proceeds to the Company are no less than $15,000,000 underwritten by a reputable nationally recognized underwriting firm. 1.5 "REGISTRABLE SHARES" means (i) the Investors' Shares; and (ii) any other shares of Common Stock of the Company issued in respect of the shares described in clause (i) (because of stock splits, stock dividends, reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER, that shares of Common Stock that are Registrable Shares shall cease to be Registrable Shares (x) upon any sale pursuant to a Registration Statement, Section 4(l) of the Securities Act or Rule 144 under the Securities Act, (y) with respect to a Stockholder, when such Stockholder is eligible to sell, transfer or otherwise convey all of such Stockholder's Registrable Shares pursuant to Rule 144 under the Securities Act in any 3 month period or (z) upon any sale in any manner to a person or entity which is not entitled to the rights provided by this Agreement. 1.6 "REGISTRATION EXPENSES" means the expenses described in Section 6. 1.7 "REGISTRATION STATEMENT" means a registration statement filed by the Company with the Commission for a public offering and sale of securities of the Company (other than a registration statement on Form S-8 or Form S-4, or their successors, any other form for a limited purpose, any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation or a registration statement on Form S-3 solely for the purpose of registering shares issued in a non-underwritten offering in connection with a merger, combination or acquisition). 1.8 "SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. 1.9 "STOCK SUBSCRIPTION AGREEMENT" means the Stock Subscription Agreement of even date herewith, by and among the Company and the parties set forth therein, as amended from time to time. 1.10 "STOCKHOLDERS" means the Investors and any persons or entities to whom the rights granted under this Agreement are transferred by the Investors, their successors or assigns pursuant to Section 13 hereof. Section 2. SALE OR TRANSFER OF SHARES OF PREFERRED STOCK; LEGEND 2.1 The Registrable Shares shall not be sold or transferred unless either (i) they first shall have been registered under the Securities Act, or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Securities Act. 2.2 Notwithstanding anything to the contrary contained in the foregoing Section 2.1, no registration or opinion of counsel shall be required for a transfer made in accordance with Rule 144 under the Securities Act. 2.3 (a) Each certificate representing the Registrable Shares shall bear a legend substantially in the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such shares are registered under such Act or an -2- opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required." (b) In addition to the legend set forth in paragraph (a) of this Section 2.3, each certificate representing the Registrable Shares shall bear a legend substantially in the following form: "The shares of stock represented by this certificate are subject to the terms of a Registration Rights Agreement, dated October __, 1999, between the Company and the registered owner of this certificate (or the registered owner's predecessor in interest), and such Agreement is available for inspection without charge at the offices of the Company." (c) The foregoing legends shall be removed from the certificates representing any Registrable Shares, at the request of the holder thereof, at such time as they become eligible for resale pursuant to Rule 144(k) under the Securities Act. Section 3. INCIDENTAL REGISTRATION. 3.1 Whenever the Company proposes to file a Registration Statement at any time and from time to time, it will, prior to such filing, give written notice to all Stockholders of its intention to do so and, upon the written request of a Stockholder or Stockholders given within 20 days after the Company provides such notice (which request shall state the intended method of disposition of such Registrable Shares), the Company shall use its best efforts to cause all Registrable Shares that the Company has been requested by such Stockholder or Stockholders to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such Stockholder or Stockholders; provided that the Company shall have the right to postpone or withdraw any registration effected pursuant to this Section 3 without obligation to any Stockholder. 3.2 In connection with any offering under this Section 3 involving an underwriting, the Company shall not be required to include any Registrable Shares in such underwriting unless the holders thereof accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the good faith opinion of the underwriters, jeopardize the success of the offering by the Company. If, in the opinion of the managing underwriter, the registration of all, or part of, the Registrable Shares that the holders have requested to be included would materially and adversely affect such public offering, then the Company shall be required to include in the underwriting only that number of Registrable Shares, if any, that the managing underwriter in good faith believes may be sold without causing such adverse effect; and provided that no persons or entities other than the Company, the Stockholders and persons or entities holding registration rights granted in accordance with Section 12 and Section 13 hereof shall be permitted to include securities in the offering. If the number of Registrable Shares to be included in the underwriting in accordance with the foregoing is less than the total number of shares that the holders of -3- Registrable Shares have requested to be included, the Investor's holding Registrable Shares who have requested registration shall participate in the underwriting pro rata based upon their total ownership of shares of Common Stock of the Company. If any holder would thus be entitled to include more shares than such holder requested to be registered, the excess shall be allocated among other requesting holders pro rata based upon their total ownership of Registrable Shares. Section 4. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions of this Agreement to use its best efforts to effect the registration of any of the Registrable Shares under the Securities Act, the Company shall: 4.1 prepare and file with the Commission a Registration Statement with respect to such Registrable Shares and use its best efforts to cause that Registration Statement to become and remain effective for the earlier of 120 days or until the completion of the distribution; 4.2 as expeditiously as possible prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration Statement as may be necessary to keep the Registration Statement effective, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement; 4.3 as expeditiously as possible furnish to each selling Stockholder such reasonable numbers of copies of the registration statement, each amendment and supplement thereto, prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as the selling Stockholder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares owned by the selling Stockholder; and 4.4 as expeditiously as possible use its best efforts to register or qualify the Registrable Shares covered by the Registration Statement under the securities or Blue Sky laws of such states as the selling Stockholders shall reasonably request, and do any and all other acts and things that may be necessary or desirable to enable the selling Stockholders to consummate the public sale or other disposition in such states of the Registrable Shares owned by the selling Stockholder; provided, however, that the Company shall not be required in connection with this Section 4.4 to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction. If the Company has delivered preliminary or final prospectuses to the selling Stockholders and after having done so the prospectus is amended to comply with the requirements of the Securities Act, the Company shall promptly notify the selling Stockholders and, if requested, the selling Stockholders shall immediately cease making offers of Registrable Shares and return all prospectuses to the Company. The Company shall promptly provide the selling Stockholders with revised prospectuses and, following receipt of the revised prospectuses, the selling Stockholders shall be free to resume making offers of the Registrable Shares. -4- Section 5. ALLOCATION OF EXPENSES. The Company will pay all Registration Expenses of all registrations under this Agreement. For purposes of this Section, the term "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in complying with this Agreement, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, fees and disbursements of counsel for the Company and the reasonable fees and expenses of one (1) counsel selected by the selling Stockholders to represent the selling Stockholders, state Blue Sky fees and expenses, and the expense of any special audits incident to or required by any such registration, but excluding underwriting discounts, selling commissions and the fees and expenses of selling Stockholders' own counsel (other than the counsel selected to represent all selling Stockholders). Section 6. INDEMNIFICATION AND CONTRIBUTION. In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the seller of such Registrable Shares, each underwriter of such seller of such Registrable Shares, and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Company will reimburse such seller, underwriter and each such controlling person for any legal or any other expenses reasonably incurred by such seller, underwriter or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus or prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by or on behalf of such seller, underwriter or controlling person specifically for use in the preparation thereof. In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, each seller of Registrable Shares, severally and not jointly, will indemnify and hold harmless the Company, each of its directors and officers and each underwriter (if any) and each person, if any, who controls the Company or any such underwriter within the meaning of the Securities Act or the Exchange Act, and any other seller of Registrable Shares or any such seller's partners, directors or officers and each person, if any, who controls such seller within the meaning of the Securities Act and the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which the Company, such directors and officers, underwriter, selling Stockholder or controlling person may become subject under the Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such -5- losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and each such Seller of Registrable Shares will reimburse the Company for any legal or any other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action if the statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of such seller, specifically for use in connection with the preparation of such Registration Statement, prospectus, amendment or supplement; provided, however, that the obligations of such Stockholders hereunder shall be limited to an amount equal to the net proceeds received by each selling Stockholder of Registrable Shares sold as contemplated herein. Each party entitled to indemnification under this Section 6 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and, provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent that the Indemnifying Party's ability to defend against such claim or litigation is impaired as a result of such failure to give notice. The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall pay such expense if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 6 is due in accordance with its terms but for any reason is held to be unavailable to an Indemnified Party in respect to any losses, claims, damages and liabilities referred to herein, then the Indemnifying Party shall, in lieu of indemnifying such -6- Indemnified Party, contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities to which such party may be subject in proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact related to information supplied by the Indemnifying Party or the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Investors agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph of Section 6, (a) in no case shall any one Investor be liable or responsible for any amount in excess of the net proceeds received by such Investor from the offering of Registrable Shares and (b) the Company shall be liable and responsible for any amount in excess of such proceeds; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution for any person who was not guilty of such fraudulent misrepresentation. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party or parties under this Section, notify such party or parties from whom such contribution may be sought, but the omission so to notify such party or parties from contribution may be sought shall not relieve such party from any other obligation it or they may have thereunder or otherwise under this Section. No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its prior written consent, which consent shall not be unreasonably withheld. Section 7. INFORMATION BY HOLDER. Each holder of Registrable Shares included in any registration shall furnish to the Company such information regarding such holder and the distribution proposed by such holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. Section 8. "MARKET STAND-OFF" AGREEMENT. Each Stockholder, if requested by the Company and an underwriter of Common Stock or other securities of the Company, shall agree not to sell or otherwise transfer or dispose of any Registrable Shares or other securities of the Company held by such Stockholder for a specified period of time determined by the Company and the underwriters (not to exceed 180 days) following the effective date of a Registration Statement; provided, that: (a) such agreement shall only apply to the first two such Registration Statements covering Common Stock of the Company to be sold on its behalf to the public in an underwritten offering; and (b) all Stockholders holding not less than the number of shares of Common Stock held by such Stockholder (including shares of Common Stock issuable upon the -7- conversion of convertible securities, or upon the exercise of options, warrants or rights) and all officers and directors of the Company enter into similar agreements. Such agreement shall be in writing in a form reasonably satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the Registrable Shares or other securities subject to the foregoing restriction until the end of the stand-off period. Section 9. RULE 144 REQUIREMENTS. The Company agrees to: (a) comply with the requirements of Rule 144(c) under the Securities Act with respect to current public information about the Company; (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (c) furnish to any holder of Registrable Shares upon written request (i) a written statement by the Company as to its compliance with the requirements of said Rule 144(c), and the reporting requirements of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company as such holder may reasonably request to avail itself of any similar rule or regulation of the Commission allowing it to sell any such securities without registration. Section 10. SELECTION OF UNDERWRITER. In the case of any registration effected pursuant to this Agreement, the Company shall have the right to designate the managing underwriter in any underwritten offering, subject to the approval of the holders of a majority of the Registrable Shares requested to be included in such offering, which approval shall not be unreasonably withheld. Section 11. TERMINATION OF RIGHTS Those certain registration rights granted hereunder to the Stockholders shall terminate on the third anniversary of a QIPO. Section 12. SUCCESSORS AND ASSIGNS. Except as provided in Section 13, the provisions of this Agreement shall be binding upon, and inure to the benefit of, the respective successors, assigns, heirs, executors and administrators of the parties hereto. Section 13. TRANSFERS OF CERTAIN RIGHTS. 13.1 AMOUNT. The rights granted to each Investor under this Agreement may be transferred to any other person. 13.2 TRANSFEREES. Any transferee (other than an affiliate) to whom rights under this Agreement are transferred shall, as a condition to such transfer, deliver to the Company a written instrument by which such transferee agrees to be bound by the obligations -8- imposed upon the Investors under this Agreement to the same extent as if such transferee were an Investor hereunder. 13.3 SUBSEQUENT TRANSFEREES. A transferee to whom rights are transferred pursuant to this Section 13 may not again transfer such rights to any other person or entity, other than as provided in Sections 13.1 or 13.2 above. 13.4 PARTNERS AND STOCKHOLDERS. Notwithstanding anything to the contrary herein, an Investor may transfer rights granted to it under this Agreement to any partner of such Investor to whom shares of Common Stock are transferred pursuant to Section 2 and who delivers to the Company a written instrument in accordance with Section 13.2 above and containing the representation that the transfer is exempt from registration under the Securities Act. In the event of such transfer, such partner or stockholder shall be deemed to be an Investor for purposes of this Section 13 and may again transfer such rights to any other person or entity that acquires shares of Common Stock from such partner or stockholder, in accordance with, and subject to, the provisions of Section 13.1, 13.2 and 13.3 above. Section 14. MISCELLANEOUS. 14.1. NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter into any agreement with respect to its securities that is inconsistent with or violates the rights granted to the holders of Registrable Shares in this Agreement. 14.2. ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Company will not take any action, or permit any change to occur, with respect to its securities that would adversely affect the ability of the holders of Registrable Shares to include such Registrable Shares in a registration undertaken pursuant to this Agreement or that would adversely affect the marketability of such Registrable Shares in any such registration (including, without limitation, effecting a stock split or a combination of shares). 14.3. REMEDIES. Any person having rights under any provision of this Agreement will be entitled to enforce such rights specifically (without posting any bond or other security), to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. 14.4. AMENDMENTS AND WAIVERS; ADDITIONAL PARTIES. (a) Except as otherwise provided herein, the provisions of this Agreement may be amended and the Company may take action herein prohibited, or omit to perform any act herein required to be performed by it, if, but only if, the Company has obtained the written consent of holders of at least 66 2/3% of the Registrable Shares then in existence. (b) Notwithstanding anything to the contrary in this Agreement, the Company may amend this Agreement to include additional parties at any time and from time to time. Such additional parties shall be included in the definition of "Stockholders," and their names shall be added to EXHIBIT A, attached hereto. -9- 14.5. GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Delaware (without reference to the choice of law or conflicts of law provisions thereof). 14.6. NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been given when delivered personally to the recipient, one (1) business day after they have been sent to the recipient by reputable overnight courier service (charges prepaid) or three (3) business days after mailed by first class mail, postage prepaid. Such notices, demands, and other communications shall be addressed: If to the Company, at: SecurFone America, Inc. 8080 Daggett Street San Diego, CA 91114 Attention: Paul B. Silverman or at such other address or addresses as may have been furnished in writing by the Company to the Investors, with a copy to: Piper & Marbury L.L.P. 1200 Nineteenth Street, N.W. Washington, D.C. 20036 Attention: Ernest M. Stern If to an Investor, at his or its address set forth on EXHIBIT A, or at such other address or addresses as may have been furnished to the Company in writing by such Investor. If to any other transferee to whom shares were transferred pursuant to Section 2, at such address or addresses as may have been furnished to the Company in writing. Notices provided in accordance with this Section 14 shall be deemed delivered upon personal delivery or two (2) business days after deposit in the mail. 14.7. SEVERABILITY. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement or any provision of the other Agreements shall not in any way be affected or impaired thereby. 14.8. TITLES AND SUBTITLES. The titles of the sections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. -10- 14.9. EXPENSES. The Company shall pay, and hold the Investors and all holders of Registrable Shares harmless against liability for the payment of (i) the reasonable fees and expenses incurred with respect to any amendments or waivers (whether or not the same become effective) under or in respect of this Agreement and (ii) the reasonable fees and expenses incurred with respect to the enforcement of the rights granted under this Agreement. [SIGNATURES ON FOLLOWING PAGES] -11- IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. COMPANY: SECURFONE AMERICA, INC. /s/ Paul B. Silverman -------------------------------- Paul B. Silverman, President ============================================================================== SECURFONE AMERICA, INC. REGISTRATION RIGHTS AGREEMENT COUNTERPART SIGNATURE PAGE ============================================================================== The person or entity set forth below does hereby cause this Counterpart Signature Page to be executed, acknowledged and delivered by the undersigned authorized person in its name and on its behalf in order to accept and agree to be bound by all the terms and provisions of the Registration Rights Agreement, dated as of October ___, 1999 to which this Counterpart Signature Page is attached. WITNESS: ______________________________ By:_________________________________ Name: Its: Address: _____________________________ _____________________________ _____________________________ Telephone No.________________________ Telecopier No._______________________ -13- EXHIBIT A INVESTORS NAME AND ADDRESS ADDITIONAL PARTIES NAME AND ADDRESS EX-27 7 EXHIBIT 27
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 7,818 150,000 4,501 0 0 162,319 193,062 (109,305) 397,301 1,283,908 1,000,000 0 0 6,275 (1,927,205) 397,301 0 0 0 141,976 (505,832) 0 0 59,405 1,600 (647,808) 0 43,451 0 101,256 0.02 0.02
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