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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 June 30, 1999
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 - 0400
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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 .
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As of July 31, 1999 748,263 shares of common stock were outstanding.
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.)
FORM 10-QSB
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PAGE
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INTRODUCTORY NOTE 3
PART I -- FINANCIAL INFORMATION
Item 1 - Financial Statements
- Consolidated Balance Sheet as of June 30, 1999. 4-5
- Consolidated Statement of Income for the nine
months ended June 30, 1999 and 1998. 6
- Consolidated Statement of Income for the three
months ended June 30, 1999 and 1998. 7
- Consolidated Statement of Cash Flows for the nine
months ended June 30, 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
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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 the 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
JUNE 30, 1999
(SEE INTRODUCTORY NOTE)
ASSETS
JUNE 30,
1999
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(UNAUDITED)
CURRENT ASSETS:
Cash $ 39,692
Accounts Receivable, net of allowance for
doubtful accounts of $94,400 2,802,604
Inventory 728,898
Deferred Tax Asset 43,000
Prepaid and Other Current Assets 23,415
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Total Current Assets 3,737,609
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PROPERTY AND EQUIPMENT - at cost, net of
accumulated depreciation of $95,395 66,942
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OTHER ASSETS:
Goodwill, net of accumulated amortization
of $39,589 143,750
Security Deposits 24,957
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Total Other Assets 169,707
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Total Assets $3,973,258
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(SEE INTRODUCTORY NOTE)
LIABILITIES & STOCKHOLDERS' EQUITY
JUNE 30,
1999
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(UNAUDITED)
CURRENT LIABILITIES:
Cash Overdraft $ 145,523
Bank - Line of Credit 510,000
Bankers Acceptances 195,060
Accounts Payable 1,577,184
Accrued Expenses 379,270
Income Taxes Payable 257,000
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Total Current Liabilities 3,064,037
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) 132,423
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747,363
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Less: 180,000 shares in Treasury 180
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Total Stockholders' Equity 747,183
Total Liabilities and Stockholders' Equity $3,973,258
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 1998
(SEE INTRODUCTORY NOTE)
1999 1998
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(UNAUDITED) (UNAUDITED)
Revenue $24,661,349 $24,693,703
Cost of Goods Sold 22,374,761 22,280,389
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Gross Profit 2,286,588 2,413,314
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Operating Expenses:
Selling Expenses 614,741 891,158
General and Administrative Expenses 1,298,780 1,039,700
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Total Operating Expenses 1,913,521 1,930,858
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Income from Operations 373,067 482,456
Other Expenses - Interest Expense 67,259 125,219
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Net Income before Provision for Income Taxes 305,808 357,237
Provision for Income Taxes 114,200 --
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Net Income before Extraordinary Item 197,608 357,237
Extraordinary Item - Net of Taxes 176,023 --
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Net Income $ 367,631 $ 357,237
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Earnings Per Common Share $ .42 $ .39
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Weighted Average Number of Shares Outstanding 865,263 928,263
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED
JUNE 30, 1999 AND 1998
(SEE INTRODUCTORY NOTE)
1999 1998
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(UNAUDITED) (UNAUDITED)
Revenue $8,172,886 $ 9,395155
Cost of Goods Sold 7,416,731 8,521,966
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Gross Profit 756,155 873,189
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Operating Expenses:
Selling Expenses 176,813 275,452
General and Administrative Expenses 501,518 416,651
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Total Operating Expenses 678,331 692,103
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Income from Operations 77,824 181,086
Other Expenses - Interest Expense 20,654 31,731
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Net Income before Provision for Income Taxes 57,170 149,355
Provision for Income Taxes 22,200 --
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Net Income before Extraordinary Item 34,970 149,355
Extraordinary Item - Net of Taxes 61,510 --
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Net Income $ 96,480 $ 149,355
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Earnings Per Common Share $ .12 $ .16
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Weighted Average Number of Shares Outstanding 788,263 928,263
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
JUNE 30, 1999 AND 1998
(SEE INTRODUCTORY NOTE)
1999 1998
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(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 367,631 $ 357,237
Adjustments to Reconcile Net Income to
Net Cash Flows from Operating Activities:
Depreciation 12,577 12,603
Amortization 9,165 9,162
Allowance for doubtful accounts -- 23,800
Deferred Taxes (20,000) --
Gain Forgiveness of Debt (397,869) --
Changes in Operating Assets and Liabilities:
Accounts Receivable (201,130) (628,741)
Inventory 247,434 247,148
Security Deposits -- (20,000)
Prepaid Expenses 2,256 (9,602)
Registration Costs 49,523 --
Accounts Payable (235,813) 366,469
Accrued Expenses (181,348) 25,245
Income Taxes Payable 251,000 --
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Net Cash Flow from Operating Activities (96,574) 383,321
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CASH FLOW FROM INVESTING ACTIVITIES:
Due from Officers 148,274 97,948
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Net Cash Flow from Investing Activities 148,274 97,948
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CASH FLOW FROM FINANCING ACTIVITIES:
Cash Overdraft 21,070 72,402
Borrowing under Line of Credit -- Net 135,000 (479,292)
Borrowing -- Banker's Acceptances -- Net (32,912) (15,773)
Payment -- Notes Payable (210,625) (1,042)
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Net Cash Flow from Financing Activities (37,944) (423,705)
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Net Increase (Decrease) in Cash 13,756 57,564
Cash -- Beginning 25,936 52,335
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Cash -- Ending $ 39,692 $ 109,899
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
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 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 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 and September
30, 1999, filed with the Securities and Exchange Commission.
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.
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.
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(SEE INTRODUCTORY NOTE)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NATURE OF BUSINESS (CONTINUED)
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
JUNE 30, 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
As of June 30, 1999, the Company settled certain claims relating to $450,000 of
promissory notes issued during 1996 and 1997 with shares and warrants attached
to private investors in the company for less than the face value amount thereof.
The transactions resulted in an extraordinary gain of $175,843 net of income
taxes of $120,000; and also resulted in the reduction of shares outstanding from
808,263 to 748,263.
NOTE 4 -- CREDIT FACILITY
In June, 1999, 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%.
The credit facility is 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.
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(SEE INTRODUCTORY NOTE)
NOTE 5 -- INCOME TAXES
Deferred income taxes arise form 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 the direct write-off method for
tax purposes.
The components of deferred taxes as of June 30, 1999, are as follows:
Allowance for doubtful accounts $ 43,000
For the nine months ended June 30, 1999, the provision for income taxes
(benefits) consist of the following:
Current $ 134,200
Deferred (20,000)
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Provision (benefit) for income taxes $ 114,200
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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 nine months ended June 30, 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 $465,371 for purchases to be
delivered after June 30, 1999.
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SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.) & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(SEE INTRODUCTORY NOTE)
NOTE 7 -- SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
For the Nine Months ended June 30, 1999 1998
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Payment of Interest $ 67,259 $102,719
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Payment of Taxes $ -- $ --
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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 nine months ended June 30, 1999 decreased by $32,354 or .1%
compared to the nine months ended June 30, 1998. Gross profit margins decreased
to 9.27% for the nine months ended June 30, 1999 from 9.77% for the comparable
period of the prior year. The decrease in gross profit margin is a result of a
greater percentage of sales applicable to lower margin wholesale sales compared
to the prior period.
Operating expenses for the nine months ended June 30, 1999 decreased by $17,337
or .8% from the prior years period ended June 30, 1998. Selling expenses
decreased by $276,417 for the nine months ended June 30, 1999. Included in the
nine months selling expenses at June 30, 1998 was $325,000 in bonuses to two
officers based upon their employment agreement in effect at that date. There was
no similar bonus in 1999. Advertising, postage and mailing expenses increased in
1999 by approximately $45,000 over 1998
General and administrative expenses for the nine month period ended June 30,
1999 increased by approximately $259,000 over the nine month period ended June
30, 1998. The major components of this increase are: (1) officers salaries,
including accrued bonus, increased by approximately $185,000, (2) the write-off
of deferred registrations costs due to an unsuccessful offering of $49,523, and
(3) approximately $50,000 in increases in other salaries and payroll taxes.
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RESULTS OF OPERATIONS (CONTINUED)
Interest expense for the nine months ended June 30, 1999 was $67,259 compared to
$125,219 for the nine months ended June 30, 1998. The major reasons for the
decrease were (1) promissory notes had been paid off, (2) a lower average
borrowing on the Company's line of credit, (3) less use of bankers acceptances,
and (4) the Company started on-line banking allowing them to reduce borrowings
over weekends.
For the nine months ended June 30, 1999, the Company recorded a provision for
Income Taxes of $114,200; in 1998, the Company was able to offset the provision
with its net operating loss carryforward.
For the period ended June 30, 1999, the Company recorded an extraordinary gain
net of income taxes of $175,843 in connection with the settlement of
indebtedness.
FINANCIAL CONDITION
At June 30, 1999, the Company has current working capital of $673,572. In
addition the Company had available $490,000 in bank lines of credit and
approximately $535,000 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 has sufficient capital available
for operations.
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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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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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