-----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, BorJLR8ibKv4kVd0vH97V8arOUXwxNPbP93zXI0w4lAj8aGWyO+auFrzYbeHjRrJ 2K8kGh4RMvuESV7fS9drgg== 0000889812-99-001190.txt : 19990415 0000889812-99-001190.hdr.sgml : 19990415 ACCESSION NUMBER: 0000889812-99-001190 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XCEED INC CENTRAL INDEX KEY: 0000721176 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 133006788 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13049 FILM NUMBER: 99593131 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: X CEED INC DATE OF NAME CHANGE: 19980302 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 10-Q 1 QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /x/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended February 28, 1999 / / Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from __________ to __________ Commission file number 0-13049 XCEED 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) 419-1200 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (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: 16,031,060 as of April 7, 1999 XCEED INC. AND SUBSIDIARIES INDEX PART I ITEM 1. Financial Information Page No. Consolidated balance sheets . . . . . . . . . . . . . . . 3 Consolidated statements of operations Six and Three Months Ended February 28, 1999 and 1998 . . . . . . . . . . . . . . . 4 Consolidated statements of cash flows Six Months Ended February 28, 1999 and 1998 . . . . . . 5 Notes to consolidated financial statements . . . . . . . . 6-7 ITEM 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations . . . . . . . . . . . . . 8-9 PART II Other Information . . . . . . . . . . . . . . . . . . . . . 10 Signatures . . . . . . . . . . . . . . . . . . . . . . . 11 2 XCEED INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
ASSETS FEBRUARY 28, AUGUST 31, 1999 1998 (unaudited) ------------ ---------- CURRENT ASSETS: Cash and cash equivalents $20,775 $13,789 Investment in marketable securities 201 97 Accounts receivable, net of allowance for doubtful accounts of $154 at February 28, 1999 and August 31, 1998 11,411 5,325 Program costs and earnings in excess of customer billings 2,358 3,287 Inventories 906 1,022 Prepaid expenses and other current assets 939 861 Deferred income taxes 162 14 -------- -------- Total current assets 36,752 24,395 PROPERTY AND EQUIPMENT, net 2,986 1,533 DUE FROM OFFICER 1,223 1,223 GOODWILL, net 36,164 6,088 TRADEMARKS, net 3,120 - DEFERRED INCOME TAXES 547 484 OTHER ASSETS 1,502 993 -------- -------- $82,294 $34,716 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $6,981 $5,793 Current portion of long-term debt 1,259 41 Income taxes payable, current - 219 Customer billings in excess of program costs 6,282 1,009 Notes payable 4,800 - -------- -------- Total current liabilities 19,322 7,062 -------- -------- LONG-TERM DEBT 2,907 - -------- -------- INCOME TAXES PAYABLE 750 - -------- -------- ACCRUED LEASE OBLIGATIONS 875 875 -------- -------- DEFERRED REVENUES 541 587 -------- -------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value, authorized 30,000,000 shares; 15,866,693 and 10,277,053 shares issued and outstanding, respectively 159 103 Preferred stock, $.05 par value; authorized 1,000,000 shares; -0- issued and outstanding - - Net unrealized gain on marketable securities (29) (27) Additional paid-in capital 60,646 22,657 Unearned compensation (4,398) (112) Retained earnings 2,357 3,642 -------- -------- 58,735 26,263 Subscription receivable (765) - Treasury stock, 15,000 and 15,000 shares respectively (71) (71) -------- -------- 57,899 26,192 -------- -------- $82,294 $34,716 ======== ========
See notes to consolidated financial statements. 3 XCEED INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED FEBRUARY 28, FEBRUARY 28, 1999 1998 1999 1998 ------- ------- ------- ------- REVENUES, net $32,350 $26,155 $21,062 $15,873 ------------ ------------ ------------ ------------ COST AND EXPENSES: Cost of revenues 19,871 15,433 13,786 10,218 Selling, general and administrative 11,860 8,651 6,212 4,428 Research and development 202 464 89 258 Depreciation and amortization 2,124 302 819 236 ------------ ------------ ------------ ------------ 34,057 24,850 20,906 15,140 ------------ ------------ ------------ ------------ OPERATING (LOSS) INCOME (1,707) 1,305 156 733 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest and dividend income 219 256 111 135 Interest expense (327) (7) (178) (5) (Loss) gain on sale of investment in marketable securities (6) 358 (11) 12 Other (42) 14 (53) 57 ------------ ------------ ------------ ------------ (156) 621 (131) 199 ------------ ------------ ------------ ------------ (LOSS) INCOME BEFORE INCOME TAXES (1,863) 1,926 25 932 INCOME TAX (BENEFIT) PROVISION (578) 1,059 8 513 ------------ ------------ ------------ ------------ NET (LOSS) INCOME ($1,285) $867 $17 $419 ============ ============ ============ ============ NET (LOSS) INCOME PER COMMON SHARE Basic ($0.10) $0.12 $0.00 $0.06 ============ ============ ============ ============ Diluted ($0.10) $0.11 $0.00 $0.06 ------------ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 13,562,869 7,043,494 14,022,209 7,044,095 ============ ============ ============ ============ Diluted 13,562,869 7,582,692 16,696,978 7,469,576 ============ ============ ============ ============
See notes to consolidated financial statements. 4 XCEED, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
Six Months Ended February 28, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income ($1,285) $867 -------- -------- Adjustment to reconcile net (loss) income to net cash provided by operating activities: Loss (gain) on sale of marketable securities 6 (358) Depreciation and amortization 2,124 302 Deferred tax benefit (148) (249) Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable (3,669) (2,253) Inventories 116 239 Program costs and earnings in excess of billings 929 214 Prepaid expenses and other current assets 41 122 Other assets (467) (157) Increase (decrease) in liabilities: Accounts payable and accrued expenses (24) 1,586 Income taxes payable (219) 87 Customer billings in excess of program costs 5,273 2,505 Deferred revenues (76) - -------- -------- Total adjustments 3,886 2,038 -------- -------- Net cash provided by operating activities 2,601 2,905 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in marketable securities (285) (96) Proceeds from sale of marketable securities 170 792 Business acquisitions, net of cash acquired (6,286) - Acquisition of property and equipment (397) (297) -------- -------- Net cash (used in) provided by investing activities (6,798) 399 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt (156) (20) Proceeds from long-term debt 179 - Advances to affiliate - (305) Proceeds from excercise of warrants and options 11,160 3 -------- -------- Net cash provided by (used in) financing activities 11,183 (322) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 6,986 2,982 CASH AND CASH EQUIVALENTS - beginning of period 13,789 7,230 -------- -------- CASH AND CASH EQUIVALENTS - end of period $20,775 $10,212 ======== ========
See notes to consolidated financial statements. 5 XCEED INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS February 28,1999 (UNAUDITED) (in thousands, except share and per share data) 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 February 28, 1999. 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-K as of August 31, 1998. 2. Principle of Consolidation: 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. 3. Supplementary Information - Statements of Cash Flow: Six Months Ended February 28, 1999 1998 Interest paid.................. $ 327 $ 7 ====== ====== Income taxes paid.............. $ 361 $ 945 ====== ====== 4. Stockholders' Equity: a. Common Stock During the six months ended February 28, 1999, the Company issued 3,332,057 shares of common stock in connection with the Mercury Seven, Inc. and Zabit & Associates, Inc. mergers. b. Warrants On January 21, 1999, the Company's board of directors voted 6 unanimously to redeem the Company's outstanding Redeemable Class B warrants. A notice of redemption was sent to the holders on January 22, 1999. Under the terms, the warrant holders had until February 20, 1999 to exercise their warrants at an exercise price of $6 per share and receive one share of common stock. In the event a holder elected not to exercise, the Company would redeem the warrant by paying the holder a price of $.40 per warrant. As a result, the Company received $10,872 and issued 1,811,923 shares of common stock. c. 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 options and warrants which are considered to be dilutive common stock equivalents. Treasury shares have been excluded from the weighted average number of shares. Net earnings for basic and dilutive computations were equivalent for all periods presented. The following is a reconciliation of the weighted average shares:
Six Months Ended Three Months Ended February 28, February 28, 1999 1998 1999 1998 ---- ---- ---- ---- Basic 13,562,869 7,043,494 14,022,209 7,044,095 Effect of dilutive securities - 539,198 2,674,769 425,481 ---------- --------- ---------- --------- Diluted 13,562,869 7,582,692 16,696,978 7,469,576 ========== ========= ========== =========
5. 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. 6. Amortization: The amortization period of intangible assets is as follows: Goodwill 15 to 25 years Trademarks 3 years Unearned Compensation 4 years 7 MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Net revenues for the six months ended February 28, 1999 and 1998, respectively, were $32,350 and $26,155, representing a 24% increase in net revenues. Net revenues for the three months ended February 28, 1999 and 1998, respectively, were $21,062 and $15,873 representing a 33% increase in net revenue. The increases in net revenues for the six and three months ended February 28, 1999 are primarily attributable to the operations of the newly acquired Technology divisions (Reset, Inc., Mercury Seven, Inc. and Zabit & Associates, Inc.) Cost of revenues for the six months ended February 28, 1999 and 1998 were $19,871 and $15,433, respectively, (representing 62% and 59% of net revenues). Cost of revenues for the three months ended February 28, 1999 and 1998 were $13,786 and $10,218, respectively,(representing 66% and 64% of net revenues). The increase in cost of revenues for the six and three months ended February 28, 1999 are attributable to additional staffing requirements of the Company's Technology divisions. Selling, general and administrative expenses for the six months ended February 28, 1999 and 1998 were $11,860 and $8,651, respectively, (representing 37% and 33% of net revenues). Selling, general and administrative expenses for the three months ended February 28, 1999 and 1998 were $6,212 and $4,428, respectively, (representing 29% and 28% of net revenues). The increases in selling, general and administrative expenses during the six and three months ended February 28, 1999 are attributable to the additional expenses borne by the Company as a result of its acquisitions. Research and development expenses for the six and three months ended February 28, 1999 were $202 and $89, incurred in connection with the continuing development of E-Commerce ventures. Research and development expense for the six and three months ended February 28, 1998 were $464 and $258 incurred in connection with the development of the Performance Group's Maestro software. Depreciation and amortization expense during the six and three months ended February 28, 1999 was $2,124 and $819 primarily resulting from the goodwill and unearned compensation related to the Company's acquired divisions which were not present in the corresponding prior periods. Other income (expense) for the six months ended February 28, 1999 was ($156) as compared to $620 for the corresponding prior period. Other income (expense)for the three months ended February 28, 1999 was ($131)as compared to $199 for the corresponding prior period. The increase in other income (expense) during the current periods is a result of increased interest expense resulting from debt incurred in connection with the Zabit & Associates, Inc. 8 acquisition. The Company's effective tax rate for the six months ended February 28, 1999 was (31%). This rate reflects the amortization of non-deductible goodwill in connection with the acquisitions. LIQUIDITY AND CAPITAL RESOURCES: At February 28, 1999 the Company had working capital of $17,430 as compared to $17,333 at August 31, 1998. In April 1999, the Company entered into a $5,000 line of credit facility with a financial institution. Advances under this facility, which expires in June 2000, bear interest at LIBOR plus 2%. The consolidated statement of cash flows for the six months ended February 28, 1999 reflects net cash provided by operating activities of $2,601 reflecting a net loss of $1,553 and increase in accounts receivable of $3,669 offset by a increase in customer billings in excess of program costs of $5,273. Cash used in investing activities was $6,798, resulting from business acquisitions of $6,286. Cash provided by financing activities was $11,183, resulting primarily from the exercise of the Company's Class B Warrants and employee stock options of $11,160. The Company believes that it has adequate working capital for at least the next twelve months of operations at current levels. As of April 9, 1999 the Company had approximately $19,143 in cash and cash equivalents. 9 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 - ------ --------------------- None ITEM 3 - Defaults on Senior Securities - ------ ----------------------------- None ITEM 4 - Submission to a Vote of Security Holders - ------ ---------------------------------------- On February 12,1999 a notice of annual shareholders meeting and related proxy materials were submitted to the Company's shareholders. The annual meeting was held on March 12, 1999. The matters submitted to vote were: (1) the election of the Company's directors, Scott Mednick votes received for: 11,076,847 against 20,449, Werner Haase votes received for: 11,076,844 against 20,449, William Zabit votes received for: 11,076,844 against 20,449, Norman Doctoroff votes received for: 11,075,469 against 21,824, John Bermingham votes received for: 11,075,719 against 21,574, Terry Anderson votes received for: 11,035,094 against 62,199 (2) to approve the creation of a new 1999 Stock Option Plan, votes received for: 8,164,599, against 193,582 and abstain 292,163 (3) to ratify the appointment of independent public accountants for the current fiscal year, votes received for: 11,014,218, against 14,685 and abstain 68,390. ITEM 5 - Other Information - ------ ----------------- None ITEM 6 - Exhibits and Reports on Form 8-K - ------ -------------------------------- (a) Exhibits (20)(g) Notice of redemption of the Company's Class B Warrants as incorporated by reference on Form 8-K (1) (b) Reports on Form 8-K (1) The Company's Current Report on Form 8-K, as filed with the Commission January 28, 1999 referencing the merger of Reset, Inc. and Mercury Seven, Inc., wholly owned subsidiaries of the Company, into the Company and further referencing the issuance of a Notice of Redemption of the Company's Class B Warrants. 10 XCEED 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: April 13,1999 11 EX-27 2 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 6-MOS AUG-31-1999 FEB-28-1999 20,775 201 11,565 154 906 36,752 4,467 1,481 82,294 19,322 2,907 159 0 0 57,740 82,294 32,350 32,350 19,871 19,871 0 0 327 (1,863) 578 (1,285) 0 0 0 (1,285) (0.10) (0.10)
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