U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-QSB
----------
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999.
Commission file number 333-20525
SICKBAY.COM, INC. (FORMERLY KNOWN AS XETAL, INC.)
-----------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
UTAH 22-2223126
- ------------------------------- ----------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
510 BROADHOLLOW ROAD, SUITE 300, MELVILLE, NEW YORK 11747
---------------------------------------------------------
(Address of principal executive offices)
(516) 694-0040
---------------------------
' (Issuer's Telephone Number)
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 ____ No __X.__
As of April 30, 1999, 808,263 shares of common stock were outstanding.
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.)
FORM 10-QSB
QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
PAGE
----
INTRODUCTORY NOTE 3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- Consolidated Balance Sheet as of March 31, 1999. 4-5
- Consolidated Statement of Income for the six
months ended March 31, 1999 and 1998. 6
- Consolidated Statement of Income for the three
months ended March 31, 1999. 7
- Consolidated Statement of Cash Flows for the six
months ended March 31, 1999 and 1998 8
- Notes to Consolidated Financial Statements. 9-13
Item 2 - Management's Discussion and Analysis
or Plan of Operations. 14-15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings. 16
Item 2 - Changes in Securities and Use of Proceeds. 16
Item 3 - Default upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security Holders. 16
Item 5 - Other Information. 16
Item 6 - Exhibits and Reports on Form 8-K. 16
SIGNATURES 17
- 2 -
<PAGE>
INTRODUCTORY NOTE
On November 16, 1998, a Registration Statement on Form SB-2 (the "1998
Registration Statement") filed by Xetal, Inc., a Utah corporation (the
"Registrant" or "Xetal") was declared effective by the Securities and Exchange
Commission. At the time of the filing, Xetal was a publicly-owned, Bulletin
Board listed, non-reporting company. All of the operations of Xetal were
conducted through subsidiary companies. The Registration Statement related to a
proposed underwritten public offering of additional Common Stock of Xetal. The
public offering was not consummated and no securities were sold by the
Registrant pursuant thereto. The Registrant did not previously hereto file a
Form 8-A or otherwise commence its filing of periodic and other reports under
the Securities Exchange Act of 1934.
On December 29, 1999, Xetal entered into a Reorganization Agreement (the
"Agreement") with Sick-Bay.Com, Inc., a Delaware corporation ("Sick-Bay
Delaware"). Pursuant to the Agreement, Xetal spun off all of its business
operations by a one-for-one restricted stock dividend of APO Health, Inc.
("APO") to the existing shareholder base of Xetal. Prior to the spin-off, Xetal,
the parent Company, had been inactive and all of the operations had been
maintained in wholly owned operating subsidiaries. Thus, the spin-off left the
remaining publicly owned entity without remaining assets and business. The
shareholders of Xetal also retained their shares in Xetal, while the
shareholders of Sick-Bay Delaware received shares of Xetal representing over 95%
of the Company (the "Reorganization"). After the Reorganization, Xetal owned the
InterNet medical portal business of Sick-Bay Delaware, changed its name to
Sickbay.com, Inc. ("Sickbay"), and also changed its Cusip number and ticker
symbol ("SKBY").
Subsequent thereto, the management of Sickbay became aware that, since the 1998
Xetal Registration Statement was not properly withdrawn, that Xetal had been
required to file periodic and other reports under the Securities Exchange Act of
1934. Accordingly, this, and other filings intended to be made herewith, are
intended to bring Sickbay current in its filing obligations.
Accordingly, the financial and other information contained in this Form 10-QSB
are reflective of business operations of APO, a now privately-held company. In
December 1999, concurrently with the execution of the Reorganization Agreement,
Sickbay entered into a non-binding Letter of Intent to re-acquire all of the
assets and business of APO.
- 3 -
<PAGE>
PART I FINANCIAL INFORMATION
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(SEE INTRODUCTORY NOTE)
ASSETS
MARCH 31,
1999
----------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 19,958
Accounts Receivable, net of allowance for
doubtful accounts of $94,400 2,795,944
Inventory 799,671
Due from Officers 100,000
Deferred Tax Asset 43,000
Prepaid and Other Current Assets 11,833
----------
Total Current Assets 3,770,406
----------
PROPERTY AND EQUIPMENT - at cost, net of
accumulated depreciation of $91,220 71,117
----------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $36,534 146,805
Security Deposits 24,957
----------
Total Other Assets 171,762
----------
Total Assets $4,013,285
==========
- 4 -
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(SEE INTRODUCTORY NOTE)
LIABILITIES & STOCKHOLDERS' EQUITY
MARCH 31,
1999
----------
(UNAUDITED)
CURRENT LIABILITIES:
Cash Overdraft $ 77,070
Bank - Line of Credit 945,000
Bankers Acceptances 90,708
Accounts Payable 1,390,648
Accrued Expenses 367,058
Loans Payable 150,000
Income Taxes Payable 180,000
----------
Total Current Liabilities 3,200,484
----------
Loan Payable - former shareholders 162,038
----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value
2,000,000 shares authorized, 0 shares issued --
Common Stock, $.001 par value
20,000,000 shares authorized,
928,263 shares issued and outstanding 928
Additional Paid-In Capital 614,012
Retained Earnings (Deficit) 35,943
----------
650,883
Less: 120,000 shares in Treasury 120
----------
Total Stockholders' Equity 650,763
----------
Total Liabilities and Stockholders' Equity $4,013,285
==========
- 5 -
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(SEE INTRODUCTORY NOTE)
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
Revenue $16,488,463 $15,298,548
Cost of Goods Sold 14,958,030 13,758,423
----------- -----------
Gross Profit 1,530,433 1,540,125
----------- -----------
Operating Expenses:
Selling Expenses 437,928 615,706
General and Administrative Expenses 797,262 623,049
----------- -----------
Total Operating Expenses 1,235,190 1,238,755
----------- -----------
Income from Operations 295,243 301,370
Other Expenses - Interest Expense 46,605 93,488
----------- -----------
Net Income before Provision for Income Taxes 248,638 207,882
Provision for Income Taxes 92,000 --
----------- -----------
Net Income before Extraordinary Item 156,638 207,882
Extraordinary Item - Net of Taxes 114,513 --
----------- -----------
Net Income $ 271,151 $ 207,882
=========== ===========
Earnings Per Common Share $ .30 $ .22
=========== ===========
Weighted Average Number of Shares Outstanding 903,763 928,263
=========== ===========
- 6 -
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(SEE INTRODUCTORY NOTE)
1999 1998
---------- ----------
(UNAUDITED) (UNAUDITED)
Revenue $7,677,337 $6,974,900
Cost of Goods Sold 6,967,184 6,157,726
---------- ----------
Gross Profit 710,153 817,174
---------- ----------
Operating Expenses:
Selling Expenses 199,798 341,438
General and Administrative Expenses 294,112 313,675
---------- ----------
Total Operating Expenses 493,910 655,113
---------- ----------
Income from Operations 216,243 162,061
Other Expenses - Interest Expense 22,162 42,668
---------- ----------
Net Income before Provision for Income Taxes 194,081 119,393
Provision for Income Taxes 71,800 --
---------- ----------
Net Income before Extraordinary Item 122,281 119,393
Extraordinary Item - Net of Taxes 114,513 --
---------- ----------
Net Income $ 236,794 $ 119,393
========== ==========
Earnings Per Common Share $ .27 $ .13
========== ==========
Weighted Average Number of Shares Outstanding 888,263 928,263
========== ==========
- 7 -
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(SEE INTRODUCTORY NOTE)
1999 1998
--------- ---------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 271,151 $ 207,882
Adjustments to Reconcile Net Income to
Net Cash Flows from Operating Activities:
Depreciation 8,402 8,402
Amortization 6,110 6,108
Allowance for Doubtful Accounts -- 23,800
Deferred Taxes (20,000) --
Gain Forgiveness of Debt (232,036) --
Changes in Operating Assets and Liabilities:
Accounts Receivable (194,470) 60,425
Inventory 176,661 (626,055)
Security Deposits -- (20,000)
Prepaid Expenses 9,326 (32,937)
Registration Costs 49,523 --
Accounts Payable (422,349) 394,397
Accrued Expenses (227,798) (79,858)
Income Taxes Payable 174,000 --
--------- ---------
Net Cash Flow from Operating Activities (401,480) (57,836)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Due from Officers 148,274 97,948
--------- ---------
Net Cash Flow from Investing Activities 148,274 97,948
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Cash Overdraft (47,383) 36,359
Borrowing under Line of Credit - Net 560,000 (39,292)
Borrowing - Banker's Acceptances - Net (137,264) (42,222)
Payment - Notes Payable (128,125) (1,042)
--------- ---------
Net Cash Flow from Financing Activities 247,228 (46,197)
--------- ---------
Net Increase (Decrease) in Cash (5,978) (6,085)
Cash - Beginning 25,936 52,335
--------- ---------
Cash - Ending $ 19,958 $ 46,250
========= =========
- 8 -
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(SEE INTRODUCTORY NOTE)
NOTE 1 - LIMITATIONS OF SCOPE
During the period covered by this Form 10-QSB, the Company was known as Xetal,
Inc. and the business conducted by the Company during such periods has since
been transferred to APO Health, Inc., a private company. See "Introductory Note"
on page 3 of this Form 10-QSB.
The following financial information is submitted in response to the requirements
of Form 10-QSB and does not purport to be financial statements prepared in
accordance with generally accepted accounting principles. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, although the Company believes the disclosures that are made are
adequate to make the information presented not misleading. Further, in the
opinion of the management, the interim financial statements reflect fairly the
financial position and results of operations for the periods indicated.
It is suggested that these interim consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's Special Financial Report containing the Company's audited Financial
Statements as of and for the fiscal year ended September 30, 1998.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company was organized under the laws of the State of Utah. In September,
1994, the Company acquired APO Health ("APO"), a wholesale distributor of
medical supplies, selling predominantly to medical distributors, dentists and
doctors throughout the United States. Approximately 80% of the Company's sales
are to distributors of medical supplies.
The acquisition has been accounted for by the purchase method of accounting for
a business combination and was treated as a reverse acquisition. Such
transaction treats the acquisition as if APO acquired the Company and reflects
the fair market value of the Company's net assets on the date of acquisition.
- 9 -
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(SEE INTRODUCTORY NOTE)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NATURE OF BUSINESS (CONTINUED)
On March 31, 1996, the Company acquired Universal Medical Distributors, Inc.,
("Universal"), in a business combination accounted for as a purchase. Universal
is primarily engaged in the business of distributing veterinary supplies.
During July, 1996, the Company acquired Dental Alternatives, Inc.
("Alternatives"), an inactive company owned by a major shareholder of the
Company. The acquisition was accounted for as a business combination of entities
under common control, which has been accounted for in a manner similar to a
pooling of interests. The Company acquired trademarks and marketing rights of
products developed by Alternatives through the exchange of 400,000 shares of the
Company's common stock for all of the outstanding stock of Alternatives.
The accompanying Consolidated Financial Statements include the accounts of the
Company and all of its wholly owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation.
INVENTORY
Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided for on the
straight-line method over the estimated useful life.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results may
differ from those estimates.
INCOME TAXES
Deferred income tax assets and liabilities are computed for differences between
the financial statement basis and the tax basis of assets and liabilities that
will result in taxable income or deductible expenses in the future based on
enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
- 10 -
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(SEE INTRODUCTORY NOTE)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES
Registration costs were deferred until December, 1998, and charged as a period
cost after an unsuccessful public stock offering. Costs associated with the
companies acquired are capitalized and included in the purchase price of such
acquisition. Goodwill represents the excess of the cost of companies acquired
over the fair value of their net assets at the date of acquisition and are being
amortized on the straight line method over 15 years.
NOTE 3 - LOANS PAYABLE
During the quarter ended March 31, 1999, the Company settled certain claims
relating to $300,000 of promissory notes with shares and warrants attached
issued during 1996 and 1997 to private investors in the company for less than
the full face amount thereof. The transaction resulted in an extraordinary gain
of $114,393, net of income taxes of $68,000; and also resulted in a reduction of
shares outstanding from 928,263 to 808,263.
NOTE 4 - CREDIT FACILITY
In July, 1998, the Company renegotiated its credit facility with the financial
institution. The facility is for working capital and the purchase of inventory.
The credit facility provides for a $2,000,000 secured working capital facility
for letters of credit and bankers acceptances with a sub-limit of $1,000,000 for
note borrowings. Interest is payable monthly, at the bank's prime rate plus 1
and 1/2%.
The credit facility matured on March 31, 1999. After a review performed by the
bank, the credit facility was extended and is now scheduled to mature on March
31, 2000. The facility is secured by substantially all of the Company's assets
and personally guaranteed by its stockholders. In addition, the obligation due
to the former shareholders in the amount of $162,038 is subordinated to the
bank's borrowing.
- 11 -
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(SEE INTRODUCTORY NOTE)
NOTE 5 - INCOME TAXES
Deferred income taxes arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. The primary source of temporary differences is the use of the allowance
method for bad debts for financial accounting and the direct write-off method
for tax purposes.
The components of deferred taxes as of March 31, 1999, are as follows:
Allowance for doubtful accounts $43,000
For the six months ended March 31, 1999, the provision for income taxes
(benefits) consist of the following:
Current $112,000
Deferred 20,000
--------
Provision (benefit) for income taxes $ 92,000
========
NOTE 6 - COMMITMENTS AND CONTINGENCY
DEFINED CONTRIBUTION PENSION PLAN
January, 1993, the Company established a profit sharing plan. All full time
employees, as defined in the plan, are eligible. Contributions to the plan are
discretionary. Pension expense for the six months ended March 31, 1999 was $-0-.
LEASES
Effective December 1994, an affiliated company, whose shareholders are the
officers of the Company, leased its 9,800 square foot facility to house its
operations. Under the terms of the lease, the Company will pay for all real
estate tax increases and any repairs to the property. The Company has a month to
month lease with similar terms with this affiliate.
LETTERS OF CREDIT
The Company had letters of credit outstanding of $76,031 for purchases to be
delivered after March 31, 1999.
- 12 -
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(SEE INTRODUCTORY NOTE)
NOTE 6 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS:
For the six months ended March 31, 1999 1998
- ------------------------------------------------ --------- ---------
Payments for Interest $ 24,105 $ 70,988
--------- ---------
Payments for Income Taxes $ -- $ --
========= =========
- 13 -
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
SUBSIDIARIES
Xetal the Parent Corporation had no operations for the period covered by this
report. The information described herein represents the financial condition and
results of operations of the Company's principal subsidiaries. The acquisition
of APO Health, Inc. by the Company for accounting purposes has been treated as a
purchase by APO (i.e. a reverse acquisition) because of the significance of the
assets and operations of APO when compared to the Company. Therefore the
financial statements predominantly represent the historical activities and
assets of APO and two other subsidiaries acquired by the Company.
BUSINESS OF THE COMPANY
The Company distributes medical, dental and veterinary supplies which are
manufactured by others. These products include protective garments such as
disposable isolation gowns, face masks and gauze as well as other medical
disposable items including latex gloves, needles, syringes and health and beauty
aids. Products are marketed and sold primarily (i) on a wholesale basis to other
distributors, (ii) directly to doctors, dentists and veterinarians, and (iii) to
others including to consumers and through export to foreign countries.
RESULTS OF OPERATIONS
Revenue for the six months ended March 31, 1999 increased by $1,189,915 or 7.8%
over the comparable period of the prior year. The increase for the six month
period ended March 31, 1999 was almost entirely due to increased purchases from
wholesale customers. The gross profit margin for the six months ended March 31,
1999 was 9.28% compared to 10.01% for the comparable period the prior year.
While sales increased, the product mix changed with a larger percentage of sales
from wholesale operations which has a lower gross profit margin than retail
operations.
Operating expenses in total decreased by $3,565 for the six months ended March
31, 1999 compared to the six months ended March 31, 1998. Selling expenses
decreased by $177,778. The six month selling expense in 1998 included a bonus to
two officers of $195,000 based on their employment agreements. General and
administrative expenses for the six months ended March 31, 1999 increased by
$174,213 over the same period in 1998. The major components of this increase
were (1) bonus to officers of $60,000, (2) write-off of $49,523 deferred
registration cost of a failed stock offering, and (3) increased salaries and
payroll costs of approximately $70,000.
- 14 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Interest expense for the six months ended March 31, 1999 was $46,605 compared to
$93,488 for the six months ended March 31, 1998. Two factors contributed to this
decrease: (1) a reduction in the average amounts outstanding on the Company's
line of credit and bankers acceptances, and (2) settlement of $300,000 in loans
payable. For the six months ended March 31, 1999, the Company recorded a
provision for income taxes of $92,000. For the comparable period in 1998, the
Company was able to offset the provision with its net operating loss
carryforward.
For the period ended March 31, 1999, the Company recorded an extraordinary gain
net of income taxes of $114,393 in connection with the settlement of
indebtedness.
FINANCIAL CONDITION
At March 31, 1999, the Company had current working capital of $569,222. In
addition, the Company had available $55,000 in bank lines of credit and
approximately $800,000 of unused credit facilities for bankers acceptances and
letters of credit. The Company has no immediate plans for any major capital
expenditures or expansion, and, therefore, it believes that it has sufficient
capital available for operations. At March 31, 1999, the Company was negotiating
the repayment of certain overdue notes, which notes were subsequently settled
and resolved.
- 15 -
<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
- 16 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.)
/s/ MARK BASILE
-----------------------------
Mark Basile
Chairman and CEO
/s/ ALLEN MOTOLA
-----------------------------
Dr. Allen Motola
President and Treasurer
Dated: March 10, 2000
- 17 -
