U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
Commission file number 333-20525
SICKBAY.COM, INC. (FORMERLY KNOWN AS XETAL, INC.)
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
UTAH 22-2223126
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
510 BROADHOLLOW ROAD, SUITE 300, MELVILLE, NEW YORK 11747
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(Address of principal executive offices)
(516) 694-0040
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(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 January 31, 1999, 928,263 shares of common stock were outstanding.
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.)
FORM 10-QSB
QUARTER ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
PAGE
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INTRODUCTORY NOTE 3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- Consolidated Balance Sheet as of December 31, 1998. 4 - 5
- Consolidated Statement of Income for the three
months ended December 31, 1998 and 1997. 6
- Consolidated Statement of Cash Flows for the three
months ended December 31, 1998 and 1997. 7
- Notes to Consolidated Financial Statements. 8 - 12
Item 2 - Management's Discussion and Analysis
or Plan of Operation. 13 - 14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings. 15
Item 2 - Changes in Securities and Use of Proceeds 15
Item 3 - Default upon Senior Securities 15
Item 4 - Submission of Matters to a Vote of Security Holders. 15
Item 5 - Other Information. 15
Item 6 - Exhibits and Reports on Form 8-K. 15
SIGNATURES 16
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<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 or otherwise. 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 Xetal (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.
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PART I - FINANCIAL INFORMATION
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(SEE INTRODUCTORY NOTE)
ASSETS
DECEMBER 31,
1998
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(UNAUDITED)
CURRENT ASSETS:
Cash $ 6,064
Accounts Receivable, net of allowance for
doubtful accounts of $94,400 2,687,813
Inventory 776,720
Due from Officers 261,823
Deferred Tax Asset 23,000
Prepaid and Other Current Assets 23,763
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Total Current Assets 3,779,183
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PROPERTY AND EQUIPMENT - at cost, net of
accumulated depreciation of $85,818 76,519
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OTHER ASSETS:
Goodwill, net of accumulated amortization
of $33,479 149,860
Security Deposits 24,957
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Total Other Assets 174,817
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Total Assets $4,030,519
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(SEE INTRODUCTORY NOTE)
LIABILITIES & STOCKHOLDERS' EQUITY
DECEMBER 31,
1998
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(UNAUDITED)
CURRENT LIABILITIES:
Cash Overdraft $ 195,174
Bank - Line of Credit 465,000
Bankers Acceptances 95,779
Accounts Payable 1,579,252
Accrued Expenses 648,987
Loans Payable 450,000
Income Taxes Payable 20,200
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Total Current Liabilities 3,454,392
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Loan Payable - former shareholders 162,038
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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) (200,851)
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Total Stockholders' Equity 414,089
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Total Liabilities and Stockholders' Equity $ 4,030,519
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1998 AND 1997
(SEE INTRODUCTORY NOTE)
1998 1997
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(UNAUDITED) (UNAUDITED)
Revenue $8,811,126 $8,323,648
Cost of Goods Sold 7,990,846 7,600,697
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Gross Profit 820,280 722,951
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Operating Expenses:
Selling Expenses 238,130 274,268
General and Administrative Expenses 503,150 309,374
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Total Operating Expenses 741,280 583,642
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Income from Operations 79,000 139,309
Other Expenses - Interest Expense 24,443 50,820
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Net Income before Provision for Income Taxes 54,557 88,489
Provision for Income Taxes 20,000 --
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Net Income $ 34,357 $ 88,489
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Earnings Per Common Share $ .04 $ .10
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Weighted Average Number of Shares Outstanding 928,263 928,263
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1998 AND 1997
(SEE INTRODUCTORY NOTE)
1998 1997
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(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 34,357 $ 88,489
Adjustments to Reconcile Net Income to
Net Cash Flows from Operating Activities:
Depreciation 3,000 4,201
Amortization 3,055 3,054
Changes in Operating Assets and Liabilities:
Accounts Receivable (86,339) (537,639)
Inventory 199,612 242,648
Prepaid Expenses (2,604) (111)
Accounts Payable (233,745) 587,724
Accrued Expenses (5,910) (45,791)
Registration Costs 49,523 --
Income Taxes Payable 14,200 --
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Net Cash Flow from Operating Activities (24,851) 342,575
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CASH FLOW FROM INVESTING ACTIVITIES:
Due from Officers (13,549) (11,870)
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Net Cash Flow from Investing Activities (13,549) (11,870)
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CASH FLOW FROM FINANCING ACTIVITIES:
Cash Overdraft 70,721 13,663
Borrowing under Line of Credit - Net 80,000 --
Borrowing - Banker's Acceptances - Net (132,193) 93,987
Payment - Notes Payable -- (1,042)
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Net Cash Flow from Financing Activities 18,528 106,608
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Net Increase (Decrease) in Cash (19,872) 437,313
Cash - Beginning 25,936 52,335
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Cash - Ending $ 6,064 $ 489,648
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<PAGE>
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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 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.
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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.
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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
As of December 31, 1998, the Company was past due with respect to $450,000 of
promissory notes issued during 1996 and 1997 to certain private investors in the
Company
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 banker's 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 is scheduled to mature on March 31, 1999. At such time, the
bank will review the credit basis of the Company to determine whether to extend
the facility. 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.
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.
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(SEE INTRODUCTORY NOTE)
NOTE 5 - INCOME TAXES (CONTINUED)
The components of deferred taxes as of December 31, 1998, are as follows:
Allowance for doubtful accounts $23,000
For the three months ended December 31, 1998, the provision for income taxes
(benefits) consists of the following:
Current $20,000
Deferred --
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Provision (benefit) for income taxes $20,000
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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 three months ended December 31, 1998 was
$-0-.
LEASES
Effective December 1994, an affiliated company, whose shareholders are the
officers of the Company, leased a 9,800 square foot facility to house its
operations. Under the terms of the new 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 $90,779 for purchases to be
delivered after December 31, 1998.
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(SEE INTRODUCTORY NOTE)
NOTE 7 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
For the three months ended December 31,
1999 1998
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Payments for Interest $14,138 $40,695
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Payments for Income Taxes $ -- $ --
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<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
SUBSIDIARIES
Xetal the parent Corporation had no operations during 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 three months ended December 31, 1998 increased $487,478 or 6%
over the comparable period in 1997. The increase in revenue is primarily due to
an increase in veterinary sales. Gross profit increased by $97,329 or 13.5%. As
a percentage of sales, the gross profit was 9.3% for the quarter ended December
31, 1998 versus 8.7% for the comparable quarter of the prior year. The increase
in gross profit margin is a result of a greater percentage of sales attributable
to retail operations as opposed to wholesale operations. Retail sales
traditionally have a higher gross profit margin than wholesale sales.
Operating expenses for the three months ended December 31, 1998 increased by
$157,638 or 27.0% compared to the three months ended December 31, 1997. The
selling expense component of operating expenses decreased by $36,138 as the
Company ceased the majority of trade show activities. General and administrative
expenses increased by $193,776. The major components of this increase were (1) a
bonus to officers of $60,000, (2) writing off deferred registration costs of
$49,523 for a failed stock offering, and (3) increased salaries and other
payroll costs of approximately $50,000.
Interest expense decreased by $26,377 for the quarter ended December 31, 1998,
compared to December 31, 1997, as the Company reduced the average amount
outstanding on its line of credit and banker's acceptances.
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RESULTS OF OPERATIONS (CONTINUED)
The Company recorded a provision for income taxes of approximately $20,000 in
1998, while in 1997, no provision was made because of unused net operating loss
carryforwards.
FINANCIAL CONDITION
At December 31, 1998, the Company had current working capital of $324,791. In
addition, the Company had available $535,000 in bank lines of credit and a
combined $700,000 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 December 31, 1998, the Company was
negotiating the repayment of certain over due notes, which notes were
subsequently settled and resolved.
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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
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<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
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Mark Basile
Chairman and CEO
/S/ ALLEN MOTOLA
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Dr. Allen Motola
President and Treasurer
Dated: March 10, 2000
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