Filed with the Securities and Exchange Commission on December 17, 1998.
Registration No. _____________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S - 3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X-CEED, INC.
(Exact name of registrant as specified in its charter)
488 Madison Avenue, New York, New York 10022
(212) 753-5511
(Address and telephone number of registrant's principal executive offices)
New York 3398 13-3006788
(State or other jurisdiction (Standard Industrial (IRS Employer
of incorporation) Classification Code) I.D. Number)
Werner Haase, President
X-ceed, Inc.
488 Madison Avenue, New York, New York 10022
(212) 753-5511
(Name, address and telephone number of agent for service)
Copies of all Richard J. Blumberg, Esq.
communications to: McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
(212) 448-1100
Approximate date of commencement of proposed sale to the public: from
time to time after the effective date of this Registration Statement depending
on market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [__]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [__] ___
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [__] ___
<TABLE>
Calculation of Registration Fee
<CAPTION>
Title of each class Proposed Proposed maximum
of securities to be Amount to be maximum offering aggregate offering Amount of
registered registered price per unit price registration fee
<S> <C> <C> <C> <C>
Common Stock par 298,965 shares $7.78 $2,325,948.00 $686.15 (1)
value
$.01 per share
<FN>
(1) Estimated for purposes of this filing pursuant to Rule 457(c) at
$7.78 per share based upon the average of the closing bid and asked prices of
$7.75 and $7.81215, respectively, on December 14, 1998.
</FN>
</TABLE>
<PAGE>
PROSPECTUS
X-CEED, INC.
298,965 Shares of Common Stock, Par Value $.01 per Share.
This Prospectus relates to 298,965 shares of Common Stock of
X-ceed, Inc. (the "Company"), par value $.01 per share (the "Shares"), which may
be offered from time to time by the Selling Shareholders. See "Selling
Shareholders." This Prospectus does not relate to the sale or issuance by the
Company of any securities. Any Securities which are offered will be offered for
the account of the Selling Shareholders, who will acquire the securities upon
the exercise of warrants or who presently own restricted securities which the
Company has agreed to register. The Company will receive the proceeds from the
exercise of warrants payable by the Selling Shareholders upon the exercise of
their warrants. However, the Company will not receive any proceeds from the sale
of the Securities by the Selling Shareholders. The Company has been advised by
the Selling Shareholders that there are no underwriting arrangements with
respect to the sale of the Shares, that the Shares will be sold by the Selling
Shareholders from time to time on the NASDAQ SmallCap Market at the then
prevailing price and in private transactions at negotiated prices and that usual
and customary brokerage fees, if any, will be paid by the Selling Shareholders
in connection therewith.
The Company's Common Stock is traded on the NASDAQ SmallCap
Market under the symbol "XCED." The closing bid quotation for the Common Stock
was $7.75 on December 14, 1998.
----------------------
AN INVESTMENT IN THESE SECURITIES INVOLVES A
HIGH DEGREE OF RISK. (See "Risk Factors" commencing on page 11 herein.)
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _______________, 1998.
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
information with the securities and exchange Commission (the "Commission"). Such
reports may be inspected at the public reference facilities at the Commission at
Judicial Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661-2511; Seven World Trade Center, 13th Floor, New
York, NY 10048; Suite 500, 5757 Wilshire Boulevard, Los Angeles, California
90036-3648. Copies of such material may be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549, at prescribed dates.
-----------------
The Company has continued and will continue to furnish its
security holders with annual reports containing audited financial statements at
the end of each fiscal year. In addition, the Company may, from time to time,
issue unaudited interim reports and financial statements.
THE FOLLOWING LEGEND WILL APPEAR IN RED INK ON THE FRONT PAGE OF THIS
PROSPECTUS IN THE EVENT THAT THE PROSPECTUS IS CIRCULATED PRIOR TO
BEING DECLARED EFFECTIVE BY THE COMMISSION:
"The information contained herein is subject to completion or
amendment. A registration statement relating to these securities has
been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior to
the time the registration statement becomes effective. This prospectus
shall not constitute an offer to sell nor the solicitation of any offer
to buy, nor shall there be any sale of these securities in any state in
which such offers, solicitation or sale would be unlawful prior to
registration or qualification under the laws of any such state."
The Company has filed with the Commission a Registration
Statement on Form S-3 (the "Registration Statement") under the Securities Act of
1933 relating to the securities offered hereby. This Prospectus is filed as part
of the Registration Statement and does not contain all of the information set
forth in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
filed as a part thereof and other documents incorporated therein by reference.
Copies of the Registration Statement and the exhibits thereto may be inspected
and copied, at prescribed rates, at the public reference facilities maintained
by the Commission at the addresses set forth above.
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<PAGE>
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact
included in this Prospectus regarding the Company's financial position, business
strategy and plans and objectives of management of the Company for future
operations, are forward-looking statements. When used in this Prospectus, words
such as "anticipate," "believe," "estimate," "expect," "intend" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain factors such as those disclosed under "Risk
Factors," including but not limited to, competitive factors and pricing
pressures, loss of major customers, technological change or difficulties,
product development risks, commercialization and trade difficulties and general
economic conditions. Such statements reflect the current views of the Company
with respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to the operations, results of operations,
growth strategy and liquidity of the Company. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
behalf are expressly qualified in their entirety by this paragraph.
PROSPECTUS SUMMARY
The following summary information does not purport to be
complete and is qualified in its entirety by reference to the more detailed
information and financial statements appearing elsewhere in this Prospectus or
in documents incorporated by reference. Each prospective investor is urged to
read this Prospectus in its entirety.
THE COMPANY
The Company was originally incorporated under the name
Trilling Resources, Ltd. It changed its name to Trilling Medical Technologies,
Inc. in September 1987 and subsequently to Water-Jel Technologies, Inc. in July
1991. On February 20, 1998, shareholders approved a name change to X-ceed, Inc.
and also approved a change in the Company's state of incorporation from New York
to Delaware. The Company's executive offices are located at 488 Madison Avenue,
New York, NY 10022 and its telephone number is (212) 753-5511.
Since the inception of the Company until 1996, the Company was
primarily engaged in the development, manufacture and marketing of emergency
first aid products for industry and on a limited basis for the consumer
marketplace.
In July 1996, the Company acquired all of the outstanding
stock of Journeycraft, Inc., a company engaged through its X-ceed Performance
Group division ("The Performance Group") in providing services to corporations
in the field of performance improvement services, Internet-based performance
improvement programs and corporate communications and through its Journeycraft
Travel Management division in providing travel management to corporate clients.
The Company also acquired all of the outstanding stock of TheraCom Integrated
Medical Communications, Inc.
4
<PAGE>
("TheraCom"), which is engaged in training and communications in the health care
industry and provides patient education in the area of women's health care and
various aspects of prescription drugs.
During fiscal 1998, Company management decided on strategic
acquisitions designed to let the Company evolve as a fully integrated marketing
and communications company with Internet and interactive services at its core.
The acquired companies were selected to be compatible with and complementary to
the Company's primary existing operations, specifically The Performance Group
and TheraCom, as well as with each other, thus affording the Company the
opportunity to participate in the rapidly expanding Internet and interactive
business sector.
The first of these acquisitions occurred just prior to the end
of the Company's fiscal year, August 31, 1998, when the Company acquired Reset,
Inc. ("Reset"). On September 9, 1998, the Company acquired Mercury Seven, Inc.
("Mercury Seven"), and subsequently on September 14, 1998, the Company acquired
Zabit & Associates, Inc. ("Zabit & Associates"). All of these acquisitions were
by way of a merger. Zabit & Associates was merged into the Company, and Reset
and Mercury Seven were merged into newly created subsidiaries.
As presently constituted, the Company has two main divisions,
Zabit & Associates and Water-Jel, and four subsidiaries, Journeycraft
(consisting of The Performance Group and Journeycorp divisions), TheraCom, Reset
and Mercury Seven. Set forth below is a description of each of the subsidiaries
and divisions.
Journeycraft Subsidiary - The Performance Group Division
The Performance Group offers a full-service approach to its
corporate clients for the establishment of specially designed performance
improvement programs. This full-service approach consists of identifying the
client's business objectives and budget parameters, as well as analyzing the
demographics of the program's participants to arrive at the optimal type and mix
of awards. As part of its services, The Performance Group offers a specially
designed Internet technology, "Maestro," to communicate the business objectives
and contest rules to participants as well as to maintain the excitement and
enthusiasm for the program's objectives throughout the life of a program, which
can range from three months to one year. Ongoing communication to the program
participants of their ranking in the program and feed-back from the participants
to management are the key factors by which a program sponsor achieves possible
results and, ultimately, a measurable return on investment.
The Company believes that Maestro has the potential to
significantly increase the Company's market share of performance improvement
services; however, there can be no assurance that Maestro will serve to attract
additional clients. In addition, competitors may adopt similar type programs.
See "Risk Factors."
The Performance Group derives its revenues from service fees
from clients for designing, executing and monitoring performance improvement
programs and fees from Maestro, as well as from mark-ups on the merchandise
and/or services provided as awards.
5
<PAGE>
The Performance Group markets its services through direct
contacts by its sales representatives with corporate sales, marketing and human
resource executives. For the fiscal year ended August 31, 1998 ("fiscal 1998")
the division had revenues of approximately $35,206,000, accounting for
approximately 60% of the Company's total revenues.
Two clients of The Performance Group accounted for
approximately 60% of the division's total revenues: Pfizer Pharmaceutical
accounted for 35%, and MCI accounted for 15%. A loss of any one of these
customers or a reduction in fees paid by any one of these customers could have a
material effect on The Performance Group's revenues in the future. See "Risk
Factors." The Performance Group is concentrating on building a wider client
base, but there can be no assurance that these efforts will be successful. See
"Risk Factors." The Company believes that the recently acquired companies may be
able to introduce The Performance Group services to their respective corporate
clients, which could possibly result in an expansion of the client base.
TheraCom Subsidiary
The TheraCom subsidiary is a medical communications agency. It
offers continuing educational and training programs to doctors, pharmacists,
nurses and other health care professionals. TheraCom's major clients are
pharmaceutical companies, hospitals and managed care organizations which sponsor
such programs. TheraCom provides all of the necessary services to organize such
medical seminars including agenda preparation, procurement of faculty to
lecture, publicity and travel and meeting place arrangements.
TheraCom has also expanded into providing health care
education beyond the traditional channels. TheraCom has prepared, in conjunction
with medical professionals, programs for patients in such areas as menopause,
compliance with drug regimens, and psycho-social aspects of medicine.
TheraCom's current clients include Pfizer, Inc., Merck and
Co., SmithKline Beecham, Schering-Plough Corp. and Novartis Pharmaceutical Corp.
For fiscal 1998, TheraCom had revenues of $7,063,085. Pfizer, Inc. accounted for
more than 85% of those revenues. A loss of Pfizer, Inc. could have a material
effect on the Company's future revenues. See "Risk Factors."
Journeycraft Subsidiary - Journeycorp Division
The Journeycorp division provides comprehensive travel
services primarily for business travel by corporate clients. Travel services
include trip planning, reservations, ticketing, and other incidental services.
In addition, the division acts as a consultant regarding corporate travel policy
and travel budgeting. For these purposes, the division has created a management
system which analyzes a corporation's historical travel expenses data in order
to develop a definitive corporate travel policy and to enable the client to
budget on an ongoing basis. The system also captures travel expense data and
provides the client with a program to plan, account for and control travel and
entertainment expenses. Like The Performance Group division, Journeycorp uses
Internet technology and software to facilitate direct booking through the
Internet, to access current data via e-mail and to quickly create travel expense
reports and analyses.
6
<PAGE>
Journeycorp derives its revenues primarily from commissions
from suppliers and fees from customers generated by travel bookings. In
addition, a portion of its revenues are derived from management or consulting
fees charged to certain selected accounts. At the present time, the airlines are
shifting away from paying travel agents fees, and as a result, this division is
reorienting its customer relationships towards fee-based travel management.
However, there can be no assurance that this reorientation will be successful.
See "Risk Factors."
Journeycorp markets its services through direct contacts by
its sales representative with clients, targeted direct mailings, and
participation in trade shows. In fiscal 1998, Journeycorp had revenues of
$10,988,000, accounting for approximately 18.6% of the Company's total revenues.
Water-Jel Division
The Water-Jel First Aid division manufactures and markets a
proprietary line of first aid products for burns and a line of generic creams
and ointments. The proprietary line of first aid products for burns consists of
fire blankets, burn dressings and topical creams which are marketed to the
industrial as well as, on a limited basis, the consumer marketplaces. The
division's generic creams and ointment product line consists of hydrocortisone
cream, triple antibiotic ointment, first aid cream, antiseptic gel and a hand
and body lotion which are marketed under the WJ brand. The division also
provides private label packing of its creams and ointment products to some of
its customers. For the fiscal year ended August 31, 1998, the Water-Jel
division's revenues accounted for approximately 10% of the Company's total
revenues.
Reset Subsidiary
On August 29, 1998, the Company acquired Reset, Inc., a
privately held company, by way of a merger. The consideration for the
transaction was the issuance of "restricted" Common Stock having a market value
of $6,250,000 in exchange for all of the issued and outstanding stock of Reset
owned by its three principals. Reset currently operates as a wholly-owned
subsidiary.
Reset was established in 1996 and is engaged in creating
Internet-based business solutions for corporate clients through Internet
consulting, interactive marketing strategies and e-commerce development. At the
present time, Reset derives 70% of its revenues by providing these services to
the entertainment industry. Reset's current clients include, among others, Home
Box Office, MCA, Inc., New Line Cinema, Warner Bros. Online, Consolidated
Edison, Inc., and The Wall Street Journal. One client, Home Box Office, accounts
for approximately 17% of its gross revenues.
Mercury Seven Subsidiary
On September 9, 1998 the Company completed the acquisition of
Mercury Seven, Inc. ("Mercury Seven"), a privately held company, by way of
merger. The Company paid a total consideration consisting of 1,073,333 shares of
"restricted" Common Stock having a market value of $8,050,000 and cash of
$1,500,000.
7
<PAGE>
Mercury Seven was established in late 1996. The company is
engaged in creating Internet-based business solutions for corporate clients
through Internet consulting, interactive marketing strategies and e-commerce
development. Mercury Seven's current clients include, among others, Spree.com,
WorldNow/Gannaway, AnotherUniverse.com, Ericsson, Men's Health, the New York
Rangers, and Madison Square Garden. Spree.com and Men's Health each account for
approximately 10% of Mercury Seven's total revenues.
Mercury Seven is also the publisher and creator of
ChannelSeven.com, an online network for Internet professionals worldwide. The
network incorporates cross-marketing navigational techniques and centralized
rich media advertising management to connect Internet professionals with
valuable resources and services. In addition to the online network, ChannelSeven
provides its core audience with printed publications, special industry events, a
speaker's bureau and a subscription-based e-mail newsletter. ChannelSeven
derives its revenues from advertising and sponsorships. The present advertisers
and sponsors include, among others, Intel, Microsoft, DoubleClick, Ericsson and
Cyberlabs, Inc.
Zabit & Associates Division
On September 14, 1998 the Company completed a Plan of Merger
with Zabit & Associates, Inc. ("Zabit & Associates"), a privately held company,
by which Zabit & Associates merged into the Company. The Company paid a total
consideration which consisted of the issuance of 2,258,724 shares of
"restricted" Common Stock and the issuance of four notes totaling 6,670,208. Two
of the notes for $4.8 million are payable on or before March 15, 1999, and the
other two notes for $1,930,208 are due on or before September 14, 2002. All of
the notes bear interest. In separate transactions, the Company purchased all of
the issued and outstanding stock of Water Street Design, Inc., a company engaged
in design and production and owned by the principals of Zabit, for $2 million
and the trade name and trademark of Zabit for $3.2 million in cash.
Zabit & Associates was established in 1993. Since its
formation, the company has been engaged in advising organizations, primarily
publicly held companies, in developing strategic communication solutions in
connection with the dissemination of information to their employees,
shareholders, customers and general public. At the current time approximately
sixty (60%) percent of the division's revenues are derived from work performed
in connection with the dissemination of information to employees regarding human
resource programs, including compensation plans, 401(k) programs, health
programs, stock option plans and other employee-related programs. The remaining
forty (40%) percent of the division's revenues are derived from services for
general employee communication, marketing communication and public relations
services.
Currently, the division maintains an ongoing client consulting
relationship with Aetna Life Insurance, Pitney Bowes, Dell Computer, McKesson
Corp., Transamerica Corp., Oracle, and Fireman's Fund. Each of these clients has
paid fees to Zabit & Associates in amounts exceeding $200,000 for services. In
addition, Zabit & Associates has other ongoing clients such as Kaiser
Permanente, Inc., Promus and Indiana Power and Light. Fireman's Fund presently
accounts for more than fifteen (15%) percent of Zabit & Associates' total
revenues. To date, Zabit & Associates
8
<PAGE>
has also generated fees of less than $200,000 from clients who include
Starbucks, Applied Materials, United Airlines, Sears, Bechtel and Shell/Texaco.
Additionally, and as part of the Zabit transaction, the
Company entered into an employment agreement with William Zabit, the principal
owner of Zabit, making him President of X-ceed. His employment agreement is for
a period of four years and provides for an annual salary of $400,000, with the
potential for bonuses based upon performance and profitability of the Company.
The mergers of Reset, Mercury Seven and Zabit & Associates
have been accounted for by the purchase method of accounting. As a result of
these transactions, X-ceed's future financial statements will reflect good will
and other intangibles of approximately $41 million.
OTHER RECENT DEVELOPMENTS
As part of the Company's new objectives to operate as an
integrated marketing and communications company, the Company also entered into
an employment agreement with Scott Mednick, who has assumed the position of
Chairman of the Board of Directors along with Werner Haase as Co-Chairman. Mr.
Mednick has also assumed the responsibilities of Chief Strategic Officer of the
Company.
Mr. Mednick was the founder and past chairman and chief
executive officer of THINK New Ideas, Inc. ("THINK"). Under Mr. Mednick's
direction, THINK was named as one of the top interactive agencies of the year
(1995) by both Adweek and the Advertising Club of New York. Mr. Mednick enjoys a
reputation as a highly respected marketing strategist and graphic designer.
Mr. Mednick's employment agreement is for a period of four
years at an annual salary of $350,000 per year, together with bonuses based on
the Company's performance and profitability. In addition, Mr. Mednick received a
signing bonus of $960,000 payable in twelve monthly installments and options to
purchase 1,000,000 shares of the Company's Common Stock at an exercise price of
$6.00 per share. However, of the 1,000,000 shares, 500,000 may only be sold in
increments of 100,000 shares when the market price of the Common Stock attains
certain price levels, ranging from $12.00 a share to $24.00 a share. The
foregoing restrictions are for a period of four years from the date of the
employment agreement.
On November 19, 1998, Mr. Wolf Boehme joined the Company as
its Chief Operations Officer. Prior to joining the Company since 1986, Mr.
Boehme served as operations controller for Bloomberg Financial Markets.
SELECTED FINANCIAL DATA
The selected financial data presented below for the Company's
statements of operations for the years ended August 31, 1998, 1997 and 1996 and
the balance sheet data at August
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31, 1998 and 1997 are derived from the Company's financial statements which have
been audited by Holtz Rubenstein & Co., LLP, independent public accountants, and
which are incorporated by reference. The statement of operations data for the
years ended August 31, 1995 and 1994 and the balance sheet data at August 31,
1996, 1995 and 1994 are derived from audited financial statements of the Company
which are not included in this Registration Statement.
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share amounts)
----------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net Revenues $59,198 $62,885 $54,864 $43,515 $41,333
Operating income (loss) $1,600 $3,924 $1,219 $2,770 $(302)
Net income $1,550 $1,877 $632 $2,131 $(1,353)
Net income (loss) per
common share
-Basic $0.20 $0.27 $0.09 $0.30 $(0.20)
-Diluted $0.18 $0.26 $0.09 $0.30 $(0.20)
Weighted average number
of shares outstanding (1)
-Basic 7,755,795 7,023,770 7,001,295 6,999,180 6,738,327
-Diluted 8,607,636 7,339,625 7,394,012 7,079,388 6,790,310
Balance Sheet Data:
Working capital $17,333 $10,042 $7,964 $5,199 $3,854
Total assets $34,716 $18,800 $17,383 $17,475 $13,143
Long-term debt -0- $52 $91 $130 $18
-0- -0- -0- -0- -0-
Cash Dividends
<FN>
- ---------------------------
(1) Net income per common share and weighted average number of shares
outstanding data for periods prior to December 31, 1997 have been retroactively
restated to reflect computation under Financial Accounting Standards Board
Statement No. 128 "Earnings Per Share."
</FN>
</TABLE>
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<PAGE>
THE OFFERING
Common Stock - 298,875 shares of Common Stock consisting of
98,875 shares of restricted stock owned
by four Selling Shareholders and 200,000
shares underlying 200,000 warrants granted
to two Selling Shareholders. The warrants
permit the holders thereof to purchase one
share of Common Stock for each warrant
at exercise prices of $2.00 per share for
100,000 shares and $2.19 per share for
100,000 shares.
All expenses relating to the registration of
these securities, estimated at $11,500, will
be borne by the Company.
Use of Proceeds - The Company will not receive
any proceeds from the sale of the
securities. However, the Company will
receive $419,000, assuming those Sellers who
hold warrants elect to exercise all of their
options.
RISK FACTORS
A purchase of the securities offered hereby involves a high
degree of risk and prospective purchasers should consider the following Risk
Factors as well as the other information contained in this Prospectus and the
exhibits attached to the Registration Statement as well as Exhibits incorporated
by reference herein.
Competition Faced by the Company
Mercury Seven and Reset, the Company's Internet and
interactive subsidiaries, provide services in a highly competitive market. These
two subsidiaries compete with local, national and global web consultancy, web
development and interactive companies as well as national and global advertising
and communications companies which have begun to develop or acquire these
capabilities. Some of Mercury Seven's and Reset's competitors have longer
operating histories, longer client relationships and greater financial and
technological resources. There can be no assurance that existing or future
competitors will not develop superior Internet technologies, develop greater
expertise in interactive marketing strategies or take smarter e-commerce
solutions to market, including pricing advantages, all of which could have a
material adverse effect on the financial condition and operating results of the
Company.
The Performance Group division offers performance improvement
and communications services to corporate clients in a highly competitive
marketplace. Well-established companies such as Maritz, Inc., Carlson Marketing
Group, Inc. and B.I. Performance Group, Inc. have greater name recognition and a
much broader customer base and generate revenues far in excess of The
Performance Group. In addition, The Performance Group competes with numerous
smaller incentive marketing companies and consultants, and, at times, has to
compete with corporations' in-house staff which designs and executes performance
improvement and communications programs. Only recently, The Performance Group
introduced "Maestro," a proprietary Inter- and intranet
11
<PAGE>
software product applying net-based technology to the performance improvement
sector. While The Performance Group believes that this technology is unique,
competitors may develop their own software and compete against The Performance
Group in the market.
The Zabit & Associates division competes with several
companies, including Andersen Consulting, Towers and Perrin, William M. Mercer &
Company and Watson Wyatt Worldwide. Zabit & Associates' competitors for the most
part have longer operating histories, longer client relationships, greater
financial resources and greater technological resources than Zabit & Associates.
While Zabit & Associates believes it can effectively compete and has within the
last five years developed a significant client base, there can be no assurances
that Zabit & Associates will be able to keep the present client base or attract
new clients. In the event Zabit & Associates cannot compete effectively , this
could have a material effect on the financial condition and operating results of
the Company.
The TheraCom subsidiary, which provides integrated training,
communications and data to the health care industry, competes with many
consultants who provide similar services to the health care industry. TheraCom
competes on the basis of price and quality of its services. To date, TheraCom
has only one significant customer, Pfizer, Inc. TheraCom is attempting to
broaden its client base, and no assurances can be made that it will be able to
effectively compete.
The Journeycorp division, which provides comprehensive travel
services for business travel, faces intense competition, since there are more
than 30,000 travel agents in the United States which are capable of providing
business travel services. In addition, the ongoing consolidation in the travel
industry has created mega-agencies, national and global in scope, which have
resulted in an escalation of competition in this industry.
The Water-Jel division manufactures and markets a line of
first aid products for burns and a line of generic creams and ointments. There
are other companies, such as Spenco Medical Corporation, C.R. Bard, Inc. and
Johnson & Johnson, which manufacture similar first aid products for burns. These
companies have been established for a longer period of time, are better
established and have financial resources and facilities which are greater than
the division's. While some segments of the burn first aid market are dominated
by large manufacturers, other segments of the market are characterized by
intense competition among smaller manufacturers such as Water-Jel.
Market and Technological Change Affecting Journeycorp and The Performance Group
Several of the markets in which the Company's products and
services are offered are undergoing technological advances and other changes. In
particular, and with respect to Journeycorp, the airlines have lowered the
commissions they are willing to pay travel agents. As a result, the corporate
travel business is changing from commission paid by suppliers to fee-based
services in which corporate travel service providers such as Journeycorp are
paid fixed fees by their clients in lieu of commissions based upon the volume of
travel services purchased. These developments have tended to reduce the revenues
available to travel service providers such as Journeycorp. Also, the corporate
travel business is experiencing technological changes such as "ticketless" air
travel and Internet-based reservation systems which tends to reduce the need for
12
<PAGE>
outside travel agents. These changes are further accelerating the trend for
travel service businesses to act as consultants working for fixed fees rather
than commission-based booking agencies. With respect to The Performance Group, a
significant amount of its business is based upon the development of innovative
technologies for delivering incentive programs using the Internet. The Internet
is characterized by rapid technological advances which may render The
Performance Group's technologies, specifically Maestro, out-of-date or obsolete.
There is no assurance that The Performance Group will be in a position to adapt
to such technological advances and market changes.
Risks of Integration
In light of the recent acquisitions of Reset, Mercury Seven
and Zabit & Associates, the Company's success will depend in part on its ability
to manage the combined operations of those companies and to integrate the
operations of these companies along with its other subsidiaries and divisions
into a single organizational structure. There can be no assurance that the
Company will be able to effectively integrate the operations of its subsidiaries
and divisions into a single organizational structure. Integration of these
operations could also place additional pressures on management as well as on the
key technical resources of the Company. The failure to successfully manage this
integration could have an adverse material effect on the Company. Finally, while
it is management's belief that the newly acquired entities can market these
services to the Company's existing clients as well as market the Company's
established businesses to existing clients of the newly acquired companies,
there can be no assurance that the cross-marketing will be achieved or
sustained.
Future Capital Requirements
The acquisitions of Mercury Seven and Zabit & Associates
required the Company at closing to pay cash as part of the consideration: $1.5
million in the case of Mercury Seven and $5.2 million in the case of Zabit &
Associates, which includes Water Street Design, Inc. The Zabit & Associates
transaction also requires the Company to pay an additional $4.8 million in March
1999 and $1.9 million on or before September 14, 2002, together with interest.
While the Company believes that its present cash position and cash flow from
operations will be sufficient to fund its operations and provide for further
expansion, the Company may require additional financing to sustain further
growth and expand its business. There can be no assurance that the Company will
be able to successfully negotiate or obtain additional financing or that such
financing will be on terms favorable or acceptable to the Company. The failure
to secure necessary financing could have a material adverse impact on the
Company.
Dependence on the Internet's Developing Market
The Company's ability, primarily through Reset and Mercury
Seven, to derive revenues by providing marketing solutions through the use of
the Internet will depend in part upon a robust industry and the infrastructure
for providing Internet access and the management of Internet traffic. While the
Internet has made significant improvements in both accessing and managing
traffic, there can be no assurance that as more demand is made upon the Internet
technological
13
<PAGE>
improvements will keep pace. Additionally, critical issues concerning the use of
the Internet, including security, reliability, cost, ease of use and access and
quality of service still remain to be resolved, and as such the Internet may
prove not to be a commercially viable marketplace. This could result in
impacting the Company's future operating results.
Rapid Technological Changes in Interactive Marketing Services
The market for such interactive marketing services as the
Company provides through its Reset and Mercury Seven subsidiaries is
characterized by rapid changes in technology. As such it will require the
Company to maintain its technical competence to effectively compete with other
integrated marketing service providers as well as traditional advertising
agencies. There can be no assurance that the Company will be successful in
providing competitive solutions to its clients. Failure to do so could result in
the loss of existing customers or the inability to attract and retain new
customers, and as a result, this could have a material adverse effect on the
business, financial condition and operating results of the Company.
Project Profit Exposures; Need to Develop Recurring Revenue
Zabit & Associates, Mercury Seven and Reset normally generate
a substantial majority of their revenue through project fees on fixed
fee-for-service basis. Zabit & Associates, Mercury Seven and Reset assume
greater financial risk on fixed-price type contracts than on either time- and
material- or cost-reimbursable contract. Failure to anticipate technical
problems, estimate costs accurately or control costs during performance of a
fixed-price contract may reduce Zabit & Associates, Mercury Seven and Reset's
profit or cause a loss. Although the majority of Zabit & Associates, Mercury
Seven and Reset's projects typically last six to twelve weeks and therefore each
individual short-term project creates less exposure than a long-term fixed-price
contract, in the event Zabit & Associates, Mercury Seven and Reset do not
accurately anticipate the progress of a number of significant revenue-generating
projects, it could have a material adverse effect on Zabit & Associates, Mercury
Seven and Reset's operating results. Zabit & Associates, Mercury Seven and
Reset's future success will depend in part on their ability to convert their
project-by-project relationships to continuing relationships characterized by
recurring revenue. There can be no assurance that Zabit & Associates', Mercury
Seven's and Reset's efforts will be successful.
Dependence on Few Customers
At the present time, approximately 85% of TheraCom's services
are supplied to one customer, Pfizer, Inc. ("Pfizer"). Of the revenues from The
Performance Group's business, for the fiscal year ended August 31, 1998, 60% was
derived from two clients, Pfizer and MCI Communications, Inc., which represent
45% of revenues and 15% of The Performance Group's revenues, respectively. The
loss of either of these clients or a reduction in the amount of business
generated from these two clients could materially adversely affect the Company's
future business and prospects. While both TheraCom and The Performance Group are
attempting to increase their client bases, there can be no assurance that such
efforts will be successful.
14
<PAGE>
No Contracts with Customers
The Company does not have written agreements with all of its
customers or clients, or such agreements are terminable at will upon relatively
short notice. Unexpected or other termination of relations with significant
customers could adversely affect the Company's business and prospects. See
"Competition" and "Dependence on Few Customers."
Market Acceptance for Company's Products and Services
The Company believes that its ability to market its products
and services requires educating potential users as to their benefits and
applications. This is particularly true for the Internet technologies developed
by The Performance Group and the first aid product line for burns manufactured
by the Water-Jel division. No assurance can be given that the Company will be
able to successfully increase the market for its products and services.
Limited Patents and Proprietary Information
The Performance Group
The Performance Group division has developed a proprietary
software, "Maestro," which is designed to enable clients to communicate business
objectives, track and report sales and deliver awards over the Internet. The
clients who elect to utilize Maestro do not receive the software, but rather are
only granted a license to utilize the software, which is at all times maintained
at the Company's offices. The clients feed information to the "Maestro" program
over the Internet by using a sign-on identification and password. The clients
can thereafter gain access with the proper password to Maestro to enable them to
evaluate the progress of their awards program. The Company does not presently
hold a copyright to the Maestro software but intends to apply with the US Patent
and Trademark office for protection as well as a trademark on the name
"Maestro." The actual software is retained under stringent controls at the
Company's offices and only four people within the Company and under
confidentiality agreements have access to the software and code. Should the
Company's Maestro software and other proprietary technology be disclosed
publicly, the business and prospects of The Performance Group could be adversely
affected. Likewise, and if there was public disclosure of the software and
codes, the Company at the present time may have no or very limited legal
recourse, unless the Company could demonstrate that the codes and software were
illegally converted or taken or that the clients violated their licence
agreements with the Company.
Water-Jel
The design of Water-Jel's Fire Blanket products was protected
by United States and foreign patents which were assigned to Water-Jel in 1979
and 1985. The United States patent which protected a substantial portion of
Water-Jel's technology expired in 1992. New competitors may now enter
Water-Jel's markets. Water-Jel may be materially and adversely affected if
Water-Jel should fail to establish a secure market base before the entrance of
significant new competitors now that the original United States patent has
expired. See "Competition." Further, in January 1995,
15
<PAGE>
Water-Jel was granted a patent for a synthetic fabric containing a therapeutic,
non-toxic, water-soluble and bio-degradable gel used in Water-Jel's Burn
Dressing product line. This patent expires in April 2014. However, no assurance
can be given that this patent will prove enforceable or prevent others from
marketing products similar to, or which perform comparable functions as
Water-Jel's products at the current time, the Water-Jel burn dressing products
covered by this patent account for approximately thirty percent (30%) of
Water-Jel's revenues.
Government Regulation by the Food and Drug Administration
Water-Jel's emergency first aid products and manufacturing
practices are subject to regulation by the Food and Drug Administration ("FDA")
as well as by similar foreign authorities. The Water-Jel Fire Blanket and Burn
Dressing are medical devices subject to regulation by the FDA. Water-Jel's
generic creams and ointment, Burn Jel and UnBurn line are classified as
over-the-counter drugs. FDA requirements include adherence to good manufacturing
practices, proper labeling, and either premarket notification under section
510(k) of the Medical Device Amendments to the Federal Food, Drug and Cosmetics
Act or premarket approval (depending on the category of product) prior to
commercial marketing in the United States. Water-Jel is also subject to periodic
inspections by the FDA relating to good manufacturing practices. The FDA has the
authority to require a suspension of manufacturing operations if it finds
serious deficiencies. Additional regulation may, in the future, be imposed by
Federal, state or local authorities, particularly the FDA. Any new products will
also be subject to review of various regulatory authorities in virtually every
foreign country in which such products are offered for sale. To the extent that
any new products which Water-Jel may develop are deemed to be new pharmaceutical
or new medical devices, such products will require FDA and other regulatory
clearance and/or approvals prior to marketing. Such governmental regulation may
prevent or substantially delay the marketing of any products developed by
Water-Jel, cause Water-Jel to undertake costly procedures, and furnish a
competitive advantage to the more substantially capitalized companies which
compete with Water-Jel. There can be no assurance that Water-Jel will have the
requisite financial resources to complete the regulatory approval process with
respect to any new products which may be developed.
Product Liability
To date, there have been no material claims on threatened
claims against the Company by users of its products, particularly the Water-Jel
products, based on a failure to perform as specified. In the event that any
claims for substantial amounts were to be asserted against the Company, they
could have a materially adverse effect on the Company's financial condition and
its ability to distribute its products. The Company maintains $11,000,000 of
general product liability insurance. There is no assurance that this amount will
be sufficient to cover potential claims or that the present amount of insurance
can be maintained at the present level of cost.
Dependence on Management
The Company is significantly dependent upon the continued
availability of Werner Haase, its Co-Chairman and CEO, William Zabit, who became
President upon the acquisition of
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<PAGE>
Zabit & Associates, and Scott Mednick, Chairman and Chief Strategic Officer. Mr.
Haase is under an employment agreement with the Company which terminates in May
2001, and both Mr. Zabit and Mr. Mednick are under employment agreements with
the Company until December 2002. The loss or unavailability of Mr. Haase or Mr.
Zabit or Mr. Mednick to the Company for an extended period of time would have a
material adverse effect on the Company's business operations and prospects. To
the extent that Mr. Haase's, Mr. Zabit's or Mr. Mednick's services would be
unavailable to the Company for any reason, the Company would be required to
procure other personnel to manage and operate the Company. There can be no
assurance that the Company would be able to locate or employ such qualified
personnel on acceptable terms. At the present time, the Company does not have
"key man" life insurance covering any of the principal officers of the Company.
Control
Werner Haase, Co-Chairman and CEO of the Company, and his wife
Nurit Kahane, who is a Senior Vice President of the Company, own together a
total of 2,319,374 shares of the Company's Common Stock, and Mr. Zabit owns
1,048,675 shares, which together represent approximately 27% of the total shares
outstanding. Under Delaware law, a simple majority of stockholders may
constitute a quorum for a meeting of stockholders and may effect any action
requiring a vote of stockholders. There are no requirements for supermajority
votes on any matter, nor is there any cumulative voting for directors.
Therefore, Mr. Haase, his wife and Mr. Zabit, as a group, will be in a position
to substantially influence the election of directors and the conduct of the
Company's affairs.
Maintenance Criteria for NASDAQ Securities; Penny Stock Rules
The Company's Common Stock is currently quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") for the
SmallCap Market. To maintain its listing on the NASDAQ SmallCap Market, the
Company must continue to be registered under Section 12(g) of the Securities
Exchange Act of 1934 (the "Exchange Act") and have total assets of at least
$2,000,000, total stockholders' equity of at least $1,000,000, a public float of
at least 100,000 shares with a market value of at least $1,000,000, at least 300
holders, a minimum bid price of $1.00 per share and at least two market makers.
In addition, NASDAQ has proposed increasing the requirements for maintaining a
NASDAQ SmallCap listing to require either: (1) net tangible assets of at least
$2,000,000 or $1,000,000, (2) a market capitalization of $35,000,000 or (3) net
income in at least two of the last three years of $500,000 and a public float of
at least 500,000 shares with a market value of at least $1,000,000. The Company
currently meets all the proposed requirements for maintenance of its listing on
the NASDAQ SmallCap Market. There can be no assurance that the Company in the
future will be able to meet the requirements for continued listing on the NASDAQ
SmallCap Market with respect to the Common Stock. If the Company's securities
fail to maintain NASDAQ SmallCap Market listing, the market value of the Common
Stock likely would decline and purchasers likely would find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, the
Common Stock.
In addition, if the Company fails to maintain NASDAQ SmallCap
Market listing for its securities, and no other exclusion from the definition of
a "penny stock" under the Exchange Act
17
<PAGE>
is available, then any broker engaging in a transaction in the Company's
securities would be required to provide any customer with a risk disclosure
document, disclosure of market quotations, if any, disclosure of the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market values of the Company's securities
held in the customer's account. The bid and offer quotation and compensation
information must be provided prior to effecting the transaction and must be
contained on the customer's confirmation. If brokers become subject to the
"penny stock" rules when engaging in transactions in the Company's securities,
they would become less willing to engage in transactions, thereby making it more
difficult for purchasers in this Offering to dispose of their shares. At the
present time, the Company has an application pending with NASDAQ for listing on
the NASDAQ National Market.
Future Sales of Common Stock
As of the current time, there are presently 13,608,521 shares
of the Common Stock outstanding. Approximately 6,863,932 of the outstanding
shares are deemed to be "restricted securities" ("Restricted Securities") within
the meaning of Rule 144 promulgated under the Securities Act of 1933 (the "Act")
by virtue of the fact that they are held by "affiliates" of the Company. Of the
Restricted Securities, approximately 2,319,375 are currently eligible for public
sale in accordance with Rule 144. Sales made pursuant to Rule 144 could have an
adverse effect on the price of the Common Stock.
No Dividends
The Company has not paid any cash dividends upon its Common
Stock since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not anticipate paying any cash
dividends in the foreseeable future. It is anticipated that earnings, if any,
which may be generated from operations will be used to finance the operations of
the Company.
Year 2000 Compliance
The Company has taken remedial steps to ensure that its
computer systems are compliant with the Year 2000 ("Y2K"). In this regard, The
Performance Group has purchased for internal operations new personal computers
(PCs) which have been tested by the National Software Testing Laboratories
(NSTL) and have been certified as Y2K compliant. With respect to client support,
the division has upgraded its software at no extra cost and is compliant with
Y2K. With respect to the Company's internal software affecting accounting
systems and telecommunications, the Company estimates that it will be required
to purchase additional equipment for $15,000 in order to achieve Y2K compliance
in this area. With respect to the Journeycorp division reservation systems, the
division utilizes PC hardware provided by the Sabre Group, the American Airlines
reservations system. American Airlines has given the Company assurances that
their reservations system will be Y2K compliant. Since airline reservations can
be made within a year before the actual flight, American Airlines has until
January 1, 1999 to achieve Y2K compliance. In the event American Airlines fails
to achieve compliance in a timely manner, this could result in material
18
<PAGE>
adverse consequences to Journeycorp's operations and would affect its ability to
provide reservations and ticketing for its clients.
USE OF PROCEEDS
Assuming those Selling Shareholders who hold warrants (two in
number) exercise all of their warrants, the total proceeds to the Company would
amount to $419,000. Expenses of the registration, including legal fees,
accounting fees, Blue Sky fees and miscellaneous expenses are estimated at
$11,500, which would leave net proceeds to the Company from the exercise of the
options of $407,500. Any net proceeds will be added to the working capital of
the Company. The Company will not receive any proceeds from the sale of the
98,875 shares of Common Stock by the four other Selling Shareholders.
SELLING SHAREHOLDERS
The 298,875 shares of Common Stock being offered hereby are
held by six selling shareholders. A Selling Shareholder listed below may choose
not to sell all of the shares of Common Stock owned by such Selling Shareholder
in this offering. The chart below sets forth the number of shares to be offered
for sale by each such Selling Shareholder, which information was furnished to
the Company by each such Selling Shareholder. The chart also sets forth the
amount and percentage of Common Stock to be owned by each after completion of
the offering, assuming the sale of all such shares owned by such Selling
Shareholder. Unless otherwise indicated, none of the Selling Shareholders listed
below has held any position with the Company in the last three years. The
Selling Shareholders have not entered into any arrangements regarding the sale
of their shares and have informed the Company that any shares sold would be sold
in normal brokerage transactions.
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<PAGE>
<TABLE>
<CAPTION>
Securities Owned Securities Securities to Be
Name before Offering To Be Sold Owned after Offering
- ---- --------------- ---------- --------------------
<S> <C> <C> <C>
Adrian Oradean (1) 337,500 21,775 315,725
James Altucher (1) 456,250 29,435 426,815
Michel Maitenaz (1) 456,250 29,435 426,815
JDW Partners, Inc. (2) 18,230 18,230 -0-
Whale Securities, Inc. (3) 100,000 (4) 100,000 -0-
Jason H. Pollack (5) 100,000 100,000 -0-
<FN>
- --------------
(1) Messrs. Oradean, Altucher and Maitenaz were the former owners of
Reset. In connection with the merger agreement, the Company agreed to register a
sufficient number of shares of the Company's Common Stock received in the merger
by the parties to yield them, as a group, proceeds of $625,000. Messrs. Oradean,
Altucher and Maitenaz also entered into three-year employment agreements with
the company. The three individuals are responsible for the day-to-day operation
of the Reset subsidiary. The balance of the shares of the Company's Common Stock
held by these individuals are "restricted" shares and may only be sold pursuant
to a registration statement or an exemption from registration.
(2) JDW Partners, Inc. ("JDW") was responsible for the introduction of
Reset to the Company. Pursuant to a formal agreement between the Company and JDW
and authorized by the Board of Directors, the Company agreed to pay JDW a fee of
one and three-quarters percent (.0175%) of the total consideration paid by the
Company to the owners of Reset ($6,250,000). By agreement, the fee was paid by
the issuance of 18,230 "restricted" shares.
(3) On July 1, 1997, the Company entered into a consulting agreement
with Whale Securities Co., LP ("Whale"), a registered broker-dealer and member
of the NASD. Pursuant to the agreement, Whale is to render consulting services
to the Company for a period of two years. In consideration of the services to be
performed by Whale, the Company agreed to grant Whale 100,000 warrants entitling
Whale to purchase 100,000 shares of the Common Stock at an exercise price of
$2.00 per share. The exercise price was based on the closing bid price as of the
date of grant. The warrants expire on June 30, 2001. The warrants vest at the
rate of 4,165 warrants at the end of each month for 23 months during the term of
the agreement and at the rate of 4,205 at the end of the 24th month. At the
current time, only 70,805 warrants have vested.
(4) Whale makes a market in the Company's Common Stock and as such and
from time to time may own the Company's Common Stock in its trading account.
Whale has advised the Company that its only investment in the Company consists
of the 100,000 warrants which are held in Whale's investment account.
(5) On February 11, 1998, the Company entered into a Merger and
Acquisition Consulting Agreement with Jason Pollack ("Pollack"). Pursuant to the
terms of the Agreement, Pollack is to render services for one year to the
Company to locate potential acquisitions and implement mergers and such
acquisitions. The agreement provides that Pollack is to receive 100,000 warrants
for his services entitling Pollack to purchase 100,000 shares at an exercise
price of $2.19 per share based on the closing bid price on the date of grant.
The warrants vest at the end of each month at the rate of 8,337 warrants. At the
current time, only 83,337 warrants have vested.
</FN>
</TABLE>
20
<PAGE>
PLAN OF DISTRIBUTION
The shares are being offered for the respective accounts of
the Selling Shareholders. The Company will not receive any of the proceeds from
the sale of securities. The Company will, however, receive the proceeds of the
exercise prices of the warrants of $2.00 and $2.19 respectively for gross
proceeds of $419,000 assuming the Selling Shareholders exercise all of their
warrants.
The sale for the shares by the Selling Shareholders may be
effected from time to time in transactions on the NASDAQ SmallCap Market, at
fixed prices or negotiated prices relating to the then prevailing market price.
The Selling Shareholders may effect such transaction by selling the Securities
to or through registered broker-dealers, and such broker-dealers may receive
compensation in the form of discounts or commissions from the Selling
Shareholders and for the purchases of the Securities for which such
broker-dealers may act as agent or to whom they may sell as principal or both.
The Selling Shareholders and any broker-dealers who act in
connection with the Sale of the securities hereunder may be deemed to be
"underwriters" within the meaning of Section 2 (11) or the Securities Act and
any commissions received by them and any profit received by them on any sale of
the Securities as principal might be deemed to represent underwriting discounts
or commissions under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with this offering are
being passed upon for the Company by McLaughlin & Stern, LLP, 260 Madison
Avenue, New York, New York 10016.
EXPERTS
The financial statements of X-ceed, Inc. for the fiscal years
ended August 31, 1998, 1997 and 1996, incorporated by reference from the
Company's annual report on Form 10-K, have been examined by Holtz Rubenstein &
Co. LLP, independent certified public accountants, as stated in their report,
and are included in reliance upon the report of such firm and upon their
authority as experts on accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed with the Commission by the
Company, are incorporated herein by reference and made a part hereof. The
Commission file number for documents which are incorporated by reference is
0-13049, unless otherwise indicated.
1. The Company's Annual report on Form 10-K for the
fiscal year ended August 31, 1998 filed with the
Commission on December 9, 1998.
2. The Company's Registration Statement on Form S-3 and
amendments thereto filed with the commission
commencing on June 18, 1998 and thereafter
21
<PAGE>
through November 19, 1998 and declared effective on
November 20, 1998. Registration No. 333-57173.
3. The Company's Current Report on Form 8-K dated May 7,
1998 and amendments thereto.
4. The Company's Current Report on Form 8-K, together
with exhibits, dated August 13, 1998 and filed with
the Commission on August 14, 1998.
5. The Company's Current Report on Form 8-K, together
with exhibits, dated September 17, 1998 and filed
with the Commission on September 17, 1998.
6. The Company's Current Report on Form 8-K/A, together
with audited financial statements for Reset, Inc. and
Mercury Seven, Inc. and unaudited pro forma combined
financial statements, dated November 10, 1998 and
filed with the Commission on November 10, 1998.
7. The Company's Current Report on Form 8-K/A, together
with audited financial statements of Zabit &
Associates, Inc. and affiliate and unaudited
statements and pro forma combined financial
statements, filed with the Commission on November 30,
1998.
8. The section entitled "Description of Securities" in
the Company's Registration Statement on Form S-1
(Registration No. 33-23910) declared effective on
October 31, 1988.
In addition, all documents filed by the Company pursuant to
Section 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the termination
of the offering of the Shares shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement modified in a document incorporated by reference herein
shall be deemed to be contained herein or superseded for purposes hereof to the
extent that a statement contained herein (or in any subsequently filed document
which is also incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
A copy of the documents incorporated by reference in this
Prospectus (not including exhibits to the incorporated documents unless the
documents specifically incorporate the exhibits by reference) will be furnished
without charge to each person, including any beneficial owner to whom this
prospectus is delivered, on the written or oral request of such person. All such
requests should be addressed to: Alex Alaminos, Investor Relations, Water-Jel
Technologies, 243 Veterans Blvd., Carlstadt, NJ 07072.
22
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's Certificate of Incorporation permits the Company
to indemnify directors, officers, employees and agents to the fullest extent
permissible under the Delaware General Corporation Law.
Insofar as indemnification for liabilities arising under
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to any charter provision, by-law contract
arrangements statute, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore,
unenforceable.
23
<PAGE>
- ------------------------------------------ -----------------------------------
No dealer, salesman or any other person
has been authorized to give any
information or to make any representations
other than those contained in this
Prospectus in connection with this
offering and, if given or made, such
information or representations must not be
relied upon as having been authorized by
the Company or the Underwriters. This
Prospectus does not constitute an offer to
sell, or the solicitation of an offer to
buy, any of the securities offered hereby
in any jurisdiction to any person to whom 298,875 Shares
it is unlawful to make such offer or of Common Stock
solicitation in such jurisdiction. Neither ($.01 Par Value)
the delivery of this Prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication that
the information contained herein is
correct as of any time subsequent to the X-ceed, Inc.
date hereof or that there has been no
change in the affairs of the Company since
such date.
--------------------------
TABLE OF CONTENTS
PAGE __________________________
AVAILABLE INFORMATION....................3
FORWARD-LOOKING STATEMENTS...............4
PROSPECTUS SUMMARY.......................4 PROSPECTUS
SELECTED FINANCIAL DATA..................9
THE OFFERING............................11 __________________________
RISK FACTORS............................11
USE OF PROCEEDS.........................19
SELLING SHAREHOLDERS....................19
PLAN OF DISTRIBUTION....................21
LEGAL MATTERS...........................21
EXPERTS.................................21
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE.......................21
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES........................23
--------------------------
December ____, 1998
- ------------------------------------------ -----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The expenses in connection with the issuance and distribution
of the securities being registered hereunder are estimate as follows:
Blue Sky qualification fees and expenses..............$ 2,000
Legal fees and expenses..................................5,000
Accountant's fees and expenses...........................3,000
Miscellaneous........................................ 1,500
Total $11,500
ITEM 15. Indemnification of Directors and Officers
Pursuant to Section 145 of the General Corporation Law of
Delaware (the "Delaware Corporation Law"), Article 7 of the Company's
Certificate of Incorporation, a copy of which is filed as Exhibit 3(c) to this
Registration Statement, provides that the Company shall indemnify, to the
fullest extent permitted by Section 145 of the Delaware Corporation Law, as
amended from time to time, each person that such section grants the Corporation
the power to indemnify. Section 145 of the Delaware Corporation Law permits the
Company to indemnify any person in connection with the defense or settlement of
any threatened, pending or completed legal proceeding (other than a legal
proceeding by or in the right of the Company) by reason of the fact that he is
or was a director or officer of the Company or is or was a director or officer
of the Company serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership or other enterprise
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with the defense or
settlement of such legal proceeding if he acted in good faith and in a manner
that he reasonably believes to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action of proceeding, if he had no
reasonable cause to believe that his conduct was unlawful. It the legal
proceeding, however, is by or in the right of the Company, the director or
officer may be indemnified by the Company against expense (including attorneys'
fees) actually and reasonably incurred in connection with the defense or
settlement of such legal proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Company
and except that he may not be indemnified in respect of any claim, issue or
matter as to which he shall have been adjudged to be liable to the Company
unless a court determines otherwise.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law,
Article 7 of the Certificate of Incorporation of the Company, a copy of which is
filed as Exhibit 3(c) to this Registration Statement, provides that no director
of the Company shall be personally liable to the Company or its stockholders for
monetary damages for any breach of his fiduciary duty as a director; provided,
however, that such clause shall not apply to any liability of a director (i) for
breach of his duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions that are not in good faith
24
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or involve intentional misconduct or a knowing violation of the law, (iii) under
Section 174 of the Delaware Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit. The aforesaid provision
also eliminates the liability of any stockholder for managerial acts or
omissions, pursuant to Section 350 of the Delaware Corporation Law or any other
provision of Delaware law, to the same extent that such liability is limited for
a director.
The Company maintains directors and officers liability
insurance.
ITEM 16. Exhibits
(2)(b) Certificate of Merger (1)
(2)(c) Merger Agreement (1)
(2)(d) Agreement and Plan of Merger and Reorganization between X-ceed, Inc
and Reset, Inc. (2)
(2)(e) Agreement and Plan of Merger by and among X-ceed, Inc., X-ceed
Merger, Inc., Mercury Seven, Inc. and the Shareholders of Mercury
Seven, Inc. (3)
(2)(f) Certificate of Merger of Mercury Seven, Inc. into X-ceed Merger,
Inc. (3)
(2)(g) Agreement and Plan of Merger among X-ceed, Inc., Zabit & Associates,
Inc. and the Shareholders Named Therein (3)
(2)(h) Certificate of Merger of Zabit & Associates, Inc. and the
Shareholders Named Therein (3)
(3)(a) Certificate of Incorporation (Water-Jel), previous Amendments (3)(6)
(7). (4)
(3)(b) By-laws of the Registrant (4)
(3)(c) Certificate of Incorporation of X-ceed, Inc. (5)
(4)(a) Form of Common Stock (6)
(4)(b) Form of Class A Warrant and Class B Warrants (7)
(4)(c) Form of Warrant Agreement (7)
(5) Opinion of McLaughlin & Stern, LLP*
(10)(d) Copy of Non-Qualified Stock Option Plan (4)
(10)(e) Copy of 1990 Stock Option Plan (8)
(10)(f) Copy of 1995 Stock Option Plan (9)
(10)(g) Agreement and Plan of Merger dated as of May 17, 1996, by and among
Water-Jel and Journeycraft, Inc. et al. (10)
(10)(h) Employment Agreement, dated as of July 1, 1996, by and among
the Company and Nurit Kahane Haase (10)
(10)(i) Employment Agreement, dated as of December 11, 1996, by and
among the Company and Werner Haase (10)
(10)(j) Stock Purchase Agreement among X-ceed, Inc., William Zabit and Joyce
Weslowski (3)
(10)(k) Purchase Agreement by and among X-ceed, Inc., William Zabit
and Joyce Weslowski (3)
(10)(l) Employment Agreement of Scott Mednick (11)
(10)(m) Employment Agreement of William Zabit (11)
(10)(n) Copy of 1998 Stock Option Plan (12)
(23)(a) Consent of Holtz Rubenstein & Co., LLP dated December 17, 1998*
25
<PAGE>
(23)(b) Consent of McLaughlin & Stern, LLP (included in Exhibit 5)*
- -----------------------------
* Filed herewith
(1) Incorporated by reference from the Company's Registration Statement
on Form 8-K, dated February 27, 1998 and filed with the Commission on February
27,1998.
(2) Incorporated by reference from the Company's Report on Form 8-K
dated August 13, 1998 and filed with the Commission on August 14, 1998.
(3) Incorporated by reference from the Company's Report on Form 8-K
dated September 17, 1998 and filed with the Commission on September 17, 1998.
(4) Incorporated by reference from Water-Jel's Registration Statement
on Form S-18, File No. 2-90512-NY, initially filed with the Commission on
January 8, 1998.
(5) Incorporated by reference from the Company's Report on Form 8-K,
dated February 27, 1998 and filed with the Commission on February 28,1998.
(6) Incorporated by reference from the Company's Registration Statement
on Form S-18 filed with the Commission on April 12, 1989, Commission File No.
2-90512-NY.
(7) Incorporated by reference from the Company's Registration Statement
on Form S-1, File No. 33-23910, initially filed with the Commission on August
23, 1998.
(8) Incorporated by reference from the Company's Annual Report on From
10-K for the fiscal year ended August 31, 1990.
(9) Incorporated by reference from the Company's Registration Statement
on Form S-8, File No. 333-01685, initially filed with the Commission on March
13, 1996.
(10) Incorporated by reference from the Company's Report on Form 8-K
filed with the Commission on July 12, 1996.
(11) Incorporated by reference from the Company's Registration
Statement on Form S-3, Amendment No. 5 filed with the Commission on November 19,
1998, Registration No. 333-57173.
(12) Incorporated by reference from the Company's Definitive Proxy
Statement filed with the Commission on January 8, 1998.
ITEM 17. Undertakings
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement (i) to
include any prospectus required by Section 10(a) of the Act and (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which individually or in the aggregate represents a fundamental change in the
information in the Registration Statement and (iii) to include any material
information with respect to the plan of distribution not previously
26
<PAGE>
disclosed in the Registration Statement or any material change to such
information in the Registration Statement; provided, however, that if the
information required to be included in a post-effective amendment is included in
periodic reports filed or furnished to the Commission by the Company pursuant to
section 13 or Section 15(d) of the Exchange Act, then the Company shall not be
required to file a post-effective amendment.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That for purposes of determining any liability under the
Securities Act of 1933, each filing of Company's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) In the event acceleration is requested by the Company and
insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant, X-ceed, Inc., has duly caused this Registration Statement on
Form S-3 to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on December 17, 1998.
X-CEED, INC.
By: /s/ Werner G. Haase
Werner G. Haase
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
hereby constitutes and appoints Werner G. Haase his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all pre-effective and post-effective amendments to the Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ Scott Mednick Chairman, Chief 12/17/98
Scott Mednick Strategic Officer
/s/ Werner G. Haase Chief Executive 12/17/98
Werner G. Haase Officer, Co-Chairman
/s/ William Zabit President 12/17/98
William Zabit
/s/ Norman Doctoroff Director 12/17/98
Norman Doctoroff
/s/ John Bermingham Director 12/17/98
John Bermingham
28
Exhibit 5
MCLAUGHLIN & STERN, LLP
260 MADISON AVENUE
NEW YORK, NEW YORK 10016
(212) 448-1100
FAX (212) 448-0066
RICHARD J. BLUMBERG MILLBROOK OFFICE
Direct Phone: (212) 448-6205 Franklin Avenue
P.O. Box 1369
Millbrook, New York 12545
(914) 677-5700
Fax (914) 677-0097
December 17, 1998
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: X-ceed, Inc.
Gentlepersons:
We have acted as counsel to X-ceed, Inc. in connection with
the Registration Statement on Form S-3 (the "Registration Statement") filed with
the Securities and Exchange Commission by X-ceed, Inc. (the "Company").
We hereby advise you that we have examined originals or copies
certified to our satisfaction of the Company's Certificate of Incorporation,
minutes of the meetings of the Board of Directors and Shareholders and such
other documents and instruments as we deemed necessary, and we have made such
examination of law as we have deemed appropriate as a basis for the opinions
hereinafter expressed.
Based on the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware.
2. The 98,875 Shares of Common Stock offered by four selling
shareholders constituting a portion of the offering being so registered have
been duly authorized and validly issued, are fully paid and non-assessable.
3. With respect to the 200,000 shares of the Common Stock
which are subject to issuance upon exercise of warrants by two selling
shareholders (also constituting a portion of this offering), said shares, upon
payment of the consideration required to exercise such warrants, will be validly
issued, fully paid and non-assessable.
We hereby consent to the reference to this Firm in this
Registration Statement and to the filing of this opinion as an Exhibit to the
Registration Statement.
Very truly yours,
/s/ McLaughlin & Stern, LLP
McLAUGHLIN & STERN, LLP
Exhibit 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of X-ceed, Inc. of our report dated November 14, 1997 with
respect to the consolidated financial statements of X-ceed, Inc. (formerly
Water-Jel Technologies, Inc.) included in the Annual Report on Form 10-K for the
year ended August 31, 1998, and to the reference to us under the heading
"Experts" in the Prospectus, which is part of the Registration Statement. We
also consent to the incorporation by reference of our report dated August 7,
1998 with respect to the financial statements of Mercury Seven, Inc. and our
report dated October 9, 1998 with respect to financial statements of Reset,
Inc., included in the Form 8-K/A of X-ceed, Inc. filed with the Commission on
November 10, 1998.
/s/ Holtz Rubenstein & Co., LLP
Holtz Rubenstein & Co., LLP
Melville, New York
December 17, 1998
Exhibit 23(b)
(included in Exhibit 5)
