<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________________
CURRENT REPORT
ON
FORM 8-K/A
PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
____________________________
Date of Report (Date of earliest event reported): February 9, 2000
____________________________
XCEED INC.
(Exact name of registrant as specified in its charter)
____________________________
Delaware 0-13049 13-3006788
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
488 Madison Avenue, 4th Floor, New York, New York 10022
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 419-1200
____________________________
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Not Applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective as of February 8, 2000, Xceed Inc. ("XCEED") acquired all of the
issued and outstanding shares of capital stock of methodfive inc.
("methodfive"), a Delaware corporation engaged in the business of providing
integrated marketing and communications services, pursuant to the terms of an
Agreement and Plan of Merger, dated February 8, 2000 (the "Merger Agreement").
A copy of the Merger Agreement is attached hereto as Exhibit 2.1 and is
incorporated herein by reference.
In exchange for the Xceed's acquisition of all the capital stock of
methodfive, Xceed: (a) issued an aggregate of 1,797,094 shares of Xceed's Stock,
par value $.01 per share (the "Common Stock"); and (b) paid $4,500,000 in cash
to certain of the former stockholders of methodfive at closing. No material
relationships between Xceed and methodfive or any of Xceed's or methodfive's
affiliates, directors, officers or any associate of any such directors or
officers existed prior to the occurrence or consummation of the transactions
reported herein.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not Applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
Not Applicable.
ITEM 5. OTHER EVENTS
Not Applicable.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS
Not Applicable.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) and (b) Financial Statements.
The following financial statements and pro forma financial information
concerning the Company are being provided in accordance with the instructions to
this item within the requisite sixty (60) day period from the date of the
Company's Form 8-K previously filed on February 16, 2000.
(a) Financial statements of methodfive, inc. The business acquired, prepared
pursuant to rule 310(c) of Regulation S-B
Independent Auditor's Report..............................................4
Balance Sheets as of December 31, 1998 and 1999...........................5
Statements of Operations for the year ended December 31, 1998 and 1999....6
Statements of Stockholders' Equity for the year ended December 31, 1998
and 1999.................................................................7
Statements of cash flows for the year ended December 31, 1998 and 1999....8
Notes to financial Statements.............................................9
(b) Pro forma financial information required pursuant to Rule 310(d) of
Regulation S-B:
Unaudited Pro Forma Condensed Consolidated Balance Sheet Data as of
November 30, 1999.......................................................16
Unaudited Pro Forma condensed Consolidated Statement of Operations data
for the Fiscal Year-Ended August 31, 1999 and the three months ended
November 30, 1999.......................................................17
Notes to Unaudited Pro Forma Financial Information.......................18
(c) Exhibits.
2.1 * Agreement and Plan of Merger, dated February 8, 2000, by and among
Xceed Inc, methodfive Inc., and the stockholders of methodfive Inc.
* Denotes previously filed.
ITEM 8. CHANGE IN FISCAL YEAR
Not Applicable.
3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Xceed, Inc.
New York, New York
We have audited the accompanying balance sheets of methodfive, inc. (the
"Company") as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1998 and 1999, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche
- ---------------------
New York, New York
March 20, 2000
4
<PAGE>
METHODFIVE, INC.
BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
ASSETS ------ -------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 138 $ 1,559
Accounts receivable.......................................... 450 1,455
Employee loans receivable.................................... -- 137
Prepaid expenses and other current assets.................... -- 11
----- -------
Total current assets....................................... 588 3,162
Property and equipment, net.................................... 40 476
Other assets................................................... 53 67
----- -------
Total assets............................................... $ 681 $ 3,705
===== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable, bank........................................... $ 97 $ --
Accounts payable and accrued expenses........................ 306 979
Deferred revenues............................................ 7 87
----- -------
Total current liabilities.................................. 410 1,066
----- -------
Due to officers................................................ 4 --
----- -------
Commitments
Cumulative redeemable convertible preferred stock and
dividends:
Class A 8%, $.01 par value; authorized 750,000 shares; 80,000
and 422,500 issued and outstanding, respectively............ 180 1,009
----- -------
Class B 8%, $.01 par value; authorized 600,000 shares; -0-
and 148,363 issued and outstanding, respectively............ -- 2,040
----- -------
Stockholders' equity:
Common stock, $.01 par value; authorized 2,300,000 shares;
521,862 issued and outstanding.............................. 5 5
Common stock warrants........................................ -- 53
Additional paid-in capital................................... 612 230
Deferred stock compensation.................................. (613) (275)
Retained earnings (accumulated deficit)...................... 83 (423)
----- -------
Total stockholders' equity................................. 87 (410)
----- -------
Total liabilities and stockholders' equity................. $ 681 $ 3,705
===== =======
</TABLE>
See notes to financial statements.
5
<PAGE>
METHODFIVE, INC.
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Years ended
December 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Revenues........................................................ $1,700 $5,825
------ ------
Operating expenses:
Cost of revenues.............................................. 890 3,420
Selling, general and administrative (excluding stock-based
compensation)................................................ 680 2,405
Stock-based compensation...................................... 20 338
Interest expense.............................................. 10 3
Depreciation and amortization................................. 11 57
------ ------
1,611 6,223
------ ------
Income (loss) before provision for income taxes................. 89 (398)
Income tax provision............................................ 6 1
------ ------
Net income (loss)............................................... 83 (399)
Preferred stock dividends....................................... -- 107
------ ------
Net income (loss) applicable to common shareholders............. $ 83 $ (506)
====== ======
</TABLE>
See notes to financial statements.
6
<PAGE>
METHODFIVE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Common stock
2,300,000 shares Retained
$.01 par value Common Deferred Additional earnings
----------------- stock stock paid-in (accumulated
Shares Par value warrant compensation capital deficit) Total
------- --------- ------- ------------ ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1998................... 521,862 $ 5 $ -- $ -- $ 9 $ -- $ 14
Issuance of stock
options for services... -- -- -- (633) 633 -- --
Amortization of deferred
stock compensation..... -- -- -- 20 -- -- 20
Net income.............. -- -- -- -- -- 83 83
Preferred stock issuance
costs.................. -- -- -- -- (30) -- (30)
------- --- ---- ----- ---- ----- -----
Balance, December 31,
1998................... 521,862 5 -- (613) 612 83 87
Net loss................ -- -- -- -- -- (399) (399)
Amortization of deferred
stock compensation..... -- -- -- 338 -- -- 338
Issuance of common stock
warrant................ -- -- 53 -- (53) -- --
Preferred stock issuance
costs.................. -- -- -- -- (329) -- (329)
Dividends............... -- -- -- -- -- (107) (107)
------- --- ---- ----- ---- ----- -----
Balance, December 31,
1999................... 521,862 $ 5 $ 53 $(275) $230 $(423) $(410)
======= === ==== ===== ==== ===== =====
</TABLE>
See notes to financial statements.
7
<PAGE>
METHODFIVE, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended
December 31,
--------------
1998 1999
----- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ 83 $ (399)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization.............................. 11 57
Gain on sale of fixed assets............................... -- (1)
Amortization of deferred stock based compensation.......... 20 338
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable...................................... (183) (1,005)
Employee loan receivables................................ -- (137)
Prepaid expenses and other current assets................ -- (11)
Other assets............................................. (20) (14)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses.................... (45) 673
Deferred revenues........................................ 7 80
----- -------
Net cash used in operating activities.................. (127) (419)
----- -------
Cash flows from investing activities:
Proceeds from sale of fixed assets........................... -- 15
Acquisition of property and equipment........................ (6) (507)
----- -------
Net cash used in investing activities.................. (6) (492)
----- -------
Cash flows from financing activities:
Repayment of notes payable................................... (3) (97)
Proceeds from notes payable.................................. 100 --
Repayment of officer loan.................................... -- (4)
Proceeds from officer loan................................... 4 --
Proceeds from issuance of preferred stock.................... 150 2,433
----- -------
Net cash provided by financing activities.............. 251 2,332
----- -------
Net increase in cash and cash equivalents...................... 118 1,421
Cash and cash equivalents, beginning of year................... 20 138
----- -------
Cash and cash equivalents, end of year......................... $ 138 $ 1,559
===== =======
Supplemental cash flow information:
Cash paid for interest......................................... $ 4 $ 3
===== =======
Cash paid for income taxes..................................... $ 6 $ 1
===== =======
</TABLE>
See notes to financial statements.
8
<PAGE>
METHODFIVE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(In thousands, except share and per share data)
1. ORGANIZATION AND NATURE OF OPERATIONS
methodfive, inc. (the "Company") is a strategic web development company
specializing in the development and deployment of leading-edge technologies for
large-scale content and information management projects.
The financial statements are prepared on the accrual basis utilizing
accounting principles generally accepted in the United States of America.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Revenue recognition -- The Company derives its revenues primarily from
consulting service agreements, including fixed price and time and materials
agreements.
Revenues for web site design contracts are recognized using primarily the
percentage of completion method, whereby revenue and related costs are
recognized as work on the contract progresses. Provisions for contract
adjustments and losses are recorded in the period such items are identified.
b. Depreciation and amortization -- Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets,
which range from three to seven years. Maintenance and repairs of property and
equipment are charged to operations and major improvements are capitalized.
Upon retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation are eliminated from the accounts and gain or loss
is included in operations.
c. Concentration of risk -- The Company invests its excess cash in deposits
and money market accounts with major financial institutions.
The concentration of credit risk in the Company's accounts receivable is
mitigated by the Company's credit evaluation process and reasonably short
collection terms. Although the Company generally does not require collateral,
reserves for potential credit losses are maintained and such losses have been
within management's expectations.
d. Income taxes -- The Company accounts for income taxes under the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes," pursuant to which deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities, using enacted tax rates currently in effect.
State and local taxes are based on factors other than income.
e. Stock-based compensation -- The Company applies Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for stock-based compensation to
employees. Stock-based compensation to non-employees is accounted for at fair
value in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation."
9
<PAGE>
METHODFIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
f. Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Such estimates primarily relate to accounts
receivable and revenues and costs on percentage of completion contracts.
Actual results could differ from those estimates.
g. Cash and cash equivalents -- The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
h. New Accounting Pronouncements -- In 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which was subsequently amended by SFAS No. 137.
"Accounting for Derivative Financial Instruments and Hedging Activities--
Deferral of the effective date of SFAS No. 133." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. SFAS No. 133, as amended by SFAS No. 137 is
effective for all fiscal quarters beginning after June 15, 2000 and therefore
will be effective for the Company's fiscal year 2001. The Company has not
completed their evaluation of the effects of SFAS No. 133 and expects to
complete the evaluation by the end of fiscal 2000.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires that entities capitalize certain costs related to internal-use
software once certain criteria have been met. The Company implemented SOP 98-
1 during the year ended December 31, 1999. Adoption of SOP 98-1 did not have
a material impact on the Company's financial condition or results of
operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. As the Company
has expensed these costs historically, the adoption of this standard did not
have a significant impact on the Company's results of operations, financial
position or cash flows.
10
<PAGE>
METHODFIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, at cost, consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Machinery and equipment....................................... $ 48 $ 385
Furniture and fixtures........................................ 14 64
Software...................................................... -- 98
----- ------
62 547
Less accumulated depreciation................................. 22 71
----- ------
$40 $ 476
===== ======
</TABLE>
4. NOTE PAYABLE, BANK
The Company has available a $100 line of credit with a bank which is secured
by substantially all of the Company's assets, and is guaranteed by one of the
Company's stockholders. The line bears interest at 1 1/2% above the bank's
prime lending rate (such prime lending rate being 7.75% at December 31, 1999).
Borrowings under such agreement are due on demand. As of December 31, 1998, $97
was outstanding under this line of credit. There were no amounts outstanding at
December 31, 1999.
5. INCOME TAXES
Prior to January 1, 1999, the Company elected S-Corporation status which
required the Company to provide a provision for minimum state and local taxes
due. Federal taxes are recorded by the respective shareholders and do not pass
through to the Company. Effective January 1, 1999, the Company converted to
C-Corporation status.
The tax provision for 1998 and 1999 represents state and local taxes due. No
federal tax provision has been made for 1998 since the Company was an S-
Corporation. No federal tax benefit has been reflected for 1999 since the
Company has sustained cumulative losses since such date. At December 31, 1999,
the Company had net operating loss carryforwards ("NOLs") of approximately
$370,000 which will be available to reduce future taxable income. The NOLs are
expected to expire in the year ending December 31, 2014.
In accordance with SFAS No. 109, the Company has computed the components of
deferred income taxes as follows:
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
------------
<S> <C> <C>
Deferred tax assets............................................ $ -- $ 155
Less valuation allowance....................................... -- (155)
----- ------
Net deferred taxes............................................. $ -- $ --
===== ======
</TABLE>
The Company's NOLs primarily generated the deferred tax assets. At December
31, 1998 and 1999, a valuation allowance was provided as the realization of the
deferred tax benefits is not likely.
11
<PAGE>
METHODFIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. REDEEMABLE PREFERRED STOCK
In December 1998, the Company sold 80,000 shares of Series A cumulative
redeemable convertible preferred stock ("Series A Preferred Stock") to a group
of investors. The gross proceeds to the Company were approximately $180.
Issuance costs of approximately $30 were incurred in connection with the
transaction and have been charged to additional paid-in capital.
Throughout 1999, the Company sold an additional 342,500 shares of Series A
Preferred Stock to a group of investors. The gross proceeds to the Company were
approximately $762. In October 1999, the Company sold 148,363 shares of Series
B cumulative redeemable convertible preferred stock ("Series B Preferred
Stock") to a national professional services firm for gross proceeds of
approximately $2,000. Issuance costs of approximately $329 were incurred in
connection with these transactions and have been charged to additional paid-in
capital.
Holders of the redeemable preferred stock are entitled to cumulative annual
dividends of $.20 per share (8% per annum) for Series A Preferred Stock and
$1.08 per share (8% per annum) for Series B Preferred Stock. In addition,
holders are entitled to such number of votes per share which is equivalent to
the number of shares of common stock into which each share of preferred stock
is convertible. Holders of Series A Preferred Stock and Series B Preferred
Stock are also entitled to a liquidation preference per share of $2.50 and
$13.48, respectively. At December 31, 1999, cumulative accrued dividends in
arrears on the Series A Preferred Stock and Series B Preferred Stock amounted
to $67 and $40, respectively, and have been recorded as a reduction of retained
earnings. The aggregate liquidation preference on the Series A Preferred Stock
and Series B Preferred Stock amounted to $1,056 and $2,000, respectively, at
December 31, 1999.
Each share of Series A Preferred Stock and Series B Preferred Stock was
converted into one share of common stock of the Company as a result of the sale
of the Company as discussed in Note 9.
12
<PAGE>
METHODFIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. STOCKHOLDERS' EQUITY
a. Stock options
A summary of the status of the Company's various stock options outstanding
at December 31, 1998 and 1999, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
Fiscal years ended December 31,
---------------------------------
1998 1999
---------------- ----------------
Weighted Weighted
average average
exercise exercise
Fixed stock options Shares price Shares price
- ------------------- ------ -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year............... -- $ -- 51,999 $ .50
Granted ..................................... 60,999 .50 77,564 .80
Exercised.................................... -- -- -- --
Canceled..................................... (9,000) 1.00 -- --
------ ----- ------- -----
Outstanding, end of year..................... 51,999 $ .50 129,563 $ .68
====== ===== ======= =====
Options exercisable, end of year............. 38,051 .50 93,425 $ .63
====== ===== ======= =====
</TABLE>
The weighted average fair value of options granted during fiscal December
31, 1998 and 1999 was $0.50 and $0.80, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------- -----------------------
Weighted
average
remaining Weighted Weighted
contractual average average
Number life exercise Number exercise
Exercise price outstanding (years) price outstanding price
- -------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .50 119,561 .9 $ .50 88,422 $ .50
$1.00 1,000 .7 $1.00 500 $1.00
$1.50 4,668 1.75 $1.50 2,335 $1.50
$5.00 4,334 1.99 $5.00 2,168 $5.00
------- ------
129,563 93,425
======= ======
</TABLE>
In connection with the issuance of certain options at prices below the fair
market value, the Company recorded deferred compensation of $633 during fiscal
1998, representing the difference between the exercise price and the deemed
fair market value of the Company's common stock at such date. Such amount is
included as a reduction of stockholders' equity and is being amortized by
changes to operations over the vesting period. Amortization of deferred stock
compensation amounted to $20 and $338 for the fiscal years ended December 31,
1998 and 1999, respectively.
13
<PAGE>
METHODFIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company has elected the disclosure-only provisions of Statement of
Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation
("FASB 123") in accounting for its employee stock options. Accordingly, no
compensation expense has been recognized. Had the Company recorded compensation
expense for the stock options based on the fair value at the grant date of
awards, consistent with the provisions of SFAS No. 123, the Company's net
income (loss) would have been modified to $58 and $(562) for the year ended
December 1998 and 1999 respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model. The following range of weighted-average
assumptions were used for grants during the fiscal years ended December 31,
1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Dividend yield.................................... 0.00% 0.00%
Volatility........................................ 0.00% 0.00%
Risk-free interest rate........................... 4.99%-6.16% 4.99%-6.16%
Expected life..................................... Various Various
</TABLE>
b. Warrants
In connection with the Series A Preferred Stock offering, two officers of
the Company were issued an aggregate of 21,125 warrants. Each warrant entitled
the holder to receive one share of common stock at an exercise price of $2.50
per share. Using the Black-Scholes option pricing model, the Company has
recorded this warrant at approximately $53.
8. COMMITMENTS
a. Lease commitment
The Company conducts its operations from leased space in New York City. The
lease expires December 2006. The Company's management expects that this lease
will be renewed in the normal course of business.
As of December 31, 1999, future net minimum rental payments under operating
leases having initial or remaining non-cancelable terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
Fiscal year ending December 31,
-------------------------------
<S> <C>
2000.............................................................. $ 185
2001.............................................................. 195
2002.............................................................. 204
2003.............................................................. 214
2004.............................................................. 225
Thereafter........................................................ 484
------
$1,507
======
</TABLE>
Rental expense approximated $168 and $176 for the years ended December 31,
1998 and 1999, respectively.
9. SUBSEQUENT EVENT
On February 14, 2000, the Company was acquired by way of merger by Xceed,
Inc. for consideration of 1,797,094 shares of Xceed's common stock, which had a
market value of approximately $70,500, and $4,500 in cash.
14
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information gives effect to our acquisition of methodfive, inc. in February
2000.
The unaudited pro forma combined balance sheet combines our historical
consolidated balance sheet at November 30, 1999 and the historical balance
sheet of methodfive at December 31, 1999, and gives effect to our acquisition
as though it had been consummated on November 30, 1999. The unaudited pro forma
combined statements of operations for the fiscal year ended August 31, 1999 and
the three months ended November 30, 1999, combine our historical consolidated
statements of operations and the historical statements of operations of
methodfive, as explained in note (6) to the unaudited proforma condensed
consolidated financial information and gives effect to our acquisition, which
has been accounted for as a purchase, as though the acquisition had occurred on
September 1, 1998.
This information should be read in conjunction with our audited consolidated
financial statements for the fiscal year ended August 31, 1999 and the audited
financial statements of methodfive for the year ended December 31, 1999,
including the notes thereto, included elsewhere in this prospectus.
These unaudited pro forma combined financial statements do not give effect
to this offering and are not necessarily indicative of the operating results
and financial position that might have been achieved had the acquisition
occurred as of the beginning of the earliest period presented nor are they
necessarily indicative of operating results and financial position which may
occur in the future.
15
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
<TABLE>
<CAPTION>
Historical
-----------------------------------
Xceed methodfive
----------------- ----------------- Pro forma Pro forma
November 30, 1999 December 31, 1999 adjustments as adjusted
----------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 10,189 $1,559 $(5,500) (1) $ 6,241
Investments in
marketable
securities............ 847 -- -- 847
Accounts receivable,
net................... 12,194 1,455 -- 13,649
Program costs and
earnings in excess of
customer billings..... 8,081 -- -- 8,081
Prepaid expenses and
other current
assets................ 3,475 148 -- 3,623
Net assets related to
discontinued
operations............ 2,956 -- -- 2,957
-------- ------ ------- --------
Total current
assets.............. 37,742 3,162 (5,500) 35,404
Property and equipment,
net.................... 4,048 476 -- 4,524
Goodwill and other
intangibles, net....... 53,072 -- 76,410 (1) 129,482
Other assets............ 7,415 67 -- 7,482
-------- ------ ------- --------
Total assets......... $102,277 $3,705 $70,910 $176,892
======== ====== ======= ========
Current liabilities:
Current portion of
long-term debt and
notes payable......... $ 1,251 $ -- $ -- $ 1,251
Accounts payable and
accrued expenses...... 8,972 979 -- 9,951
Customer billings in
excess of program
costs and earnings
and other current
liabilities........... 7,273 87 -- 7,360
-------- ------ ------- --------
Total current
liabilities......... 17,496 1,066 -- 18,562
-------- ------ ------- --------
Long-term liabilities... 3,689 -- -- 3,689
-------- ------ ------- --------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Cumulative redeemable
convertible preferred
stock.................. -- 3,049 (3,049)(1) --
-------- ------ ------- --------
Stockholders' equity:
Common stock........... 186 5 12 (1) 203
Preferred stock........ -- -- -- --
Common stock
warrants.............. -- 53 (53) (1) --
Other comprehensive
income................ 268 -- -- 268
Additional paid-in
capital............... 88,983 230 73,302 (1) 162,515
Deferred stock
compensation.......... (225) (275) 275 (1) (225)
Treasury stock......... (71) -- -- (71)
Retained earnings
(accumulated deficit)
...................... (8,049) (423) 423 (1) (8,049)
-------- ------ ------- --------
Total stockholders'
equity................ 81,092 (410) 73,959 154,641
-------- ------ ------- --------
Total liabilities and
stockholders'
equity.............. $102,277 $3,705 $70,910 $176,892
======== ====== ======= ========
</TABLE>
See accompanying notes to the unaudited pro forma financial information.
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
For the Fiscal Year Ended August 31, 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Historical
-------------------------- Pro forma Pro forma
Xceed methodfive(2) adjustments as adjusted
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................ $ 63,450 $ 3,149 $ -- $ 66,599
----------- ------- ---------- -----------
Operating expenses:
Cost of revenues....... 52,516 1,979 -- 54,495
Selling, general and
administrative
(excluding stock-based
compensation)......... 19,132 1,082 -- 20,214
Stock-based
compensation.......... 420 300 -- 720
Depreciation and
amortization.......... 5,219 20 10,916 (3) 16,155
Research and
development........... 579 -- -- 579
----------- ------- ---------- -----------
Total operating
expenses............... 77,866 3,381 10,916 92,163
----------- ------- ---------- -----------
Operating loss.......... (14,416) (232) (10,916) (25,564)
Other income, net....... 396 2 -- 398
----------- ------- ---------- -----------
Loss from continuing
operations before
benefit from income
taxes.................. (14,020) (230) (10,916) (25,166)
Income tax benefit...... (4,329) -- (3,442)(4) (7,771)
----------- ------- ---------- -----------
Loss from continuing
operations............. $ (9,691) $ (230) $ (7,474) $ (17,395)
=========== ======= ========== ===========
Net loss per common
share:
Basic:
Loss from continuing
operations (5)........ $ (0.64) $ (1.02)
=========== ===========
Diluted:
Loss from continuing
operations (5)........ $ (0.64) $ (1.02)
=========== ===========
Weighted average number
of shares outstanding:
Basic.................. 15,219,140 1,797,094 17,016,234
=========== ========== ===========
Diluted................ 15,219,140 1,797,094 17,016,234
=========== ========== ===========
</TABLE>
For the Three Months Ended November 30, 1999
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Historical
-------------------------- Pro forma Pro forma
Xceed methodfive(2) adjustments as adjusted
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................ $ 15,495 $2,324 $ -- $ 17,819
----------- ------ ---------- -----------
Operating expenses:
Cost of revenues....... 11,913 1,147 -- 13,060
Selling, general and
administrative
(excluding stock-based
compensation)......... 8,640 910 -- 9,550
Stock-based
compensation.......... -- 128 -- 128
Depreciation and
amortization.......... 1,797 30 2,729 (3) 4,556
Research and
development........... 18 -- -- 18
----------- ------ ---------- -----------
Total operating
expenses............... 22,368 2,215 2,729 27,312
----------- ------ ---------- -----------
Operating (loss)
income................. (6,873) 109 (2,729) (9,493)
Other income, net....... 87 (10) -- 77
----------- ------ ---------- -----------
Income (loss)
from continuing
operations before
benefit from
income taxes.......... (6,786) 99 (2,729) (9,416)
Income tax benefit...... (2,027) -- (786)(4) (2,813)
----------- ------ ---------- -----------
Income (loss) from
continuing operations.. $ (4,759) $ 99 $ (1,943) $ (6,603)
=========== ====== ========== ===========
Net loss per common
share:
Basic:
Loss from continuing
operations (5)........ $ (0.26) $ (0.33)
=========== ===========
Diluted:
Loss from continuing
operations (5)........ $ (0.26) $ (0.33)
=========== ===========
Weighted average
number of shares
outstanding:
Basic.................. 18,240,291 1,797,094 20,037,385
=========== ========== ===========
Diluted................ 18,240,291 1,797,094 20,037,385
=========== ========== ===========
</TABLE>
See accompanying notes to the unaudited pro forma financial information.
17
<PAGE>
Notes to the Unaudited Pro Forma Financial Information
(In thousands, except share and per share data)
(1) The purchase price of our acquisition of methodfive was determined as
follows:
<TABLE>
<S> <C>
Shares issued..................................................... 1,797,094
Average market price.............................................. $ 39.23
----------
Total stock consideration......................................... 70,500
Cash consideration................................................ 4,500
Merger costs...................................................... 1,000
----------
Net purchase price................................................ 76,000
Fair value of net assets acquired................................. (410)
----------
Goodwill and identifiable intangible assets....................... $ 76,410
==========
</TABLE>
- --------
The estimated fair value of the common stock issued is based upon the
average closing price of our common stock on the five days prior and
subsequent to February 14, 2000, which was the date that the methodfive
acquisition was announced.
The total estimated purchase price of the methodfive acquisition has been
allocated on a preliminary basis to assets and liabilities based upon
management's estimate of their fair values, which approximate their net
carrying values. The excess of the purchase price over the fair value of
the net assets acquired has been allocated to goodwill and intangible
assets. These allocations are subject to change pending the completion of
the final analysis of the total purchase price and fair values of the
assets acquired and liabilities assumed. The impact of such changes could
be material.
Included in the adjustments to shareholders' equity is the elimination of
methodfive's common stock and additional paid-in capital of $5 and $230,
respectively.
Included in the adjustment to additional paid-in capital is the conversion
of the cumulative redeemable convertible preferred stock which converted to
one share of common stock for each share of preferred stock upon the sale
of the company.
(2) The statements of operations data for methodfive, inc. for the fiscal year
ended August 31, 1999 and the three months ended November 30, 1999 were
derived from the audited statement of operations of methodfive, inc. for
the year ended December 31, 1999 and have been adjusted to conform with the
corresponding periods of Xceed, Inc.
(3) The pro forma adjustment to depreciation and amortization expense
represents the amortization of the excess of cost over fair market value of
net assets acquired, amortized on a straight-line basis over an estimated
life of seven years.
(4) Represents the adjustment necessary to reflect our effective tax rate on a
consolidated basis of 30.9% and 29.9% as of August 31, 1999 and November
30, 1999, respectively.
(5) We calculate basic loss from continuing operations and loss per common
share based on the weighted average number of shares of common stock
outstanding during each period. Diluted loss from continuing operations and
loss per common share is based on the weighted average number of shares of
common stock outstanding during each period, adjusted for the effect of
potentially dilutive securities arising from the assumed exercise of stock
options and warrants and conversion of preferred shares.
18
<PAGE>
SIGNATURES
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.
XCEED INC.
(Registrant)
/s/ Werner Haase
Date: April 10, 2000 ----------------------------
Werner Haase
Chief Executive Officer
19
