<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File No. 000-26167
iXL ENTERPRISES, INC.
---------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 58-2234342
-------------------------------- -----------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
1600 Peachtree Street, NW, Atlanta, Georgia 30309
------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
</TABLE>
(404) 279-1000
--------------
(Registrant's telephone number, including area code)
1888 Emery Street, NW, Atlanta, Georgia 30318
---------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
---------
Indicate by check mark whether the registrant (1) has filed all reports
required to be by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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. [X] Yes. [ ] No.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
<S> <C>
Title of each class Outstanding at November 10, 2000
---------------------------- --------------------------------
Common Stock, $.01 par value 75,939,030
</TABLE>
<PAGE> 2
iXL ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
QUARTER ENDED SEPTEMBER 30, 2000
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at September 30, 2000
and December 31, 1999....................................................... 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2000 and 1999..................... 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999............................... 5
Notes to Condensed Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results Of Operations................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 16
Item 6. Exhibits and Reports on Form 8-K................................................... 16
Signature................................................................................... 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IXL ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents ................................................. $ 14,714 $ 120,812
Marketable securities ..................................................... 43,119 34,895
Accounts receivable, net of allowance for doubtful accounts of $13,677
and $4,021 at September 30, 2000 and December 31, 1999, respectively..... 84,992 62,836
Unbilled revenue .......................................................... 24,736 21,794
Prepaid expenses and other current assets ................................. 9,059 6,610
--------- ---------
Total current assets ............................................. 176,620 246,947
Property and equipment, net ............................................... 85,533 52,273
Intangible assets, net .................................................... 150,324 55,851
Other non-current assets .................................................. 6,167 2,784
--------- ---------
Total assets ..................................................... $ 418,644 $ 357,855
========= =========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Accounts payable .......................................................... $ 8,922 $ 13,988
Deferred revenue .......................................................... 15,648 10,750
Accrued liabilities ....................................................... 36,833 22,229
Restructuring accrual ..................................................... 5,640 --
Current portion of long-term debt ......................................... 358 530
--------- ---------
Total current liabilities ........................................ 67,401 47,497
Long-term debt ............................................................ 475 1,308
--------- ---------
Total liabilities ................................................ 67,876 48,805
--------- ---------
Mandatorily redeemable preferred stock of subsidiary ...................... 7,000 48,955
Stockholders' equity
Common stock ......................................................... 763 676
Additional paid in capital ........................................... 617,818 392,432
Accumulated deficit .................................................. (273,223) (135,973)
Accumulated other comprehensive income ............................... 2,951 12,020
Treasury stock at cost ............................................... (888) (888)
Note receivable from stockholder ..................................... -- (900)
Unearned compensation ................................................ (3,653) (7,272)
--------- ---------
Stockholders' equity ............................................. 343,768 260,095
--------- ---------
Total liabilities, mandatorily redeemable preferred stock and
stockholders' equity ............................................. $ 418,644 $ 357,855
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
3
<PAGE> 4
IXL ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2000 1999 2000 1999
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Professional services revenue .............................................. $ 87,838 $ 63,389 $ 309,293 $ 141,438
Other revenue .............................................................. -- 342 -- 1,201
--------- -------- --------- ---------
Net revenue ....................................................... 87,838 63,731 309,293 142,639
--------- -------- --------- ---------
Professional services expenses, excluding stock-based compensation of
$127 and $428 for the three months ended September 30, 2000
and September 30, 1999, respectively, and $761 and $543 for the nine
months ended September 30, 2000 and September 30, 1999, respectively... 62,541 32,512 166,288 72,527
Sales and marketing expenses, excluding stock-based compensation of $0
and $691 for the three months ended September 30, 2000 and
September 30, 1999, respectively, and $2,401 and $1,366 for the
nine months ended September 30, 2000 and September 30, 1999,
respectively .......................................................... 12,068 11,019 33,290 28,481
General and administrative expenses, excluding stock-based compensation of
$7 and $167 for the three months ended September 30, 2000 and
September 30, 1999, respectively, and $838 and $1,492 for the nine
months ended September 30, 2000 and September 30, 1999,
respectively .......................................................... 58,179 24,981 138,534 64,914
--------- -------- --------- ---------
Operating loss before non-cash expenses and restructuring charge .. (44,950) (4,781) (28,819) (23,283)
--------- -------- --------- ---------
Stock-based compensation and other ......................................... 134 1,286 4,000 3,401
Depreciation ............................................................... 5,790 3,284 14,931 8,499
Amortization ............................................................... 11,206 4,329 33,245 13,013
Restructuring charge (Note 3)............................................... 16,222 -- 16,222 --
--------- -------- --------- ---------
Total operating expenses .......................................... 166,140 77,411 406,510 190,835
--------- -------- --------- ---------
Loss from operations .............................................. (78,302) (13,680) (97,217) (48,196)
Other expenses, net ........................................................ (2,290) (69) (2,557) (183)
Interest income ............................................................ 1,360 1,447 4,756 2,180
Interest expense ........................................................... (364) (136) (1,054) (829)
Loss on equity investment (Note 2 and Note 4)............................... (8,476) -- (40,577) (65)
--------- -------- --------- ---------
Loss before income taxes .......................................... (88,072) (12,438) (136,649) (47,093)
Income tax expense ......................................................... -- -- (600) --
--------- -------- --------- ---------
Net loss .......................................................... (88,072) (12,438) (137,249) (47,093)
Dividends and accretion on mandatorily redeemable preferred stock .......... -- (452) -- (20,514)
--------- -------- --------- ---------
Net loss available to common stockholders .................................. $ (88,072) $(12,890) $(137,249) $ (67,607)
========= ======== ========= =========
Net loss per common share .................................................. $ (1.16) $ (0.20) $ (1.85) $ (1.85)
========= ======== ========= =========
Weighted average common shares outstanding ................................. 75,701 64,539 74,126 36,447
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements of operations.
4
<PAGE> 5
IXL ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $(137,249) $ (47,093)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation..................................................... 14,931 8,499
Amortization .................................................... 33,245 13,013
Provision for bad debts ......................................... 22,737 2,571
Loss on disposals of property and equipment ..................... 1,477 --
Write-off of leasehold improvements and property and
equipment ................................................... 10,701 --
Non-cash investment and losses in equity affiliate and
amortization ................................................ 40,577 65
Stock compensation and warrants ................................. 4,090 8,292
Changes in assets and liabilities, net of effects from
purchase and deconsolidation of subsidiaries:
Accounts receivable........................................... (37,147) (34,856)
Unbilled revenue ............................................. (1,750) (16,055)
Prepaid expenses and other assets ............................ (7,526) (5,579)
Accounts payable and accrued liabilities ..................... 19,356 14,527
Deferred revenue ............................................. 3,719 3,660
--------- ---------
Net cash used in operating activities ................... (32,839) (52,956)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment ............................. (68,901) (25,733)
Purchases of subsidiaries, net of cash acquired ................. (2,640) --
Deconsolidation of ProAct to equity basis ....................... (15,221) --
Purchases of marketable securities .............................. (61,414) (17,704)
Proceeds from sales and maturities of marketable
securities ................................................... 42,457 --
Proceeds from disposals of fixed and intangible assets .......... 453 1,892
--------- ---------
Net cash used in investing activities ................... (105,266) (41,545)
--------- ---------
Cash flows from financing activities:
Repayment of borrowings ......................................... (370) (19,946)
Proceeds from issuance of common stock .......................... 26,757 125,312
Proceeds from issuance of mandatorily redeemable preferred
stock of subsidiary .......................................... 7,000 49,261
--------- ---------
Net cash provided by financing activities ............... 33,387 154,627
--------- ---------
Effect of exchange rate changes on cash and cash equivalents....... (1,380) (65)
Net (decrease) increase in cash and cash
equivalents ........................................... (106,098) 60,061
Cash and cash equivalents at beginning of period .................. 120,812 19,259
--------- ---------
Cash and cash equivalents at end of period ........................ $ 14,714 $ 79,320
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest ...................................... $ 282 $ 871
Non-cash investing and financing activities:
Acquisition of equipment through capital leases ......... $ -- $ 407
Liabilities/debt obtained from acquisition .............. $ 163 $ --
Stock issued as part of acquisition ..................... $ 126,693 $ --
Unrealized (loss) gain on marketable securities ......... $ (7,688) $ 7,137
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements of cash flows.
5
<PAGE> 6
IXL ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BACKGROUND
iXL Enterprises, Inc. ("the Company" or "iXL") is a worldwide
consulting firm that helps companies utilize the power of emerging technologies
and advanced business strategies to build stronger, more profitable
relationships with their customers and business partners. iXL has 23 offices in
the United States, Europe, Latin America and Asia. The Company helps businesses
identify how the Internet can be used to their competitive advantage and
provides expertise in creative design and systems engineering to design,
develop and deploy advanced Internet applications and solutions. In addition to
its consulting services, the Company has an investment in ProAct Technologies
Corp., formerly known as Consumer Financial Network, Inc. ("ProAct"), an
e-commerce and software application company which markets financial services
and employee benefits over corporate intranets and the Internet, as well as
through a telesales center.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") regarding interim financial
reporting. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation of iXL's financial
condition as of September 30, 2000, the results of its operations for the three
and nine months ended September 30, 2000 and 1999 and its cash flows for the
nine months ended September 30, 2000 and 1999. Certain items in the prior year
financial statements have been reclassified to conform to the current year
presentation. Operating results for the three and nine months ended September
30, 2000 are not necessarily indicative of the operating results that may be
expected for the year ending December 31, 2000.
During the second quarter of 2000, the Company's voting interest in
ProAct was reduced to less than 50% as the result of ProAct's issuance of
additional common stock and mandatorily redeemable convertible preferred stock.
Accordingly, in the second quarter of 2000, the Company deconsolidated ProAct.
The Company has presented its results of operations and financial condition as
if the deconsolidation occurred on January 1, 2000. For additional information
about the Company's interest in ProAct, see Note 4 below.
3. RESTRUCTURING CHARGE
In September 2000, the Company announced a restructuring of its
business operations. The restructuring plan was designed to reduce costs and
improve efficiency, and as a result, the Company reduced its workforce by
approximately 350 employees. The Company recorded a restructuring charge of
$16.2 million during the three months ended September 30, 2000 in connection
with its restructuring plan. The restructuring charge included:
- Approximately $13.3 million for rent and sublease expenses
net of anticipated sublease income for office leases and
leasehold improvements that were abandoned due to the
reduction in work force. Approximately $8.8 million relates to
the write down of assets. The remaining $4.5 million relates
to future lease expense for which the Company will receive no
benefit.
- Approximately $2.9 million for severance costs in connection
with the termination of certain employees.
The Company expects future cash expenditures related to these
restructuring activities to be approximately $5.6 million, of which $3.8
million is anticipated to be paid within the next twelve months. Approximately
$4.5 million of the $5.6 million restructuring accrual as of September 30, 2000,
relates to future lease expense for which the Company will receive no benefit,
and approximately $1.1 million relates to severance payments.
6
<PAGE> 7
4. DECONSOLIDATION OF PROACT (FORMERLY CONSUMER FINANCIAL NETWORK, INC.)
On March 22, 2000, ProAct sold 32,896,000 shares of its mandatorily
redeemable Series C Convertible Preferred Stock for net proceeds of
approximately $127,084,000. During the second quarter of 2000, ProAct completed
three acquisitions for cash and shares of its common stock totaling
approximately $111,000,000.
On June 30, 2000, ProAct sold 25,000,000 shares of mandatorily
redeemable Series D Convertible Preferred Stock to Gateway Companies, Inc.
("Gateway") for net proceeds of approximately $148,000,000. Concurrently,
ProAct entered into a promotional agreement with Gateway and also purchased
Gateway's minority ownership interest in iBelong, Inc. The total amount paid
for the promotional agreement with Gateway and the ownership interest in
iBelong was $70,000,000.
As a result of the above transactions, the Company's ownership of
ProAct was reduced to approximately 49% of the voting interest and 85% of
ProAct's outstanding common stock. Accordingly, the Company's condensed
consolidated financial statements for the three months and nine months ended
September 30, 2000 no longer include the consolidated financial statements of
ProAct as a consolidated subsidiary, and the Company instead has accounted for
its ownership using the equity method of accounting. The above transactions
resulted in the Company recording an increase in its stockholders' equity of
approximately $62,800,000 in accordance with the SEC's Staff Accounting Bulletin
51. During the three months ended September 30, 2000, the Company's investment
in ProAct was eliminated as a result of recording its pro rata share of ProAct's
losses under the equity method of accounting. Revenue and loss from operations
of ProAct for the nine months ended September 30, 1999 were $1,201,000 and
$19,728,000 respectively.
5. CREDIT AGREEMENT
On January 7, 2000, the Company entered into a senior secured revolving
syndicated credit facility ("Credit Facility") with several institutions
providing for borrowings of up to $50,000,000. The Credit Facility expires on
December 31, 2002. The Credit Facility bears interest payable at least quarterly
at a rate of either 2.75% plus an adjusted LIBOR rate or 1.75% plus the greater
of Chase Manhattan Bank's prime rate or .5% plus the federal funds rate. The
Credit Facility is secured by liens on substantially all of the assets of the
Company's domestic operating subsidiaries other than iXL Ventures, ProAct and
ProAct's subsidiaries. These obligations are also secured by iXL's interest in
the capital stock of its domestic operating subsidiaries, and 65% of the
capital stock of iXL's foreign subsidiaries, including the pledge of the capital
stock of the same subsidiary companies. The Credit Facility provides for
borrowings based upon a borrowing base formula of qualified billed and unbilled
accounts receivables. A commitment fee is charged on the unused portion of the
Credit Facility.
As of September 30, 2000, the Company was in violation of a certain
financial covenant as defined in the Credit Facility. The Company has reached an
agreement with two of its principal lenders and is seeking approval from the
majority of its lenders to provide for an amendment to the Credit Facility. The
amendment would waive the violation of the financial covenant and restrict the
borrowing base available to qualified billed accounts receivable from domestic
operations, less the aggregate principal of all loans outstanding and letter of
credit exposure. iXL believes the Credit Facility amendment will further require
the Company to maintain at least $30 million of liquidity, defined as cash and
cash equivalents and borrowings pursuant to this agreement. There is no
guarantee that the Company will obtain the required consent to effectuate this
amendment curing the Company's current default. The Credit Facility is further
discussed in "ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES" in PART 1
of this report.
At September 30, 2000, the Company had no borrowings outstanding under
the Credit Facility and had utilized approximately $26,168,000 of the Credit
Facility for letters of credit issued primarily as security for office leases.
6. ACQUISITION
On January 11, 2000, the Company acquired Tessera Enterprise Systems,
Inc. ("Tessera") in exchange for $3,700,000 and 3,588,655 shares of the
Company's common stock. The Company recorded an aggregate purchase price of
approximately $132,846,000. The purchase price in excess of identifiable
tangible and intangible assets acquired and liabilities assumed of
approximately $116,535,000 was allocated to goodwill and is being amortized
over an estimated useful life of five years. Approximately $6,136,000 of the
aggregate purchase price was allocated to assembled workforce and is being
amortized over an estimated useful life of three years. The following pro forma
information presents the Company's results of operations for the nine months
ended September 30, 1999 as if the acquisition of Tessera had taken place on
January 1, 1999:
7
<PAGE> 8
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
------------------------------------
(in thousands, except per share data)
<S> <C>
Net revenue.................................. $160,257
Net loss available to common stockholders.... $(86,114)
Net loss per common share.................... $ (2.15)
</TABLE>
These pro forma results of operations include adjustments to the
historical operations of the combined companies and are presented for
comparative purposes only. These pro forma results do not purport to be
indicative of the results which actually would have resulted had the
acquisition occurred on the date indicated or which may result in the future.
7. SEGMENT REPORTING
In 1999, the Company operated in two business segments: strategic
Internet services, which includes Internet strategy consulting, Internet-based
business solutions and solution sets; and ProAct, an e-commerce and software
application company, which markets financial services and employee benefits
over corporate intranets and the Internet, as well as through telesales. In the
second quarter of 2000, the Company deconsolidated ProAct as further discussed
in Note 4 of the condensed consolidated financial statements. Accordingly,
ProAct has been eliminated from segment reporting in 2000.
Information concerning the operations in these reportable segments is
as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Revenue:
Strategic Internet services...... $ 87,838 $ 63,548 $ 309,293 $ 141,782
ProAct .......................... -- 342 -- 1,201
Eliminations .................... -- (159) -- (344)
-------- --------- --------- ---------
$ 87,838 $ 63,731 $ 309,293 $ 142,639
======== ========= ========= =========
Loss from operations:
Strategic Internet services...... $(78,302) $ (5,631) $ (97,217) $ (28,468)
ProAct .......................... -- (8,049) -- (19,728)
-------- --------- --------- ---------
$(78,302) $ (13,680) $ (97,217) $ (48,196)
======== ========= ========= =========
Depreciation and amortization:
Strategic Internet services...... $ 16,996 $ 7,080 $ 48,176 $ 20,349
ProAct .......................... -- 533 -- 1,163
-------- --------- --------- ---------
$ 16,996 $ 7,613 $ 48,176 $ 21,512
======== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
As of
-----------------------------------------
September 30, 2000 December 31, 1999
------------------ -----------------
(in thousands)
<S> <C> <C>
Identifiable assets:
Strategic Internet Services... $ 418,644 $ 323,487
ProAct........................ -- 34,368
---------- ---------
$ 418,644 $ 357,855
========== =========
</TABLE>
8
<PAGE> 9
8. COMPREHENSIVE LOSS
The components of comprehensive loss are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------- -------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net loss $(88,072) $(12,438) $ (137,249) $(47,093)
Foreign currency translation
adjustment (670) 139 (1,380) (65)
Unrealized (loss) gain on marketable
securities (559) 1,259 (7,688) 7,137
-------- -------- ---------- --------
Comprehensive loss $(89,301) $(11,040) $ (146,317) $(40,021)
======== ======== ========== ========
</TABLE>
9. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. In June 1999, FASB issued Statement of Financial Accounting
Standards No. 137, which deferred the effective date of SFAS 133 to all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company will be
required to adopt SFAS 133, as amended, for the fiscal quarter ending March 31,
2001. The Company does not expect the adoption of SFAS 133 to have a material
impact on its financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). In June 2000, the
SEC issued SAB 101B to provide registrants additional time to implement
guidance contained in SAB 101. SAB 101B delays the implementation date of SAB
101 until no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. The Company is evaluating the implications of SAB 101
and to date has identified nothing that would significantly change the
Company's historical practices with respect to the events that trigger revenue
recognition and the measurement of revenue.
10. LEGAL PROCEEDINGS
Beginning on September 8, 2000, several related putative class actions
were filed in the United Stated District Court for the Northern District of
Georgia, putatively on behalf of stockholders of Company alleging violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by the Company,
as well as U. Bertram Ellis, the Company's Chairman, Chief Executive Officer,
and President, and former Chief Financial Officer Wayne Boylston. The
plaintiffs allege that during the putative class period, February 2, 2000
through September 2, 2000, iXL issued false and misleading public statements
concerning the Company's financial performance. Plaintiffs allege generally
that iXL misled the public regarding its growth and revenues. Plaintiffs allege
that the "truth" about iXL's financial results was revealed on September 1,
2000, when it announced that revenue for the three months ended September 30,
2000 would be approximately 15% to 20% below the revenues of $119.2 million
figure reported for the three months ended June 30, 2000. Plaintiffs have not
made a specific demand for such damages as of yet.
The Company has been informed that a suit has been filed by former
shareholders of Redwing Ltd., which the Company acquired for cash and stock on
April 12, 2000, but the complaint has not been formally served to date. The
draft complaint contained allegations substantially similar to the plaintiffs'
class actions as well as alleged breach of contract and indicated that it would
be filed in the same court. No specific demand for damages was contained in the
draft complaint.
The Company believes that the above described legal actions are
factually inaccurate and legally deficient. The Company intends to defend these
cases vigorously. Unfavorable outcomes from these proceedings could have a
materially adverse effect on the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the condensed consolidated financial statements and notes contained in
"ITEM 1. FINANCIAL STATEMENTS" in PART I of this report. This discussion
contains forward-looking
9
<PAGE> 10
statements relating to the Company's future financial performance, business
strategy, financing plans and other future events that involve uncertainties
and risks. The Company's actual results could differ materially from the
results anticipated by these forward-looking statements as a result of many
known and unknown factors, including, but not limited to, the Company's current
liquidity position and need for additional financing, actions that the
Company's lenders could take under an amended Credit Facility, the success of
the Company's restructuring efforts and other factors contained in the risk
factor disclosure contained in its Annual Report on Form 10-K for the year
ended December 31, 1999 as filed with the SEC as well as the factors listed in
"Supplemental Factors Affecting Future Performance and Results" below. The
cautionary statements made in that Form 10-K and herein are applicable to all
related forward-looking statements wherever they appear in this report. The
forward-looking statements contained in this report are made only as of the
date hereof, and we undertake no obligation to update or revise any
forward-looking statements, whether as a result of new developments or
otherwise.
Supplemental Factors Affecting Future Performance and Results
The Company's failure to raise additional capital or to achieve profitability
would harm its business.
The Company's future liquidity and capital requirements will depend on
many factors. The Company's cash, cash equivalents, and marketable securities
decreased to $57.8 million at September 30, 2000 from $110.9 million at June 30,
2000 and $155.7 million at December 31, 1999. The Company believes that its
existing cash and cash equivalents and marketable securities, together with
funds from operations, including collections of accounts receivable, will be
sufficient to meet its anticipated needs for working capital and capital
expenditures into the first quarter of 2001. The Company will be required to
raise additional funds at such time. In addition, the Company may need to raise
additional funds to fund its operations if the Company experiences operating
losses that exceed its current expectations, or fails to collect its accounts
receivable within a reasonable period of time, or in the event the Company is
unable to obtain a waiver of violation of the existing of the Credit Facility or
if it violates additional covenants of its Credit Facility during such period.
The Company is in discussions to raise additional funds through the sale of
certain assets, including but not limited to certain minority equity interests
in developing businesses that it has acquired through its iXL Ventures
operations. There is no guarantee any such assets can be sold. If the Company
raises additional funds through the issuance of its equity, equity-related or
debt securities, such securities may have rights, preferences or privileges
senior to those of the rights of its common stock. Furthermore, because of the
low trading price of the Company's common stock, the number of shares of new
equity or equity-related securities that it may be required to issue may be
greater than it might otherwise be. As a result, the Company's stockholders may
experience significant additional dilution. In addition, the issuance of debt
securities could increase the risk or perceived risk of the Company. The Company
cannot, however, be certain that additional financing, or funds from asset
sales, will be available on acceptable terms when required, or at all. If this
additional financing is not available or the Company is unable to raise funds
from the sales of assets, the Company may need to dramatically change its
business plan, sell or merge the business, or face bankruptcy or liquidation.
The Company may not be able to adapt its business to the reduction in demand
for Internet consulting services.
The dynamics of the demand for Internet consulting services are
changing rapidly. During the three months ended September 30, 2000, iXL
experienced a significant reduction in demand. As a result, the average amount
of time invested to secure any given project has been extended. It is likely
that demand for Internet consulting services will remain lower than prior
levels for the near future. The Company must adapt its business and business
processes to this evolving environment. If the Company fails to sufficiently
restructure its operations and adapt its business processes to the evolving
marketplace, its business will not succeed. Similarly, if the Company proves
unable to predict future trends in its industry and to adapt its business to
evolving demand for new products and services its business may not succeed.
The Company may not be able to adapt to its new workforce structure.
As a result of the reduction in demand for Internet consulting
services, to date the Company has terminated the employment of approximately
350 employees. Additional employee terminations may be necessary to achieve the
desired workforce structure. Additionally, many of the Company's employees who
were not involuntarily terminated have chosen to terminate their employment
with iXL for other opportunities. The Company's failure to adapt its business
to its new workforce structure could adversely affect its performance and
results.
Overview
iXL is a worldwide consulting firm that helps companies utilize the
power of emerging technologies and advanced business strategy to build
stronger, more profitable relationships with their customers and business
partners. iXL has 23 offices in the United States, Europe, Latin America and
Asia.
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<PAGE> 11
iXL was founded in March 1996, and since that time iXL has acquired a
total of 35 consulting companies and 5 e-commerce and software application
companies. All of these acquisitions have been accounted for using the purchase
method. Therefore, the historical financial data include the results of
operations of companies acquired from their respective acquisition dates. iXL
has incurred substantial losses since its inception and anticipates continuing
to incur substantial losses for the foreseeable future. As of September 30,
2000, iXL had an accumulated deficit of approximately $273.2 million. Although
iXL experienced substantial revenue growth through June 30, 2000, the Company
experienced a decrease in revenue for the three months ended September 30, 2000
compared to the prior quarter.
On September 1, 2000, iXL announced several organizational changes and
reported that its revenue and earnings for its third quarter ended September 30,
2000 would be materially below management's expectations. The organizational
changes included the resignation of the Company's president as discussed further
below. Subsequently, on September 6, 2000, the Company announced a restructuring
of its workforce. Several factors precipitated these announcements, which are
further discussed below.
The dynamics of the demand for Internet consulting services are
changing rapidly. During the three months ended September 30, 2000, iXL
experienced a significant reduction in demand. The weakening condition or
failure of many of the Internet-based "dot-com" companies caused many of the
Company's Global 1000 clients to rethink or delay implementing their Internet
strategy. In addition, many larger traditional companies have chosen to utilize
in-house resources for the implementation of their Internet initiative in lieu
of those of iXL and its competitors. As a result, the average amount of time
invested by iXL to secure any given project has increased. It is possible that
demand for Internet consulting services, including those offered by the Company,
will remain lower than prior levels for the foreseeable future.
Also as a result of the reduction in demand for the Company's services,
iXL's revenues for the three months ended September 30, 2000 were substantially
lower than anticipated. In response to the reductions in demand for the
Company's services and revenue, iXL has undertaken a restructuring plan designed
to reduce iXL's workforce and operating expenses. This is further discussed in
Note 3 of the condensed consolidated financial statements contained herein. As
of September 30, 2000, the Company had announced the termination of
approximately 350 employees in connection with the restructuring plan.
Management is continuing to restructure its operations and additional voluntary
and involuntary employee terminations have continued into the fourth quarter and
may further continue. As a result of the restructuring and employee
terminations, it may prove increasingly difficult for iXL to attract and retain
its most qualified employees. The failure to attract and retain qualified
creative, technical, consulting and sales personnel could materially and
adversely affect the Company's financial condition and results of operations.
The Company continues to restructure operations in light of the rapidly
changing market conditions. The Company recently consolidated its office
locations in the Boston metropolitan area. Further restructuring, office
consolidation, or other changes to its operations could result in the possible
impairment of certain intangible assets.
On September 1, 2000, the Company announced the resignation of William
C. Nussey, the former Chief Executive Officer and President of the Company's
principal operating subsidiary, iXL, Inc., and former Director of iXL, and also
announced the reassignment of Niraj Shah, the former Chief Operating Officer of
iXL, Inc., to Executive Vice President of Operations. On November 6, 2000, Mr.
Shah resigned as an officer and Director of the Company. On October 31, 2000,
Jonathan Ballon, the former Chief Marketing Officer, resigned. Although iXL's
Chief Executive Officer, U. Bertram Ellis, Jr., and former iXL, Inc. Chief
Operating Officer Barry Sikes are currently filling the roles as Chief Executive
Officer of iXL, Inc. and Chief Operating Officer of iXL, Inc., respectively, the
Company is currently seeking experienced executives to fill these positions, and
there is no guarantee that it will be able to attract qualified executives to
fill these positions. A failure to attract and hire qualified executives could
materially and adversely affect the Company's financial condition and results of
operations.
On June 30, 2000, the Company's voting interest in ProAct was reduced
to less than 50% as the result of the issuance of additional common stock and
mandatorily redeemable convertible preferred stock. Accordingly, during the
three months ended June 30, 2000, the Company deconsolidated ProAct. The
Company has presented its results of operations and financial condition as if
the deconsolidation occurred on January 1, 2000. This change did not have a
material effect on the Company's consolidated revenue and resulted in a
decrease in its consolidated operating expenses during the three and nine
months ended September 30, 2000.
During the three months ended September 30, 2000, iXL incurred
non-cash stock compensation expense related to its option grants totaling
$134,000 as compared to $1.3 million for the three months ended September 30,
1999. During the nine months ended September 30, 2000, iXL incurred non-cash
stock compensation expense related to its option grants totaling $4.0 million
as compared
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<PAGE> 12
to $3.4 million for the nine months ended September 30, 1999. iXL expects to
recognize approximately $4.1 million, $1.4 million, $1.3 million and $0.8
million, respectively, for the fiscal years ending December 31, 2000, 2001,
2002, and 2003, in stock compensation expense relating to the grant of options
in 1998, 1999, and 2000.
Results of Operations
Discussions of results of operations exclude all non-cash stock compensation
expense, except when noted otherwise.
Comparison of Three Months Ended September 30, 2000 and September 30, 1999
Net revenue. Net revenue increased $24.1 million, or 38%, to $87.8
million for the three months ended September 30, 2000 from $63.7 million for
the three months ended September 30, 1999. The increase was attributable to an
increase in the number and size of client engagements, particularly for the
Company's specialized strategy consulting services.
Professional services expenses. Professional services expenses
increased $30.0 million, or 92%, to $62.5 million for the three months ended
September 30, 2000 from $32.5 million for the three months ended September 30,
1999. The increase was primarily attributable to an increase in professional
services headcount over the same period last year. As a percentage of
professional services revenue, professional services expenses increased from
51% for the three months ended September 30, 1999 to 71% for the three months
ended September 30, 2000. The increase as a percentage of professional services
revenue was due to a decrease in revenue and an increased number of
professional services personnel hired in anticipation of higher demand for
Internet consulting services. See the discussion of the industry trend in the
"Overview" section above.
Sales and marketing expenses. Sales and marketing expenses increased
$1.1 million, or 10%, to $12.1 million for the three months ended September 30,
2000 from $11.0 million for the three months ended September 30, 1999. This
increase was primarily attributable to increased advertising, promotional
material, and public relations expenditures in anticipation of continued
growth. As previously discussed in Note 4 of the condensed consolidated
financial statements, the sales and marketing expenses for ProAct were included
in the consolidated sales and marketing expenses contained in the financial
statements for the three months ended September 30, 1999 but were excluded
from the consolidated sales and marketing expenses contained in the financial
statements for the three months ended September 30, 2000. As a percentage of net
revenue, sales and marketing expenses decreased to 14% for the three months
ended September 30, 2000 from 17% for the three months ended September 30, 1999.
General and administrative expenses. General and administrative
expenses increased $33.2 million, or 133%, to $58.2 million for the three
months ended September 30, 2000 from $25.0 million for the three months ended
September 30, 1999. This increase was primarily attributable to an increase in
bad debt expense, an increase in rent, and increases in salaries, travel, and
other administrative expenses related to the increase in the number of general
and administrative personnel necessary to support the Company's anticipated
growth. As previously discussed in Note 4 of the condensed consolidated
financial statements, the general and administrative expenses for ProAct were
included in the consolidated general and administrative expenses contained in
the financial statements of the three months ended September 30, 1999 but were
excluded from the consolidated general and administrative expenses contained in
the financial statements for the three months ended September 30, 2000. As a
percentage of net revenue, general and administrative expenses increased to 66%
for the three months ended September 30, 2000 from 39% for the three months
ended September 30, 1999.
Stock-based compensation and other. Stock-based compensation and other
expense decreased to $134,000 for the three months ended September 30, 2000 from
$1.3 million in the three months ended September 30, 1999. The $1.2 million
decrease in stock-based compensation expense was due to a decrease in the number
of employees with such stock options.
Depreciation. Depreciation expense increased $2.5 million, or 76% to
$5.8 million for the three months ended September 30, 2000 from $3.3 million
for the three months ended September 30, 1999. The increase was primarily
related to additional investments in physical infrastructure and expansion in
prior periods in anticipation of continued growth.
Amortization. Amortization expense increased $6.9 million or 159% to
$11.2 million for the three months ended September 30, 2000 from $4.3 million
for the three months ended September 30, 1999. The increase was primarily a
result of the amortization of goodwill and assembled workforce recorded in
connection with the acquisition of Tessera.
Restructuring charge. The Company incurred a $16.2 million
restructuring charge during the three months ended September 30, 2000. No such
charge was recorded for the three months ended September 30, 1999. The
restructuring charge includes charges for rent and sublease expenses and
severance costs. See Note 3 of the condensed consolidated financial statements.
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<PAGE> 13
Other expenses. Other expenses increased $2.2 million to $2.3 million
for the three months ended September 30, 2000 from $0.1 million for the three
months ended September 30, 1999. This increase was primarily a result of a
write off of approximately $1.5 million of property and equipment.
Loss on equity investment. The Company incurred an $8.5 million loss
on equity investment in the three months ended September 30, 2000. No such
charge was recorded for the three months ended September 30, 1999. This loss is
primarily related to the Company's percentage share in ProAct's results of
operations. See Note 4 of the condensed consolidated financial statements.
Comparison of Nine Months Ended September 30, 2000 and September 30, 1999
Net revenue. Net revenue increased $166.7 million, or 117%, to $309.3
million for the nine months ended September 30, 2000 from $142.7 million for
the nine months ended September 30, 1999. The increase was attributable to an
increase in the number and size of client engagements, particularly for the
Company's specialized strategy consulting services.
Professional services expenses. Professional services expenses
increased $93.8 million, or 129%, to $166.3 million for the nine months ended
September 30, 2000 from $72.5 million for the nine months ended September 30,
1999. The increase was primarily attributable to an increase in professional
services headcount. As a percentage of professional services revenue,
professional services increased from 51% for the nine months ended September
30, 1999 to 54% for the nine months ended September 30, 2000. This increase as
a percentage of professional services revenue for the nine months ended
September 30, 2000 was due to a decrease in revenue from professional services
and an increased number of professional services personnel hired in
anticipation of higher demand for Internet consulting services. See the
discussion of the industry trend in the "Overview" section above.
Sales and marketing expenses. Sales and marketing expenses increased
$4.8 million, or 17%, to $33.3 million for the nine months ended September 30,
2000 from $28.5 million for the nine months ended September 30, 1999. This
increase was primarily attributable to increased advertising, promotional
material, and public relations expenditures in anticipation of continued
growth. As previously discussed in Note 4 of the condensed consolidated
financial statements, the sales and marketing expenses for ProAct were included
in the consolidated sales and marketing expenses contained in the financial
statements for the nine months ended September 30, 1999 but were excluded
from consolidated sales and marketing expenses contained in the financial
statements for the nine months ended September 30, 2000. As a percentage of net
revenue, sales and marketing expenses decreased to 11% for the nine months ended
September 30, 2000 from 20% for the nine months ended September 30, 1999.
General and administrative expenses. General and administrative
expenses increased $73.6 million, or 113%, to 138.5 million for the nine months
ended September 30, 2000 from $64.9 million for the nine months ended September
30, 1999. This increase was primarily attributable to an increase in bad debt
expense, an increase in rent, and increases in salaries, travel, and other
administrative expenses related to the increase in the number of general and
administrative personnel necessary to support the Company's anticipated growth.
As previously discussed in Note 4 of the condensed consolidated financial
statements, the general and administrative expenses for ProAct were included in
the consolidated general and administrative expenses contained in the financial
statements of the nine months ended September 30, 1999 but were excluded from
the consolidated general and administrative expenses contained in the financial
statements for the nine months ended September 30, 2000. As a percentage of net
revenue, general and administrative expenses decreased to 45% for the nine
months ended September 30, 2000 from 46% for the nine months ended September 30,
1999.
Stock-based compensation and other. Stock-based compensation and other
expense increased to $4.0 million in the nine months ended September 30, 2000
from $3.4 million in the nine months ended September 30, 1999 due to an
increase in the number of outstanding stock options.
Depreciation. Depreciation expense increased $6.4 million, or 76%, to
$14.9 million for the nine months ended September 30, 2000 from $8.5 million
for the nine months ended September 30, 1999. The increase was primarily
related to additional investments in physical infrastructure and expansion in
prior periods in anticipation of continued growth.
Amortization. Amortization expense increased $20.2 million, or 155%,
to $33.2 million for the nine months ended September 30, 2000, from $13.0
million for the nine months ended September 30, 1999. The increase was
primarily a result of the amortization of goodwill and assembled workforce
recorded in connection with the acquisition of Tessera.
Restructuring charge. The Company incurred a $16.2 million
restructuring charge during the nine months ended September 30, 2000. No such
charge was recorded for the nine months ended September 30, 1999. The
restructuring charge includes charges for rent and sublease expenses and
severance costs. See Note 3 of the condensed consolidated financial statements.
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<PAGE> 14
Other expenses. Other expenses increased $2.5 million to $2.6 million
for the nine months ended September 30, 2000, from $0.1 million for the nine
months ended September 30, 1999. This increase was primarily a result of a
write off of approximately $1.5 million of property and equipment.
Loss on equity investment. The Company incurred a $40.6 million loss
on equity investment in the nine months ended September 30, 2000. No such
charge was recorded for the nine months ended September 30, 1999. This loss is
primarily related to the Company's percentage share in ProAct's results of
operations. See Note 4 of the condensed consolidated financial statements.
Income taxes. The Company recorded income tax expense of $600,000 for
the nine months ended September 30, 2000. The Company recorded no income tax
expense or benefit in the nine months ended September 30, 1999. In June 1999,
the Company's ownership in ProAct decreased to less than 80%. As a result,
ProAct is no longer included in the Company's consolidated group for tax
purposes. Accordingly, the net operating loss carry forward applicable to
ProAct in the nine months ended September 30, 2000 cannot be used by the
Company.
Liquidity and Capital Resources
On January 7, 2000, the Company entered into a senior secured revolving
syndicated credit facility ("Credit Facility") with several institutions
providing for borrowings of up to $50,000,000. The Credit Facility expires on
December 31, 2002. The Credit Facility bears interest payable at least quarterly
at a rate of either 2.75% plus an adjusted LIBOR rate or 1.75% plus the greater
of Chase Manhattan Bank's prime rate or .5% plus the federal funds rate. The
Credit Facility is secured by liens on substantially all of the assets of the
Company's domestic operating subsidiaries other than iXL Ventures, ProAct and
ProAct's subsidiaries. These obligations are also secured by iXL's interest in
the capital stock of its domestic operating subsidiaries, and 65% of the
capital stock of iXL's foreign subsidiaries, including the pledge of the capital
stock of the same subsidiary companies. The Credit Facility provides for
borrowings based upon a borrowing base formula of qualified billed and unbilled
accounts receivables. A commitment fee is charged on the unused portion of the
Credit Facility.
As of September 30, 2000, the Company was in violation of a certain
financial covenant as defined in the Credit Facility. The Company has reached an
agreement with two of its principal lenders and is seeking approval from the
majority of its lenders to provide for an amendment to the Credit Facility. The
amendment would waive the violation of the financial covenant and restrict the
borrowing base available to qualified billed accounts receivable from domestic
operations, less the aggregate principal of all loans outstanding and letter of
credit exposure. iXL believes the Credit Facility amendment will further require
the Company to maintain at least $30 million of liquidity, defined as cash and
cash equivalents and borrowings pursuant to this agreement. There is no
guarantee that the Company will obtain the required consent to effectuate this
amendment curing the Company's current default.
At September 30, 2000, the Company had no borrowings outstanding under
the Credit Facility and had utilized approximately $26,168,000 of the Credit
Facility for letters of credit issued primarily as security for office leases.
As of December 31, 1999, iXL had $199.5 million of working capital,
including $120.8 million of cash and cash equivalents and $34.9 million of
marketable securities, as compared to $109.2 million of working capital,
including $14.7 million in cash and cash equivalents and $43.1 million in
marketable securities as of September 30, 2000.
Cash used in operating activities was $53.0 million for the nine months
ended September 30, 1999, as compared to cash used in operating activities of
$32.8 million for the nine months ended September 30, 2000. Cash used in
operating activities for the nine months ended September 30, 2000 and 1999 was
largely due to an increase in accounts receivable and an increase in accounts
payable and other accrued liabilities.
The Company calculates average days' sales outstanding ("DSO") based
on billed and unbilled receivables less deferred revenue. During the three
months ended September 30, 2000, the Company experienced an increase in DSO
from 83 at June 30, 2000 to 96 at September 30, 2000.
Cash used in investing activities was $41.5 million for the nine
months ended September 30, 1999, as compared to cash used in investing
activities of $105.3 million for the nine months ended September 30, 2000. Cash
used in investing activities for the nine
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months ended September 30, 2000 and 1999 was primarily used for the purchases of
property and equipment and marketable securities.
In addition, at September 30, 2000, iXL had outstanding commitments
for purchases of property and equipment of approximately $6.6 million,
primarily related to the expansion and improvement of its Atlanta, Los Angeles,
and Charlotte offices. The remainder of iXL's significant commitments consists
of obligations outstanding under operating leases.
Cash provided by financing activities was $154.6 million for the nine
months ended September 30, 1999 as compared to cash provided by financing
activities of $33.4 million for the nine months ended September 30, 2000. Cash
provided by financing activities for the nine months ended September 30, 2000
primarily resulted from the exercise of stock options. Cash provided by
financing activities for the nine months ended September 30, 1999 primarily
resulted from the initial and secondary public offerings.
The Company's future liquidity and capital requirements will depend on
many factors. The Company's cash, cash equivalents, and marketable securities
decreased to $57.8 million at September 30, 2000 from $110.9 million at June 30,
2000 and $155.7 million at December 31, 1999. The Company believes that its
existing cash and cash equivalents and marketable securities, together with
funds from operations, including collections of accounts receivable, will be
sufficient to meet its anticipated needs for working capital and capital
expenditures into the first quarter of 2001. The Company will be required to
raise additional funds at such time. In addition, the Company may need to raise
additional funds to fund its operations if the Company experiences operating
losses that exceed its current expectations, or fails to collect its accounts
receivable within a reasonable period of time, or in the event the Company is
unable to obtain a waiver of the existing violation of the Credit Facility or if
it violates additional covenants of its Credit Facility during such period. The
Company is in discussions to raise additional funds through the sale of certain
assets, including but not limited to certain minority equity interests in
developing businesses that it has acquired through its iXL Ventures operations.
There is no guarantee any such assets can be sold. If the Company raises
additional funds through the issuance of its equity, equity-related or debt
securities, such securities may have rights, preferences or privileges senior to
those of the rights of its common stock. Furthermore, because of the low trading
price of the Company's common stock, the number of shares of new equity or
equity-related securities that it may be required to issue may be greater than
it might otherwise be. As a result, the Company's stockholders may experience
significant additional dilution. In addition, the issuance of debt securities
could increase the risk or perceived risk of the Company. The Company cannot,
however, be certain that additional financing, or funds from asset sales, will
be available on acceptable terms when required, or at all. If this additional
financing is not available or the Company is unable to raise funds from the
sales of assets, the Company may need to dramatically change its business plan,
sell or merge the business, or face bankruptcy or liquidation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe that there is any material market risk
exposure with respect to derivative or other financial instruments that would
require disclosure under this item.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Beginning on September 8, 2000, several related putative class actions
were filed in the United Stated District Court for the Northern District of
Georgia, putatively on behalf of stockholders of Company alleging violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by the Company,
as well as U. Bertram Ellis, the Company's Chairman, Chief Executive Officer,
and President, and former Chief Financial Officer Wayne Boylston. The
plaintiffs allege that during the putative class period, February 2, 2000
through September 2, 2000, iXL issued false and misleading public statements
concerning the Company's financial performance. Plaintiffs allege generally
that iXL misled the public regarding its growth and revenues. Plaintiffs allege
that the "truth" about iXL's financial results was revealed on September 1,
2000, when it announced that revenue for the three months ended September 30,
2000 would be approximately 15% to 20% below the revenues of $119.2 million
figure reported for the three months ended June 30, 2000. Plaintiffs have not
made a specific demand for such damages as of yet.
The Company has been informed that a suit has been filed by former
shareholders of Redwing Ltd., which the Company acquired for cash and stock on
April 12, 2000, but the complaint has not been formally served to date. The
draft complaint contained allegations substantially similar to the plaintiffs'
class actions as well as alleged breach of contract and indicated that it would
be filed in the same court. No specific demand for damages was contained in the
draft complaint.
The Company believes that the above described legal actions are
factually inaccurate and legally deficient. The Company intends to defend these
cases vigorously. Unfavorable outcomes from these proceedings could have a
materially adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
21 Subsidiaries of registrant
27.1 Financial data schedule (for SEC use only)
(b) Reports on Form 8-K/A filed during the three months ended September
30, 2000:
<TABLE>
<CAPTION>
DATE OF REPORT DATE FILED ITEMS INCLUDED
-------------------- -------------- -----------------
<S> <C> <C>
May 19, 2000 August 4, 2000 7
</TABLE>
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SIGNATURE
Pursuant to the requirements 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.
iXL Enterprises, Inc.
By: /s/ Michael J. Casey
----------------------------------------------------
Michael J. Casey
Executive Vice President and Chief Financial Officer
Date: November 14, 2000
17
