SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number 333-20525
SICKBAY.COM, INC. (FORMERLY KNOWN AS XETAL, INC.)
-------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 22-2223126
------------------------------- ----------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
510 BROADHOLLOW ROAD, MELVILLE, NEW YORK 11747
- --------------------------------------------- ---------
(Address of principal executive offices) Zip Code
(516) 694 - 0400
----------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act (1):
Common Stock, Par Value $ .001 Per Share
----------------------------------------
(Title of Class)
Indicate by check mark, whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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].
Indicate by check mark, if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein and will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
- ----------
(1) Registration is being filed herewith.
1
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing bid price of such stock as of March 2, 2000,
amounted to $ 22,500,000.
The number of shares outstanding of each of the registrant's classes of common
stock as of March 2,2000 was 21,168,263 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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 Common Stock 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 may have
been deemed to have 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-K 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. Sickbay has not taken any action to complete any
such transaction and there is no assurance that it will do so.
2
<PAGE>
SICKBAY.COM, INC.
-----------------
(FORMERLY KNOWN AS XETAL, INC.)
FORM 10-K
FISCAL YEAR ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PAGE
PART I Item 1 Business 4 - 9
Item 2 Properties 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote
of Security Holders 9
PART II Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters 10
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 14
Item 8 Financial Statements and Supplementary Data 14
Item 9 Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure 14
PART III Item 10 Directors and Executive Officers
of the Registrant 15
Item 11 Executive Compensation 16
Item 12 Security Ownership of Certain Beneficial
Owners and Management 17
Item 13 Certain Relationships and Related Transactions 17
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 18
SIGNATURES 19
3
<PAGE>
PART I
PREFATORY NOTE:
This Annual Report on Form 10-K is written as of September 30, 1999 and
describes business operations as of that date. In addition, the financial
statements included herein relate to the business operations of the Company up
to September 30, 1999. Subsequent to that date, the business operations of the
Company were completely changed, as described in "Introductory Note" on page 2
hereof.
ITEM 1 BUSINESS
HISTORY
The Company was incorporated in May, 1969, under the laws of the State of Utah.
In September, 1994, the Company entered into an acquisition agreement with
Xetal, Inc., a New York corporation (for purposes herein referred to as "APO
Health"), pursuant to which the stockholders of APO Health acquired
approximately 83% of the issued and outstanding capital stock of the Company in
exchange for all of the capital stock of APO Health. Prior to the acquisition,
Dr. Jan Stahl and Mr. Peter Steil owned 100% of the capital stock of APO Health
and served as its officers and directors. As a result of the consummation of the
transactions under the Acquisition Agreement, APO Health became a wholly owned
subsidiary of the Company and Dr. Jan Stahl and Mr. Peter Steil became principal
shareholders of the Company and, thereafter, became officers and directors of
the Company. In January, 1995, the Company changed its name to Xetal, Inc. and
APO Health, thereafter, changed its name to APO Health, Inc.
In March, 1996, the Company acquired 100% of the outstanding capital stock of
Universal Medical Distributors, Inc. ("Universal"), a company principally
engaged in the business of distributing veterinary supplies. During July, 1996,
the Company also acquired 100% of the outstanding capital stock of Dental
Alternatives, Inc. ("Alternatives"), a corporation owned by Dr. Jan Stahl, one
of the Company's principal shareholders, in exchange for 400,000 shares of the
Company's common stock. Alternatives owned certain marketing rights and
trademarks to products developed by Dr. Stahl.
BUSINESS OF THE COMPANY
The operations of the Company's predecessor commenced about 1987, and through
its subsidiaries, the Company is a distributor, supplier and manufacturer of
disposable medical products principally to dental, medical and veterinary
professionals. These products include protective garments such as isolation
gowns, facemasks and gauze, as well as other disposable items such as latex
gloves, needles, syringes, health and beauty aids and chemicals for infection
control.
4
<PAGE>
Management has elected to concentrate the Company's efforts in specialized
markets for disposable dental, medical and veterinary products. The Company
currently distributes over 3,000 different products. Products are marketed and
sold primarily (i) to other distributors, (ii) directly to doctors, dentists and
veterinarians, and (iii) to others, including direct consumers.
Universal, the Company's veterinary division, is a full service veterinary
supply company, its sales generated through direct marketing, trade shows and
mail order.
PRODUCTS
The Company distributes approximately 3,000 different products within the
medical, dental and veterinary markets. Several of the principal products are
described below:
Dental: The Company markets and distributes protective gloves, needles, prophy
angles, barrier protection products, gowns, face masks, gauze products, topical
anesthetics and infection control chemicals to the dental industry. Included
among such products are the following proprietary products:
Floam(TM): This product is a topical fluoride treatment in a foam format which
is offered in four flavors and is marketed as a dental hygiene product for
direct consumer use.
Prophy Jet Powder: This product, marketed and distributed to the dental
industry, is used primarily to prevent clogging and insure even flow through
prophy jet units.
Gobble(TM): This product, also marketed and distributed to the dental industry,
is a bacterial product which forms a potent biofilm that adheres to evacuation
in dental equipment which causes organic waste to be reduced to carbon dioxide
and water.
Medical: The Company markets and distributes protective gloves, tapes, syringes,
needles, protective barrier gowns and gauze products to the medical and health
care industry.
Veterinarian: The Company markets and distributes protective gloves, needles,
gowns, tapes, and a full line of veterinary products to the veterinary industry.
In addition to the foregoing, which represent the most popular product lines,
the Company distributes a wide range of other medical, dental and veterinary
supplies and products. The Company obtains its products from third party
manufacturers and suppliers. The Company does not have any contractual
arrangements with any of its suppliers or manufacturers. Although the Company
does not have any such contractual arrangements, the Company believes that there
are adequate alternative manufacturers which would be able to provide adequate
manufacturing capabilities in the event its present manufacturers were unable,
or unwilling, to continue to provide the Company with manufacturing services.
5
<PAGE>
SALES AND MARKETING
The Company's products are sold directly by Company employees, through mail
order and by outside, independent sales representatives. The Company's sales
organization presently consists of four persons, including Dr. Stahl, the
Company's Chief Executive Officer, who oversees a combination of direct
salespersons and independent sales representatives. Typically, independent sales
representatives who have undertaken to sell the Company's products will agree
not to sell similar or competitive products during the time when they represent
the Company.
The Company's marketing approach attempts to capitalize on its wide array of
product lines in order to offer mass merchandisers, buying consortiums, and drug
store and supermarket chains a "package" approach to its private label program.
This not only provides customers with attractive and competitive pricing but, in
management's opinion, provides the Company with a competitive advantage by
offering its customers the ease of administration and cost savings which come
with using a single supplier for many of their product needs.
During the course of the last year, the Company increased its sales and
marketing efforts, including by (i) expanding its use of independent sales
through the use of a combination of advertisements in specialized trade
magazines, and a direct mail and fax program to potential end-users; (ii)
expanding its use of print advertising (including the expansion of current
advertising in trade publication); and (iii) arranging to develop, print and
distribute product brochures and literature.
GOVERNMENT REGULATION
Approval from the Food and Drug Administration (the "FDA") is not required for
marketing or distribution of most of the Company's products. However, certain of
the products marketed or being developed and manufactured by the Company are, or
will be, subject to regulation as medical devices by the FDA, which has
comprehensive authority to regulate the development, production, distribution
and promotion of medical devices. Various states and foreign countries in which
the Company's products are, or in the future may be sold, may also impose
certain additional regulatory requirements. The Company is registered with the
FDA as a distributor of various medical devices.
Pursuant to the federal Food, Drug and Cosmetic Act, and the regulation
promulgated thereunder, a medical device is ultimately classified by the FDA as
either a Class I, Class II or Class III device. Class I devices are subject to
general controls which are applicable to all devices. Such controls include
regulation regarding FDA inspection of facilities, "Good Manufacturing
Practices," labeling, maintenance of records and filings with the FDA. Class II
devices must meet general performance standards established by the FDA before
they can be marketed and must adhere to such standards once on the market.
6
<PAGE>
Each manufacturer of medical devices is required to register with the FDA and
also to file a "510(k) Notification" before initially marketing a new device
intended for humans. The manufacturer may not market such new device until 90
days following the filing of such Notification unless the FDA permits an early
marketing date. The FDA, prior to the expiration of the 90-day period, may
notify the manufacturer that it objects to the marketing of the proposed device,
and thereby may delay or preclude the manufacturer's ability to market that
device. The FDA may also require further data from, or testing by, the
manufacturer. The FDA permits the marketing of some medical devices, subject to
the general controls under the Act, if the devices are "substantially
equivalent" to devices marketed in interstate commerce before May 28, 1976 (the
effective date of the Medical Device Amendment to the Act.)
MANUFACTURING AND DISTRIBUTION
The Company does not manufacture any of the products it distributes. All of the
products distributed by the Company are either purchased from various
third-party manufacturers or suppliers as finished products, or are manufactured
for the Company according to its specifications directly by various contract
manufacturers.
The Company has several suppliers, the largest of which are K&K, Inc., Alora
Medical, Inc., Global Marketing, Inc., and Ultra Medics, Inc. The Company
believes that its sources of inventory, supplies and materials are plentiful and
it is not dependent on any one supplier for access to the goods it sells and
that the Company would be in a position to acquire products from various other
sources if any of the previously named suppliers were not able to or would
refuse to provide the Company with its required inventory.
The Company stores its inventory of products at its own warehouse facility in
Oceanside, New York, and subsequently distributes them to its customers in
fulfillment of customer orders. The Company has no written contracts with any of
its manufacturers or suppliers.
Manufacturers are selected by the Company on the basis of price, availability of
payment terms, quality, reliability and the ability of a particular manufacturer
to meet the production and delivery requirements of the Company. The utilization
of third party manufacturers enables the Company to avoid incurring fixed
manufacturing costs and substantial capital expenditures in order to establish
in-house manufacturing facilities. However, such use of third party
manufacturers does reduce the Company's ability to control the timing and
quality of the manufacturing process. Delays in shipments to the Company or
defects in products shipped could result in a loss of sales, which could have a
materially adverse effect upon the Company's operating results. Manufacturing
services performed overseas are typically paid for by letter of credit, with
payment being made only upon the proper fulfillment of the express terms of the
letter of credit as established by the Company and proper documentation relating
thereto. To date, the Company has not experienced any material delays in the
delivery of its products or any material quality defect in the products
manufactured for it by third party manufacturers.
7
<PAGE>
The Company's present facility provides the Company with adequate warehousing
and storage capacity for the foreseeable future. Although several of the
Company's customers take delivery of their products at the Company's facility,
typically, the Company will ship its products nationwide using either
independent contract carriers or common carriers.
As the Company continues to develop new proprietary products, management expects
that its reliance upon third party contract manufacturers may increase
substantially. However, to date the Company has not experienced any difficulties
in finding suitable contract manufacturers to meet its needs and management does
not expect to have any such difficulty in the future, even considering its
potentially increased needs.
COMPETITION
The hospital supply and medical products business is intensely competitive. At
present, the Company estimates that there are over 20 disposable product
companies whose products compete with the Company's present and proposed
products. These companies range from major multinational companies to
enterprises which are smaller in size and financial strength that the Company.
The Company's present and prospective competitors also include the numerous
manufacturers and suppliers of reusable medical products. Many of the Company's
competitors have far greater financial resources, larger staffs, and more
established market recognition in both the domestic and international markets
than the Company.
The consumer health and personal care products markets are also highly
competitive. Competition in these markets is based principally on price, quality
of products and customer service. Although the Company believes that it
currently competes favorably as to these factors, due to the high costs
associated with quality control and customer service, and the low profit margins
typical for these products, no assurance can be given that the Company will be
able to sustain its competitive position in these markets.
Several of the consumer markets in which the Company competes are dominated by
nationally advertised brand name products marketed by established consumer
packaged goods companies. The Company seeks to provide private label products
with quality equivalent to nationally advertised brand name products at
substantial cost savings to consumers and increased profit potential to
retailers. The Company believes that it presently offers one of the broadest
lines of such private label products available when compared to its private
label competitors. In the opinion of management, this breadth of product line
provides the Company with a competitive advantage by offering the Company's
customers the ease of administration resulting from a single supplier for many
of their product needs.
The Company's primary competition in consumer retail products is generally
product specific. Although some crossover does exist, the Company faces a
different set of primary competitors in each product line it offers. The
Company's position in the industry is insignificant and it competes based
primarily on the basis of service and price.
8
<PAGE>
TRADEMARKS, PATENTS AND LICENSES
At present, the Company does not rely upon any patent protection for any of its
products and such protection is not believed to be essential by management
because of the character of its products. Further, there is little likelihood
that the Company will develop patentable products or processes in the
foreseeable future. In the absence of such protection, the Company will
primarily rely upon trade secrets and proprietary techniques to attain or
maintain any commercial advantage. There is no assurance that competitors will
not independently develop and market, or obtain patent protection for products
similar to those designed or produced by the Company, and thus negate any
advantage of the Company with respect to any such products. Even if patent
protection should become available to the Company in the future, there is no
assurance that such protection will be commercially beneficial to the Company
because of the nature of the industry.
In connection with the Company's acquisition of Dental Alternative, Inc.
from Dr. Jan Stahl, the Company's Chief Executive Officer, the Company also
acquired the exclusive right to use the registered trademark "EDKTM" in
connection with the marketing of its emergency dental kit, which to date has not
had significant sales.
EMPLOYEES
The Company including its two subsidiaries, APO Heath and Universal, employ a
total of 18 persons: 3 executive personnel; 3 sales persons; 6 clerical and
administrative personnel; and, 6 warehouse employees.
ITEM 2 PROPERTIES
As of September 30, 1999, the Company's offices were located at 3590 Oceanside
Road, Oceanside, New York. The premises contained approximately 9,800 square
feet under a five-year lease (the "Lease") which expires in December 31, 1999
(the "Lease Term"). After year-end the lease was renewed and extended by APO.
These premises are occupied under a Lease between the landlord, who is an
unaffiliated third party, and an affiliated company PJS Trading, Inc., a New
York corporation ("PJS") owned by Dr. Stahl and Mr. Steil, which was originally
formed by them for the express purpose of entering into this Lease agreement.
The Company occupies these premises under an oral agreement with PJS and Dr.
Stahl and Mr. Steil whereby the Company has agreed to discharge all of the Lease
obligations with the landlord. Management believes that the terms and provisions
of this lease agreement, including the rental payments due, are fair and
reasonable for similar lease agreements within the same geographic area for
similar space. The annual lease payment under the new lease is approximately
$69,500 per year with increases for real estate taxes over the base period.
Neither PJS nor Dr. Stahl nor Mr. Steil derives any profit from the Lease nor
will they during the balance of the Lease Term. Management of the Company
believes the current facility is adequate for its current operations.
ITEM 3 LEGAL PROCEEDINGS
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The shares of the Company's common stock commenced trading on February 28, 1995.
The principal market on which the Company's securities are traded is the
over-the-counter market on the OTC Electronic "Bulletin Board" and is currently
traded under the symbol "SKBY" and during the periods shown on the table below
under the symbol "XETX." The range of high and low bid quotations for the fiscal
years ended September 30, 1999 and 1998 are shown below. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions
and may not necessarily represent actual transactions.
Common
Quarter Ended High Low
-------------- ------ ----------
December 31, 1997 .75 .75
March 31, 1998 .75 .625
June 30, 1998 .625 .53125
September 30, 1998 .625 .53125
December 31, 1998 .53125 .18
March 31, 1999 .25 .18
June 30, 1999 .25 .18
September 30, 1999 .25 .18
(a) Holders The number of holders of record of the Company's common stock as
of September 30, 1999 was approximately 225.
(b) Dividends The Company has not paid or declared any cash dividends on its
common stock since its inception, and by reason of its
contemplated financial requirements, does not anticipate paying
any cash dividends on its common stock in the near future.
10
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
The following table sets forth selected financial data as of and for each of the
years in the five year period ended September 30, 1999. The September 30, 1995
results are for a nine month period
Statement of Operations Data:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue $32,147,128 $33,170,600 $23,500,981 $14,615,764 $9,635,770
Gross Profit 2,831,870 3,183,257 2,473,755 2,020,411 707,972
Selling, General and
Administrative Expenses 2,629,370 2,739,484 2,262,130 1,766,392 636,209
Business Acquisition
Costs -- -- -- 108,740 --
Net Income (Loss)
before extraordinary
item 59,901 310,690 (15,665) (30,009) 30,806
Extraordinary Item 211,323 36,533 -- -- --
Net Income (Loss) 271,224 347,223 (15,665) (30,009) 30,806
Earnings per common
share before extra-
ordinary item $.07 $.33 $(.02) $(.08) $ .11
Extraordinary Item $.24 $.04 -- -- --
Earnings per
Common Share $.31 $.37 $(.02) $(.08) $.11
Weighted Average
Shares Outstanding 885,763 928,263 913,630 394,800 269,733
Balance Sheet Data:
<CAPTION>
As of September 30,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total Assets $ 4,259,980 $ 4,203,089 $ 4,089,332 $ 3,301,516 $3,657,744
Total Liabilities 3,609,204 3,823,357 4,056,823 3,278,442 3,330,380
Stockholders' Equity 650,776 379,732 32,509 23,074 327,364
</TABLE>
11
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The information described herein represents the financial condition and results
of operations of the Company's principal subsidiaries, since the Company itself
is and has been inactive for more than two years and 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:
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO YEAR ENDED SEPTEMBER 30, 1998
Revenues for the year ended September 30, 1999 decreased from the year ended
September 30, 1998 by $1,023,472 or 3.1%. Universal, which is the veterinary
division, increased revenue by approximately $550,000, while APO Health
decreased by approximately $1,575,000. The reduction in sales was due to normal
variations in sales levels. Gross profit margin in fiscal 1999 was 8.8% as
compared to 9.6% in fiscal 1998. The reduction in gross profit margins was as a
result of a greater percentage of sales applicable to lower margin wholesale
sales in 1999 as compared to the prior period.
Operating expenses for the year ended September 30, 1999 decreased by $110,114.
Selling expenses decreased by approximately $500,000 in fiscal 1999 from the
prior fiscal year due primarily to the inclusion in the 1998 selling expense of
a commission to two executive officers of $400,000. The remaining major
components for this decrease are (1) a reduction in shipping costs of
approximately $60,000 and (2) a reduction in trade shows of approximately
$50,000.
General and administrative expenses increased by approximately $392,000 in
fiscal 1999 as compared to fiscal 1998, before reclassification of the $400,000
selling expense in 1998. Some of the major changes in general and administrative
expenses are (1) decrease in officers compensation of $143,677, (2) increase in
other salaries and payroll taxes $77,041, (3) decrease in bad debt expense by
$37,243, and (4) increase in profit sharing expense $99,011.
Income from operations decreased by $241,273 reflecting the reduced gross profit
margins, but partially offset by a reduction in operating expenses.
12
<PAGE>
Interest expense for the year ended September 30, 1999 decreased by $70,324 from
the year ended September 30, 1998, before reclassification of the $400,000
selling expense in 1998. Approximately $22,500 of the decrease was due to
repayment of loans payable. The balance of the reduction was due to a reduction
in the average amount outstanding on the Company's line of credit, reduction in
use of banker's acceptances and on-line banking, which allowed the Company to
reduce balances over weekends.
In fiscal 1999, the Company recorded an extraordinary item, forgiveness of debt
net of taxes, of $211,143 versus $36,533 in fiscal 1998.
In 1996 and 1997, in two separate offerings, the Company sold for $500,000 an
aggregate of $500,000 principal amount of notes, together with warrants and, in
the case of the second offering, shares of common stock of the Company. Such
securities were issued in anticipation of a public offering which was aborted in
late 1998. In view of the failure to obtain public financing, the Company was
unable to immediately pay the full principal and accrued interest. As a result
of negotiations, the Company and the investors agreed to reduced payments in
full satisfaction of the loans, shares and warrants resulting in the
extraordinary item.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
Revenue for the year ended September 30, 1998 increased by approximately
$9,670,000 over the year ended September 30, 1997, an increase of 41%.
Approximately 92% of the increase was from sales to wholesale distributors,
while the balance was due to Universal. The gross profit increased by $709,502
but the gross profit margin decreased from 10% to 9.6%. The decrease was due to
lower profit margins on sales to wholesale distributors.
Operating expenses increased by $477,354 in 1998 compared to 1997. Some of the
major increases in fiscal 1998 over fiscal 1997 are (1) total officers
compensation of $369,550, (2) other salaries and payroll taxes of $32,557, (3)
bad debt expense of $27,545, (4) trade shows of $23,162, (5) advertising
including mailing of brochures of $39,854, (6) professional fees of $19,946, and
(7) telephone of $18,494. Significant decrease in fiscal 1998 from fiscal 1997
including (1) shipping expense $70,132, as many large orders to wholesalers were
drop-shipped, (2) commissions $20,980, and (3) insurance $19,962.
Income from operations in fiscal 1998 increased by $232,148 over fiscal 1997, as
the increase in gross profit exceeded the increase in operating expenses.
Interest expense in fiscal 1998 decreased by $65,207 from fiscal 1997, as the
Company was able to reduce average borrowing on its line of credit and bankers
acceptances due to an improved cash flow.
13
<PAGE>
FINANCIAL CONDITION
As of September 30, 1999, the Company had net working capital of $578,743, an
increase of $343,887 from September 30, 1998. In addition, stockholder's equity
increased by $271,044. The Company has a $2,000,000 credit facility which
includes a $1,000,000 line of credit and $1,000,000 available for bankers
acceptances and standby letters of credit. This facility has an interest rate of
prime plus one percent and expires on March 31, 2000. At September 30, 1999 the
total outstanding on the credit facility including a $150,000 standby letter of
credit was $1,201,193, leaving the Company almost $800,000 in additional
borrowing capability. As of September 30, 1999, the Company has no plans which
would require a major capital expenditure, therefore, assuming the renewal or
replacement of its credit facility, the Company believes that it has sufficient
funds for operations for the next fiscal year.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Appears after Item 14.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and business experience of the executive
officers and directors of the Company. All information is as of September 30,
1999.
Name Age Position
---- --- --------
Dr. Jan Stahl 51 Chairman, Chief Executive Officer
Secretary, Director
Peter Steil 51 President, Chief Financial Officer,
Director
Kenneth Levanthal 44 Director
Dr. Jan Stahl is a New York State licensed dentist. Dr. Stahl founded APO
Health, the Company's wholly owned subsidiary, in 1987, and has been its
Chairman, Chief Executive Officer, Secretary and a Director since such time. Dr.
Stahl's primary responsibilities for the Company are in the area of sales and
marketing. Prior to founding the Company, Dr. Stahl was a practicing dentist in
the state of New York. Dr. Stahl received his DDS Degree from New York
University in 1974.
Peter Steil co-founded the Company along with Dr. Stahl in 1987 and has been its
President and Chief Financial Officer since such time. From 1981 to 1987, Mr.
Steil was President of LBS Interdent, Inc., a company engaged in dental product
sales. From 1974 to 1981, Mr. Steil was employed as Director of International
Technical Support and Sales by Degussa, a European based manufacturer and
distributor of dental and medical supplies. Subsequently (from 1984 to 1986) he
was employed by Orbident International, the international sales division of
Darby Drugs. Mr. Steil's training is in mechanical engineering having received
his Technical Degree from Tuebingen University, Germany, in 1974.
Kenneth Levanthal founded Universal Medical Distributors, Inc. ("Universal"), a
subsidiary of the Company, in 1985 and has served as its president since such
time. Prior to founding Universal, Mr. Levanthal had been employed as Executive
Vice President of Medardo Corp., a division of Omnicare, Inc., having been
employed by Medardo Corp. since 1997, prior to its acquisition by W.R. Grace &
Co. (the parent company of Omnicare, Inc.) Omnicare consists of various health
care companies, with Medarco specializing in the sale of veterinary products.
Mr. Levanthal graduated from Boston University in 1977, receiving his Bachelors
Degree.
15
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION
The following table sets forth information relating to remuneration received by
executive officers and directors for the Company's most recent fiscal year
compared with the previous two fiscal years.
<TABLE>
<CAPTION>
Long Term Compensation
------------------------
Annual Securities All
Compensation (1) Restricted Underlying Other
Name & Principal ------------------ Stock Options of Compen-
Position Year Salary Bonus Awards SARS sation
-------- ---- ------ ----- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C>
Jan Stahl, 1999 $389,823 -0- -0- -0- -0-
CEO (1) 1998 343,900 -0- -0- -0- -0-
1997 125,000 $6,375 -0- -0- -0-
Peter Steil, 1999 $178,600 -0- -0- -0- -0-
President (1) 1998 317,500 -0- -0- -0- -0-
1997 100,000 $6,375 -0- -0- -0-
Kenneth 1999 $ 78,000 -0- -0- -0- -0-
Levanthal 1998 78,000 -0- -0- -0- -0-
1997 78,000 -0- -0- -0- -0-
</TABLE>
(1) It should be noted that the figures listed as "salary" include both base
salary and earned commissions, but do not include annual bonus amounts, if
any, which are listed separately under the "bonus" column.
16
<PAGE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1999, certain information
regarding the beneficial ownership of the Company's common stock.
<TABLE>
<CAPTION>
Number of Shares Owned Percentage
Name of Record and Beneficially Common Stock Outstanding
---- -------------------------- ------------------------
<S> <C> <C>
Dr. Jan Stahl
3141 Ann Street
Baldwin, NY 11510 300,000 40.1%
Peter Steil
57 Hewlett Avenue
P.O. Box 750
Point Lookout, NY 11569 275,000 36.6%
Kenneth Levanthal
24 Meadowbrook Road
Huntington Station, NY 11746 10,000 1.3%
All Directors and Officers
As a Group 585,000 78.2%
</TABLE>
In December 1999, a reorganization of the Company was effectuated. See
"Introductory Note" on page 2 hereof.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
17
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
PAGE
----
1. Financial Statements:
Report of Independent Certified Public Accountants. F-1
Balance Sheets as of September 30, 1999 and 1998. F-2 - F-3
Statements of Operations for the years ended
September 30, 1999, 1998 and 1997. F-4
Statements of Changes in Stockholders' Equity
For the years ended September 30, 1999, 1998 and 1997. F-5
Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997. F-6 - F-7
Notes to Consolidated Financial Statement. F-8 - F-14
2. Schedule II - Valuation and Qualifying Accounts F-15
(b) Exhibits
3.1 Certificate of Incorporation, as amended through November 16,
1998. (1)
3.2 Bylaws, as amended to date. (1)
3.3 Articles of Amendment to Certificate of Incorporation 12/8/99. (2)
3.4 Certificate of Correction to Certificate of Incorporation
12/22/99. (2)
4.1 Specimen Certificate of Common Stock. (1)
10.1 Reorganization Agreement dated December 29, 1999. (2)
21 List of Subsidiaries.
23 Consent of Independent Auditors.
(c) Reports on Form 8-K. The Company's Report on Form 8-K related to the
reorganization with Sick-Bay.com, Inc.
- ------------
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (No. 333-20525), which became effective on November 16, 1998.
(2) Incorporated by reference to the Form 8-A.
18
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Sickbay.com, Inc. (formerly Xetal, Inc.) and Subsidiaries
We have audited the accompanying consolidated balance sheets of Sickbay.com,
Inc. (formerly Xetal, Inc.) and Subsidiaries as of September 30, 1999 and 1998
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion of these financial
statements on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sickbay.com, Inc.
(formerly Xetal, Inc.) and Subsidiaries at September 30, 1999 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1999 in conformity with generally accepted
accounting principles.
Our audits were made to form an opinion on the basic financial statements taken
as a whole. The supplemental schedule listed in the index to the financial
statements and schedule are presented to comply with rules and regulations under
the Securities and Exchange Act of 1934 and are not otherwise a required part of
the basic financial statements. The supplemental schedule for each of the three
years in the period ended September 31, 1999 have been subjected to the auditing
procedures applied in the audits of the basic financial statements. In our
opinion, the supplemental schedule referred to above fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Linder & Linder
Certified Public Accountants
Dix Hills, New York
December 15, 1999
F-1
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS: 1999 1998
---------- -----------
<S> <C> <C>
Cash $ 41,239 $ 25,936
Accounts receivable, less allowance for doubtful
accounts of $89,200 in 1999 and $94,400 in 1998 2,482,718 2,601,474
Inventory 1,275,577 976,332
Due from officers 131,939 248,274
Deferred tax asset 41,500 23,000
Prepaid and other receivables 52,936 21,159
---------- ----------
TOTAL CURRENT ASSETS 4,025,909 3,896,175
---------- ----------
PROPERTY AND EQUIPMENT - at cost, less
accumulated depreciation of $100,140 in 1999
and $82,818 in 1998 68,422 79,519
---------- ----------
OTHER ASSETS:
Goodwill, less accumulated amortization of
$42,647 in 1999 and $30,424 in 1998 140,692 152,915
Registration costs - 49,523
Security deposits 24,957 24,957
---------- ----------
TOTAL OTHER ASSETS 165,649 227,395
---------- ----------
TOTAL ASSETS $4,259,980 $4,203,089
========== ==========
</TABLE>
See independent auditors' report and notes to financial statement.
F-2
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL,INC.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES: 1999 1998
----------- -----------
<S> <C> <C>
Cash overdraft $ 72,526 $ 124,453
Line of credit - bank 752,000 385,000
Bankers acceptances 154,850 227,972
Accounts payable 1,826,027 1,812,997
Accrued expenses 534,272 654,897
Loans payable - 450,000
Income taxes payable 107,491 6,000
---------- ----------
TOTAL CURRENT LIABILITIES 3,447,166 3,661,319
---------- ----------
LOANS PAYABLE - former shareholders 162,038 162,038
---------- ----------
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 issued in 1999 and 1998 928 928
Additional paid-in capital 614,012 614,012
Retained earning (deficit) 36,016 (235,208)
Treasury stock, par value, 180.000 shares (180) -
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 650,776 379,732
---------- ----------
TOTAL ASSETS $4,259,980 $4,203,089
========== ==========
</TABLE>
See independent auditors' report and notes to financial statement.
F-3
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Revenues $32,147,128 $33,170,600 $23,500,981
Cost of revenues 29,315,258 29,987,343 21,027,226
----------- ----------- -----------
GROSS PROFIT 2,831,870 3,183,257 2,473,755
----------- ----------- -----------
OPERATING EXPENSES:
Selling expenses 833,764 1,335,930 1,049,201
General and administrative expenses 1,795,606 1,403,554 1,212,929
----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,629,370 2,739,484 2,262,130
----------- ----------- -----------
Income from operations 202,500 443,773 211,625
OTHER EXPENSES:
Interest expense - net 91,759 162,083 227,290
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 110,741 281,690 (15,665)
Provision (benefit) for income taxes 50,840 (29,000) -
----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 59,901 310,690 (15,665)
Extraordinary item - forgiveness of debt; net of
taxes of $103,500 in 1999 and $12,000 in 1998 211,323 36,533 -
----------- ----------- -----------
NET INCOME (LOSS) $ 271,224 $ 347,223 $ (15,665)
=========== =========== ===========
Earnings per Common Share:
Income from continuing operations before
Extraordinary item $ 0.07 $ 0.33 $ (0.02)
Extraordinary item 0.24 0.04 -
----------- ----------- -----------
NET INCOME $ 0.31 $ 0.37 $ (0.02)
=========== =========== ===========
</TABLE>
See independent auditors' report and notes to financial statements
F-4
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
--------- ------ -------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1996 728,263 $ 728 $589,212 $(566,766) $ -
Issuance of stock in conjunction with
bridge loan 200,000 200 24,800 - -
Net loss - 1997 - - - (15,665) -
-------- ----- -------- --------- -----
Balance, September 30, 1997 928,263 928 614,012 (582,431) -
Reverse stock split (464,131) (464) 464 - -
Retroactive rescinded reverse
stock split 464,132 464 (464) - -
Net income - 1998 - - - 347,223 -
-------- ----- -------- --------- -----
Balance, September 30, 1998 928,263 928 614,012 (235,208) -
Stock acquired with
the forgiveness of debt - - - - (180)
Net income - 1999 - - - 271,224 -
-------- ----- -------- --------- -----
Balance - September 30, 1999 928,263 $ 928 $614,012 $ 36,016 $(180)
======== ===== ======== ========= =====
</TABLE>
See independent auditors' report and notes to financial statements.
F-5
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998 1997
--------- --------- -----------
<S> <C> <C> <C>
Net income (loss) $ 271,044 $ 347,223 $ (15,665)
Adjustment to reconcile net loss to net cash flows
from operating activities
Depreciation 17,322 16,604 15,284
Amortization 12,223 12,223 12,123
Bad debts (5,200) 36,580 16,820
Deferred taxes (18,500) (23,000) -
Write-off of joint venture - 23,800 3,047
Common stock issued with notes payable - - 25,000
Gain on forgiveness of debt (314,643) (48,533) -
Write-off of registration costs 49,523 - -
Changes in operating assets and liabilities
(Increase) decrease in assets:
Accounts receivable 123,956 (104,964) (1,387,208)
Inventories (299,245) 24,887 287,059
Prepaids (31,777) 43,840 23,579
Increase (decrease) in liabilities:
Accounts payable 13,030 225,833 522,573
Accrued expenses (120,625) 348,113 11,041
Income taxes payable 101,491 6,000 -
--------- --------- -----------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES (201,401) 908,626 (486,347)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in security deposits - (20,000) -
Due from officers 116,335 (150,325) (31,869)
Purchase of property and equipment (6,225) - (33,529)
Acquisition of registration costs - - (49,523)
Proceeds from joint venture - - 1,200
--------- --------- -----------
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES 110,110 (170,325) (113,721)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (51,927) 78,258 46,194
Borrowings under line of credit - net 367,000 (579,292) (85,371)
Borrowings from acceptances payable - net (73,122) (247,624) 350,938
Payment of note payable - (1,042) (11,458)
Loans payable (135,357) (15,000) 250,000
Payment loans payable - former shareholder - - (86,000)
Accrued salaries - net of cash - - 7,678
--------- --------- -----------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 106,594 (764,700) 471,981
--------- --------- -----------
Net increase (decrease) in cash 15,303 (26,399) (128,087)
CASH, BEGINNING 25,936 52,335 129,250
--------- --------- -----------
CASH, ENDING $ 41,239 $ 25,936 $ 1,163
========= ========= ===========
</TABLE>
See independent auditors' report and notes to financial statements.
F-6
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997 (CONTINUED)
SUPPLEMENTAL DISCLOSURE:
1999 1998 1997
------- -------- --------
CASH PAID DURING THE YEAR FOR:
Interest $84,721 $159,790 $155,405
======= ======== ========
Taxes $65,349 $ - $ -
======= ======== ========
See independent auditors' report and notes to financial statements.
F-7
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF BUSINESS Insurance Kingdom Agency, Inc. ("IKA"), an inactive
company, was organized under the laws of the State of Utah. Effective
September, 1994, IKA acquired Xetal, Inc., an operating company.
Xetal, Inc. changed its name to APO Health, Inc., ("APO Health). IKA
changed its name to Xetal, Inc., a Utah Corporation, ("Xetal" and
collectively the "Company"). APO Health is a wholesale distributor of
medical supplies and sells 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 under
business combinations and treated as a reverse acquisition. Such
transaction treats the acquisition as if APO Health acquired IKA and
reflects the fair market value of IKA's net assets on the date of
acquisition. In addition, APO Health changed its year end to September
30th.
Effective to the acquisition, previously taxed profits, amounting to
$248,038, due to the former shareholders of APO Health, and included
in retained earnings, were transferred to loans payable to former
shareholders. The loans are non-interest bearing and are without terms
for repayment. During fiscal year 1997, APO Health repaid $86,000 to
the former shareholders. In November 1998, the former shareholders of
APO Health agreed to convert its loan payable for 450,000 shares of
common stock in connection with a public offering. The public offering
was never effectuated; the 450,000 shares were not issued and the
parties mutually rescinded the transaction. The September 30, 1999
financial statements have been adjusted to give affect to such
transaction.
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.
Pursuant to the acquisition of an emerging internet company, Xetal
changed its name to Sickbay.com, Inc. (see Note 9).
B. INVENTORY
Merchandise inventory is stated at the lower of cost or market. Cost
is determined using the first-in, first-out method.
C. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided for
on the straight-line method over the estimated useful life.
D. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results may differ from those estimates.
F-8
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets
and liabilities that will result in taxable or deductible amounts 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.
The Company and its subsidiaries file consolidated tax returns.
F. INTANGIBLES
Customer lists acquired were amortized over a three year period and
have been fully amortized. Registration costs and other costs related
to the offering are deferred and are offset against the proceeds
received from successful securities offerings. Registration costs and
other costs related to the offering for unsuccessful offerings are
charged as period costs. Costs associated with the companies acquired
are capitalized and included in the purchase price of such
acquisition. Costs associated with unsuccessful acquisitions are
expensed. Goodwill represents the excess of the cost of companies
acquired over the fair value of their net assets at the date of
acquisition and is being amortized on the straight-line method over 15
years.
G. EARNINGS PER SHARE
Earnings per share amounts are based on the weighted average number of
shares outstanding. Potential common stock equivalents have not been
included in the earnings per share computation because of their
anti-dilutive effect.
NOTE 2. BUSINESS COMBINATIONS
A. UNIVERSAL MEDICAL DISTRIBUTORS, INC.
On March 31, 1996, Xetal 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. The results of operations of
Universal are included in the accompanying financial statements since
the date of acquisition. The total cost of the acquisition, which
included cash of $65,000, issuance of 10,000 shares of the Company's
common stock and the assumption of the net liabilities of Universal
exceeded the fair value of the net assets of Universal by $179,339.
B. DENTAL ALTERNATIVES, INC.
During July, 1996, Xetal acquired Dental Alternatives, Inc.,
("Alternatives"), an inactive company owned by a major shareholder of
Xetal. The acquisition was accounted for in a business combination of
entities under common control which has been accounted for in a manner
similar to a pooling of interests. Xetal 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.
F-9
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 3. LOANS PAYABLE
In conjunction with financing a private placement or public offering,
APO Health borrowed $50,000 from two individuals. Such borrowing is
non-interest bearing and will be repaid from the proceeds of the
placement or offering.
In January, 1996, Xetal issued an aggregate of $250,000 principal
amount of promissory notes to certain investors to provide interim
working capital to the Company. The notes bear interest at 10% per
annum and are due and payable, upon the earlier of (i) December 15,
1996 or (ii) the consummation of an offering.
In connection with the financing, Xetal retained the services of an
underwriter to obtain additional financing through a public offering.
Effective May 10, 1996, Xetal and the underwriter terminated their
agreement. As part of the termination agreement, the underwriter was
issued warrants to purchase an aggregate of 12,500 shares of common
stock at a price of $7.50 exercisable through January 3, 2003.
In June, 1996, Xetal retained the services of a new underwriter to
facilitate the public offering to provide the Company with working
capital.
During the period from November, 1997 through January 1998, Xetal
issued an aggregate of $250,000 principal amount of 8% promissory
notes to certain investors to provide the Company with interim working
capital. The promissory notes mature upon the earlier of (i) 12 months
from the date of issuance or (ii) the consummation of an offering.
Interest payable monthly commences one month from the date of the
issuance of the notes. In addition, the investors received 20,000
shares of common stock and a warrant for each $25,000 unit acquired.
Each warrant entitles the investor to purchase up to 250,000 shares of
the Xetal's common stock at a price equal to 100% of the public
offering price or $5.00 per share if the offering is not consummated.
Interest on the notes has been accrued since inception. During fiscal
1998, the Company settled its indebtedness with one investor. The
transaction resulted in an extraordinary gain of $48,533, net of
income taxes of $12,000. During fiscal 1999, the Company settled its
indebtedness with the remaining note holders. The transaction resulted
in an extraordinary gain of $314,643, net of income taxes of $103,500.
In addition, the note holders returned 180,000 shares of the Company's
common stock and the respective warrants associated with each $25,000
unit acquired. The acquisition of the treasury stock is reported on by
the par value method.
F-10
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 4. CREDIT FACILITY
In September 1999, APO Health renewed 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 own 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. At such
time, the bank will review the credit basis of APO Health 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. (See note 1)
As of September 30, 1999, the Company has unused lines of credit of
$248,000.
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 direct write-off method for tax purposes.
The components of deferred taxes as of September 31, 1999, 1998 and
1997 are as follows:
1999 1998
------- -------
Allowance for doubtful accounts $37,000 $23,000
Depreciation 4,500 -
------- -------
NET $41,500 $23,000
======= =======
For the years ended September 30, 1999, 1998 and 1997 the
provisions for income taxes (benefits) consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- -------
<S> <C> <C> <C>
Current $ 69,340 $ 151,000 $ -
Utilization of net operating loss carryover - (157,000) -
Deferred (18,500) (23,000) -
-------- --------- -------
PROVISION (BENEFIT) FOR INCOME TAXES $ 50,840 $ (29,000) $ -
======== ========= =======
</TABLE>
F-11
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 5. INCOME TAXES (CONTINUED)
A reconciliation of income tax at the statutory rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Computed at the expected statutory rate $135,000 $ 123,000 $ -
Benefit of net operating loss carryover - (157,000) -
State income tax - net of federal tax benefit 38,000 40,000 -
-------- --------- -------
INCOME TAX EXPENCE - EFFECTIVE RATE $173,000 $ 6,000 $ -
======== ========= ========
</TABLE>
NOTE 6. COMMON STOCK
In October, 1999, the Board of Directors authorized amending the
certificate of incorporation to increase its authorized common stock
from 20,000,000 shares, par value $0.001 to 50,000,000 shares, par
value $0.001.
In 1998, the Board of Directors of the Company authorized a 1-for-2
stock split. On December 10, 1999, the Company filed an amendment to
its Certificate of Incorporation to effectuate such reverse split; on
December 22, 1999, the Company filed a further amendment rescinding
the reverse split.
During fiscal 1997, the Company issued 200,000 shares of its common
stock to certain investors, pursuant to the bridge financing. (See
Note 3)
NOTE 7. COMMITMENTS AND CONTINGENCY
A. DEFINED CONTINGENCY PENSION PLAN
January, 1993, APO Health 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 years ended
September 30, 1999, 1998 and 1997 were $99,011, $-0- and $-0-,
respectively.
B. LEASES
Effective November 15, 1994, an affiliated company, whose shareholders
are the officers of the Company, entered into a 5 year agreement to
lease a 9800 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. During 1999, the
Company renewed the lease for which it will expire September 30, 2004.
In October, 1999, APO Health leased a sales office from its major
shareholder. The terms of the lease provide for an annual rental of
$9,000 and the lease term expires September 30, 2001
F-12
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 7. COMMITMENTS AND CONTINGENCY (CONTINUED)
B. LEASES (continued)
Future minimum rental payments are as follows:
Year Ending
September 30,
-------------
2000 $62,900
2001 65,300
2002 58,800
2003 61,250
2004 63,700
For the years ended September 30, 1999, 1998 and 1997, rent expense
amounted to $53,752, $56,362 and $50,212, respectively.
C. CONCENTRATION OF CREDIT RISK
APO Health maintains bank accounts in several financial institutions.
Each financial institution is insured up to $100,000 by the Federal
Depository Insurance Corporation.
D. LETTERS OF CREDIT
The Company has letters of credit outstanding of $294,343 for
purchases to be delivered after September 30, 1999.
E. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its principal
officers through December 31, 1998. The agreements will automatically
be renewed and extended for up to five consecutive one year periods.
The terms provide for a minimum annual salary of $125,000 with
adjustments for cost-of-living changes and incentives based on gross
revenues and development of new products. In addition, the agreement
provides for warrants to be issued based on the incentives. At
September 30, 1998 and 1997, the officers waived certain terms of
their agreement for additional compensation based on salary and
incentives. The employment agreements were not renewed.
F-13
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 8. EARNINGS PER SHARE
The following data show the amounts used in computing earnings per
share and the effect on income and the weighted average number of
shares of dilutive potential common stock. The number of shares used
in the calculation reflects the elimination of the previously
authorized 1:2 reserve stock split approved by the Board of Directors
on December 23, 1999.
<TABLE>
<CAPTION>
September 30,
--------------------------------
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Earnings
Income applicable to common stock $271,224 $347,223 $(15,665)
======== ======== ========
Shares
Weighted average number of common
shares outstanding 885,763 928,263 913,630
======== ======== ========
Earnings per Share
Basic and fully dilutive $ 0.31 $ 0.37 $ (0.02)
======== ======== ========
</TABLE>
NOTE 9. SUBSEQUENT EVENTS - UNAUDITED
In October 1999, Xetal and an emerging internet company ("Internet")
signed a letter of intent in which Xetal would acquire all the assets
of Internet in exchange for 22,500,000 shares of common stock of Xetal
in accordance with a reorganization agreement (which amount included
3,000,000 shares reserved for issuance to certain warrant holders).
Prior to the effectuation of the reorganization agreement, Xetal will
spin-off all of its current business and assets to the shareholders of
Xetal with each of Xetal's shareholders receiving one share of common
stock of APO Health for each share of Xetal currently held.
Contemporaneously, APO Health will purchase all the assets of Xetal in
consideration of the assumption of all of the outstanding debts and
obligations of APO Health. On December 29, 1999, such transaction was
consummated.
As of September 30, 1999, Xetal's only assets were its investment in
its wholly-owned subsidiaries and had no operations.
F-14
<PAGE>
SICKBAY.COM, INC. AND SUBSIDIARIES
(FORMERLY XETAL, INC.)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE BALANCE
YEAR ENDED BEGINNING OF END OF
SEPTEMBER 30, ACCOUNT PERIOD ADDITIONS REDUCTION PERIOD
------------- ------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1997 Allowance for
doubtful accounts $ 41,000 $ 16,820 $ - $ 57,820
======== ========= ========= ========
Allowance for
deferred taxes $125,000 $ 103,000 $ - $228,000
======== ========= ========= ========
1998 Allowance for
doubtful accounts $ 57,820 $ 36,580 $ - $ 94,400
======== ========= ========= ========
Allowance for
deferred taxes $228,000 $ - $(228,000) $ -
======== ========= ========= ========
1999 Allowance for
doubtful accounts $ 94,400 $ - $ (5,200) $ 89,200
======== ========= ========= ========
</TABLE>
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SICKBAY.COM, INC.
(FORMERLY KNOWN AS XETAL, INC.)
Date: March 10, 2000 By: /s/ Mark Basile
--------------------------------
Mark Basile, Chairman,
Chief Executive Officer
and Secretary
(Principal Executive Officer)
Date: March 10, 2000 By: /s/ Dr. Allen Motola
--------------------------------
Dr. Allen Motola, President and
Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: March 10, 2000 By: /s/ Mark Basile
--------------------------------
Mark Basile, Director
Date: March 10, 2000 By: /s/ Dr. Allen Motola
--------------------------------
Dr. Allen Motola, Director
Date: March 10, 2000 By: /s/ Larry Goldman
--------------------------------
Larry Goldman, Director
19
EXHIBIT 21
LIST OF SUBSIDIARIES
APO Health, Inc., a New York Corporation.
Universal Medial Distributors, Inc., a New York Corporation.
Sickbay.com, Inc. and Subsidiaries
(Formerly Xetal, Inc.)
Form 10-K
September 30, 1999
Exhibit 23
Consent of Independent Auditors
To the Board of Directors and Stockholders
Sickbay.com, Inc. and Subsidiaries (formerly Xetal, Inc.)
We have audited the accompanying consolidated balance sheets of
Sickbay.com, Inc. (formerly Xetal, Inc.) and Subsidiaries as of September 30,
1999 and 1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion of these
financial statements on our audits.
We consent to the inclusion of our independent auditors report with respect
to such financial statements in the inclusion of the Company's 10-K for the
fiscal year ended September 30, 1999.
s/Linder & Linder
- -----------------
Linder & Linder
Certified Public Accountants
Dix Hills, New York
December 15, 1999
Dated: March 4, 2000
