-----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, O6eWZJPhcwRdXiyGePhf+bvX2LKAj23cnpIcySryeFPGHJ63WhxeBQqOcXOaEzSi H/RR8TPy1vj3PzRqteuaOw== 0000889812-98-001743.txt : 19980720 0000889812-98-001743.hdr.sgml : 19980720 ACCESSION NUMBER: 0000889812-98-001743 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980714 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: X CEED INC CENTRAL INDEX KEY: 0000721176 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 133006788 STATE OF INCORPORATION: NY FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13049 FILM NUMBER: 98665893 BUSINESS ADDRESS: STREET 1: 488 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2127535511 MAIL ADDRESS: STREET 1: 488 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: WATER JEL TECHNOLOGIES INC DATE OF NAME CHANGE: 19950425 FORMER COMPANY: FORMER CONFORMED NAME: TRILLING MEDICAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19910715 FORMER COMPANY: FORMER CONFORMED NAME: TRILLING RESOURCES LTD DATE OF NAME CHANGE: 19871025 10-Q 1 QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) / / Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 31,1998 / / Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from to ----------- ------------ Commission file number 0-13049 X-CEED, INC. - ------------------------------------------------------------------------------- (Exact Name of registrant as specified in its charter) NEW YORK 13-3006788 - ---------------------------------- ---------------------- (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 488 MADISON AVENUE, NEW YORK, NEW YORK 10022 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) (212) 753-5511 - ------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) WATER-JEL TECHNOLOGIES, INC. - ------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 8,971,242 as of July 10, 1998 X-CEED INC. AND SUBSIDIARIES (Formerly Water-Jel Technologies, Inc. and Subsidiaries) INDEX PART I ITEM 1. Financial Information Page No. Consolidated balance sheets . . . . . . . . . . . . . . . 3 Consolidated statements of operations Nine and Three Months Ended May 31,1998 and 1997 . . . . . . . . . . . . . . . . . . 4 Consolidated statements of cash flows Nine and Three Months Ended May 31, 1998 and 1997 . . . . . . . . . . . . . . . . . 5 Notes to consolidated financial statements . . . . . . . . 6-8 ITEM 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations . . . . . . . . . . . . . 9-10 PART II Other Information . . . . . . . . . . . . . . . . . . . . . 11 Signatures . . . . . . . . . . . . . . . . . . . . . . . 12 2 X-CEED, INC. AND SUBSIDIARIES (Formerly Water-Jel Technologies, Inc. and Subsidiaries) CONSOLIDATED BALANCE SHEETS
ASSETS MAY 31, AUGUST 31, 1998 1997 -------- ---------- (unaudited) CURRENT ASSETS: Cash and cash equivalents $15,993,800 $7,230,314 Investment in marketable securities 208,790 758,373 Accounts receivable, net of allowance for doubtful accounts of $154,000 9,776,409 3,713,709 Program costs and earnings in excess of customer billings 1,276,520 2,039,682 Inventories 1,060,210 1,364,510 Prepaid expenses and other current assets 669,213 334,589 ------------------- ------------------- TOTAL CURRENT ASSETS 28,984,943 15,441,177 Property and equipment, net 1,326,407 1,354,070 Investment in X-Ceed Motivations Atlanta Inc. 714,321 355,394 Due from officer 1,222,483 1,222,483 Deferred income taxes 451,525 231,000 Other assets 424,650 195,956 ------------------- ------------------- $33,124,330 $18,800,080 =================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $7,141,909 $4,041,907 Current portion of long-term debt 39,200 39,200 Income taxes payable, current 276,599 358,933 Customer billings in excess of program costs 5,253,430 914,561 Deferred income tax liability 131,950 44,500 ------------------- ------------------- TOTAL CURRENT LIABILITIES 12,843,088 5,399,101 ------------------- ------------------- LONG-TERM DEBT 22,100 51,500 ------------------- ------------------- ACCRUED LEASE OBLIGATIONS 816,000 816,000 ------------------- ------------------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value, authorized 30,000,000 shares; 8,938,943 and 7,043,180 shares issued and outstanding, respectively 89,389 70,432 Preferred stock, $.05 par value; authorized 1,000,000 shares; -0- issued and outstanding - - Net unrealized gain on marketable securities (232) 216,175 Additional paid-in capital 16,185,833 10,210,592 Unearned compensation (157,126) - Retained earnings 3,380,908 2,091,910 ------------------- ------------------- 19,498,772 12,589,109 Treasury stock, 10,000 shares (55,630) (55,630) ------------------- ------------------- 19,443,142 12,533,479 $33,124,330 $18,800,080 =================== ===================
See notes to consolidated financial statements. 3 X-CEED, INC. AND SUBSIDIARIES (Formerly Water-Jel Technologies, Inc. and Subsidiaries) CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED MAY 31, MAY 31, ----------------- ------------------ 1998 1997 1998 1997 REVENUES, net $44,347,843 $45,406,465 $18,192,737 $13,651,194 ------------------ ------------------ ----------------- ------------------ COST AND EXPENSES: Cost of revenues 27,965,490 28,431,179 12,532,295 8,241,899 Selling, general and administrative 13,833,153 13,904,256 4,879,881 4,779,392 Research and development 532,472 - 68,889 - ------------------ ------------------ ----------------- ------------------ 42,331,115 42,335,434 17,481,065 13,021,291 ------------------ ------------------ ----------------- ------------------ OPERATING INCOME 2,016,728 3,071,031 711,672 629,903 ------------------ ------------------ ----------------- ------------------ OTHER INCOME (EXPENSE): Interest and dividend income 461,488 277,438 205,356 112,114 Interest expense (9,868) (11,463) (2,914) (3,367) Gain on sale of investment in marketable securities 359,444 11,948 1,200 (301) Equity gain on investment 43,206 16,897 30,396 (14,651) ------------------ ------------------ ----------------- ------------------ 854,270 294,820 234,038 93,795 ------------------ ------------------ ----------------- ------------------ INCOME BEFORE INCOME TAXES 2,870,998 3,365,851 945,710 723,698 PROVISION FOR INCOME TAXES 1,582,000 1,741,000 493,000 333,000 ------------------ ------------------ ----------------- ------------------ NET INCOME $1,288,998 $1,624,851 $452,710 $390,698 ================== ================== ================= ================== NET INCOME PER COMMON SHARE Basic $0.18 $0.23 $0.06 $0.06 ================== ================== ================= ================== Diluted $0.16 $0.22 $0.05 $0.05 ================== ================== ================= ================== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 7,279,691 7,021,145 7,743,798 7,021,145 ================== ================== ================= ================== Diluted 7,865,096 7,256,262 8,421,620 7,150,106 ================== ================== ================= ==================
See notes to consolidated financial statements. 4 X-CEED, INC. AND SUBSIDIARIES (Formerly Water-Jel Technologies, Inc. and Subsidiaries) CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended May 31, ------------------ 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,288,998 $1,624,851 ------------------ ----------------- Adjustment to reconcile net income to net cash provided by operating activities: Gain on sale of marketable securities (359,444) (11,948) Depreciation and amortization 478,308 362,427 Equity gain on investment (43,206) (16,897) Deferred Income Taxes (53,808) 57,609 Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable (6,062,700) (2,463,739) Inventories 304,300 (76,976) Program costs and earnings in excess of billings 763,162 - Prepaid expenses and other current assets (334,625) 37,902 Other assets (240,500) (59,966) Increase (decrease) in liabilities: Accounts payable and accrued expenses 3,100,002 1,217,554 Income taxes payable (82,334) 830,850 Customer billings in excess of program costs 4,338,869 1,967,077 Other Current liabilities - (12,511) ------------------ ----------------- Total adjustments 1,808,024 1,831,382 ------------------ ----------------- Net cash provided by operating activities 3,097,022 3,456,233 ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in marketable securities (191,606) (23,296) Proceeds from sale of marketable securities 804,958 21,999 Acquisition of property and equipment (333,965) (183,617) ------------------ ----------------- Net cash provided by (used in) investing activities 279,387 (184,914) ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt (29,400) (29,400) Repayment of notes payable - (1,065,000) Advances to affiliate (315,721) 665,987 Proceeds from excercise of warrants and options 5,732,198 3,000 ------------------ ----------------- Net cash provided by (used in) financing activities 5,387,077 (425,413) ------------------ ----------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 8,763,486 2,845,906 CASH AND CASH EQUIVALENTS - beginning of period 7,230,314 7,333,168 ------------------ ----------------- CASH AND CASH EQUIVALENTS - end of period $15,993,800 $10,179,074 ================== =================
See notes to consolidated financial statements. 5 X-CEED, INC. AND SUBSIDIARIES (Formerly Water-Jel Technologies, Inc. and Subsidiaries) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) May 31,1998 1. BASIS OF QUARTERLY PRESENTATION: The accompanying quarterly financial statements have been prepared in conformity with generally accepted accounting principles. The financial statements of the Registrant included herein have been prepared by the Registrant pursuant to the rules and regulations of the Securities and Exchange Commission and, in the opinion of management, reflect all adjustments which are necessary to present fairly the results for the period ended May 31,1998. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the financial statements and footnotes therein included in the audited annual report on Form 10-KSB as of August 31, 1997. 2. PRINCIPLE OF CONSOLIDATATION: The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Upon consolidation, all significant intercompany accounts and transactions are eliminated. Investments in affiliates, representing 20% to 50% of the ownership of such companies, are accounted for under the equity method. Under this accounting, the investment is increased or decreased by the Company's share of earnings or losses after dividends. The Company has a 50% equity interest in X-Ceed Atlanta which organizes and operates group incentive programs for major corporations in the Atlanta, Georgia area. 3. INVENTORIES CONSISTED OF THE FOLLOWING: May 31, 1998 August 31, 1997 ------------ --------------- (unaudited) Raw Materials $ 678,614 $ 962,976 Finished goods 381,596 401,534 --------- --------- $1,060,210 $1,364,510 ========= ========= 6 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS: In March 1998, the Company loaned $335,000 to a corporation affiliated with two of the Company's directors/shareholders. This loan is evidenced by a note, bearing interest at 1% above the Company's lead bank prime rate, payable by November 2, 1998. The note is included in prepaid expenses and other current assets at May 31, 1998. In consideration for the loan, the Company was granted warrants to purchase a minimum of 335,000 shares of common stock of the borrower at an exercise price of $2.00 per warrant. The borrower has the right to extend the loan until February 1, 1999. In the event the borrower elects to extend the due date of the loan, the Company shall continue to receive interest at the same stated rate and will be entitled to additional warrants equivalent to 50% of the total dollars of the loan. As additional consideration, the Company was granted a one-year option to acquire a continuing license for a proprietary browser based E-Mail technology for a licensing fee of $35,000. The Company believes that the borrower's software can be of significant assistance with the Company's Maestro software. 5. SUPPLEMENTARY INFORMATION - STATEMENTS OF CASH FLOW: Nine Months Ended May 31, ---------------------------- 1998 1997 Interest paid.................. $ 9,868 $ 11,948 ========== ======== Income taxes paid.............. $1,441,553 $686,138 ========== ======== 6. STOCKHOLDERS' EQUITY: a. Common Stock In February 1998 the stockholders voted to amend the Company's certificate of incorporation to increase the authorized Common Stock to 30,000,000 shares, par value $.01 per share, and the authorized Preferred to 1,000,000 shares, par value $.05 per share. The accompanying balance sheet for August 31, 1997 has been retroactively restated to give effect to this change. b. Warrants During the three months ended May 31, 1998, the Company issued 1,816,654 shares of Common Stock and 1,816,654 Class B Warrants in connection with the exercise of Class A Warrants. During the first half of fiscal 1998, the Company entered into consulting agreements with two financial advisors. Consideration under these agreements included warrants to purchase an aggregate of 200,000 shares of common stock at exercise prices ranging from $2.00 - $2.19. The fair value of the warrants ($262,000) is being 7 charged to operations over the lives of the respective agreements. 7. EARNINGS PER SHARE: During the current period the Company adopted Financial Accounting Standards Board ("FASB") Statement No. 128, "Earnings per share." Basic earnings per common share is computed by dividing the net earnings by the weighted average number of shares of common stock outstanding during the period. Dilutive earnings per share gives effect to stock using and warrants which are considered to be dilutive common stock equivalents. Treasury shares have been excluded from the weighted average number of shares. Earnings per share have been retroactively restated to reflect FASB No. 128 for all prior periods presented. Net earnings for basic and dilutive computations were equivalent for all periods presented. The following is a reconciliation of the weighted average shares:
Nine Months Ended Three Months Ended May 31, May 31, 1998 1997 1998 1997 ---- ---- ---- ---- Basic 7,279,691 7,021,145 7,743,798 7,021,145 effect of dilutive securities 585,405 235,117 677,822 128,961 --------- --------- --------- --------- Diluted 7,865,096 7,256,262 8,421,620 7,150,106 ========= ========= ========= =========
8. INCOME TAXES: Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 8 MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Net revenues for the nine months ended May 31, 1998 and 1997, respectively, were $44,348,000 and $45,406,000, representing a 2% decrease. During the first half of the fiscal year, the Company's X-Ceed Performance Group division experienced decreased net revenues as a result of the absence of specific merchandising programs. Net revenues for the three months ended May 31, 1998 and 1997, respectively, were approximately $18,193,000 and $13,651,000 representing a 33% increase. The increase in net revenue for the three months ended May 31, 1998 derived primarily from growth in the Company's X-Ceed Performance Group division. Cost of revenues for nine months ended May 31, 1998 and 1997 were $27,965,000 and $28,431,000, representing 63% of net revenues, respectively. Cost of revenues for the three months ended May 31,1998 and 1997 were $12,532,000 and $8,242,000, representing 69% and 60% of net revenues, respectively. The increase in cost of revenues during the three months ended May 31, 1998 derived from travel related incentive programs which traditionally generate lower profit margins. Selling, general and administrative expenses for the nine months ended May 31, 1998 and 1997 were $13,833,000 and $13,904,000, representing 31% of net revenues, respectively. Selling, general and administrative expenses for the three months ended May 31, 1998 and 1997 were $4,880,000 and $4,779,000, representing 27% and 35% of net revenues, respectively. Research and development expenses for the nine and three months ended May 31, 1998 were $532,000 and $69,000, incurred in connection with the continuing development of X-Ceed's Maestro software. Maestro is a proprietary productivity enhancing software utilized for managing training, sales tracking and reporting, awards and recognition programs, and product information for sales forces. Other income for the nine months ended May 31, 1998 was $854,000 as compared to $295,000 for the corresponding prior period. Other income for the three months ended May 31, 1998 and 1997 was $234,000 as compared to $94,000 for the corresponding prior period. The significant increase during the nine and three months ended May 31, 1998 is a result of gains on sales of investments of $359,000 as compared to $12,000 and increased interest and dividend income resulting from greater investment balances. Net income for the nine months ended May 31, 1998 and 1997 was $1,289,000 as compared to $1,624,000, respectively. Net income for the three months ended May 31, 1998 and 1997 was $453,000 and $391,000, respectively. 9 LIQUIDITY AND CAPITAL RESOURCES: At May 31, 1998, the Company had working capital of $16,142,000 as compared to $10,042,000 at August 31, 1997. The significant increase in working capital is derived principally from the exercise of Class A warrants prior to their expiration on April 30, 1998. As a result, the Company received proceeds of approximately $5,609,000. Also during the current period, the Company received net proceeds of $805,000 from the sale of marketable securities. The consolidated statement of cash flows for the nine months ended May 31, 1998 reflects net cash provided by operating activities of $3,097,000. This resulted from net income of $1,289,000, an increase in accounts payable and accrued expenses of $3,100,000 and an increase in customer billings in excess of programs costs of $4,339,000 offset by an increase in accounts receivable of $6,063,000. Cash provided by investing activities was $280,000, consisting principally of proceeds from sale of marketable securities of $805,000 offset by acquisitions of property and equipment of $334,000 and investments in marketable securities of $192,000. Cash provided by financing activities approximated $5,387,000 consisting primarily of proceeds from the exercise of warrants and options of $5,732,000. The Company believes that it has adequate working capital for at least the next twelve months of operations at current levels. As of July 10, 1998 the Company had approximately $15,260,000 in cash and cash equivalents. 10 PART II - OTHER INFORMATION ITEM 1 - Legal Proceedings - ------ ----------------- There is no material litigation currently pending against the Company, its officers or employees. ITEM 2 - Changes in Securities - ------ --------------------- As a result of the expiration of the Class A Warrants during the quarter ended May 31, 1998, most holders of the warrants elected to exercise prior to the expiration on April 30, 1998. Upon the exercise the holders received one share of common stock and one Class B Warrant. As a result of these exercises, the Company issued 1,816,654 shares of Common Stock and 1,816,654 Class B Warrants. ITEM 3 - Defaults on Senior Securities - ------ ----------------------------- None ITEM 4 - Submission to a Vote of Security Holders - ------ ---------------------------------------- None ITEM 5 - Other Information - ------ ----------------- None ITEM 6 - Exhibits and Reports on Form 8-K - ------ -------------------------------- (a) None (b) Report on Form 8-K as filed with the commission on May 7, 1998 reporting the exercise of Class A Warrants. 11 X-CEED INC. 488 MADISON AVENUE NEW YORK, N.Y. 10022 ------------------------ FILE # 0-13049 ------------------------ SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BY: /s/ Werner Haase ---------------------------- WERNER HAASE, CEO DATE: July 14, 1998 --------------- 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 9-MOS AUG-31-1998 MAY-31-1998 15,993,800 208,790 9,930,409 154,000 1,060,210 28,984,943 4,004,839 2,678,432 33,124,330 12,843,088 22,100 0 0 89,389 19,353,753 33,124,330 44,347,843 44,347,843 27,965,490 27,965,490 0 0 9,868 2,870,998 1,582,000 1,288,998 0 0 0 1,288,998 0.18 0.16
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