<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended November 30, 1999
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission file number 0-13049
-------
XCEED INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its charter)
DELAWARE 13-3006788
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
488 MADISON AVENUE, NEW YORK, NEW YORK 10022
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(212) 419-1200
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 18,693,390 as of January
12, 2000
<PAGE>
XCEED INC. AND SUBSIDIARIES
INDEX
PART I
ITEM 1. Financial Information Page No.
Consolidated balance sheets
November 30, 1999 and August 31, 1999 . . . . . . . . . . . . 3
Consolidated statements of operations
Three Months Ended November 30, 1999 and 1998 . . . . . . . . 4
Consolidated statements of cash flows
Three Months Ended November 30, 1999 and 1998 . . . . . . . . 5
Notes to consolidated financial statements . . . . . . . . . 6-9
ITEM 2. Management's Discussion and Analysis of
the Financial Condition and
Results of Operations . . . . . . . . . . . . . 10-12
PART II
Other Information . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 14
2
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XCEED INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousand, except share and per share data)
<TABLE>
<CAPTION>
ASSETS NOVEMBER 30, AUGUST 31,
------ ------------ ----------
1999 1999
---- ----
(unaudited)
---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,189 $ 19,754
Investment in marketable securities 847 367
Accounts receivable, net of allowance for
doubtful accounts of $1,790 and $1,190, respectively 13,281 8,999
Program costs and earnings in excess of customer billings 8,081 5,721
Income tax refund receivable 2,437 2,437
Prepaid expenses and other current assets 1,070 1,024
Deferred income taxes 212 358
Net assets held for sale 2,272 2,356
-------------- --------------
Total current assets 38,389 41,016
PROPERTY AND EQUIPMENT, net 4,048 3,268
DUE FROM OFFICER 1,223 1,223
INTANGIBLE ASSETS,net 51,306 40,575
DEFERRED INCOME TAXES 2,597 1,046
OTHER ASSETS 3,595 3,411
-------------- --------------
$ 101,158 $ 90,539
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable, banks $ 862 $ 862
Accounts payable and accrued expenses 9,375 8,308
Current portion of long-term debt 389 389
Customer billings in excess of program costs and earnings 7,273 3,538
-------------- --------------
Total current liabilities 17,899 13,097
-------------- --------------
LONG-TERM DEBT 2,526 2,625
-------------- --------------
ACCRUED LEASE OBLIGATIONS 875 875
-------------- --------------
OTHER LIABILITIES 288 1,661
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 30,000,000 shares;
18,570,500 and 17,747,554 issued and outstanding, respectively 186 177
Preferred stock, $.05 par value; authorized 1,000,000
shares; -0- issued and outstanding - -
Net unrealized gain (loss) on marketable securities 268 (20)
Additional paid-in capital 90,104 79,379
Unearned compensation (2,868) (3,216)
Deficit (8,049) (3,968)
-------------- --------------
79,641 72,352
Treasury stock, at cost; 15,000 shares, respectively (71) (71)
-------------- --------------
79,570 72,281
-------------- --------------
$ 101,158 $ 90,539
============== ==============
</TABLE>
See notes to consolidated financial statements.
3
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XCEED INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
NOVEMBER 30,
-------------
1999 1998
---- ----
<S> <C> <C>
REVENUES, net $ 18,207 $ 9,701
------------ ------------
COST AND EXPENSES:
Cost of revenues 11,855 5,193
Selling, general and administraive 10,609 5,418
Stock compensation 349 358
Research and development 18 113
Depreciation and amortization 1,718 911
------------ ------------
24,549 11,993
------------ ------------
OPERATING LOSS (6,342) (2,292)
------------ ------------
OTHER INCOME (EXPENSE):
Interest and dividend income 158 109
Interest expense (72) (49)
Other, net 1 16
------------ ------------
87 76
------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAX BENEFIT (6,255) (2,216)
INCOME TAX BENEFIT (1,783) (728)
------------ ------------
LOSS FROM CONTINUING OPERATIONS (4,472) (1,488)
INCOME FROM DISCONTINUED OPERATIONS,
net of tax provision of $260 and $172, respectively 391 257
------------ ------------
NET LOSS $ (4,081) $ (1,231)
============ ============
NET (LOSS) INCOME PER COMMON SHARE
Loss from continuing operations ($0.24) ($0.12)
Income from discontinued operations 0.02 $0.02
------------ ------------
Net (loss) ($0.22) ($0.10)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING: 18,240,791 13,687,706
============ ============
</TABLE>
See notes to consolidated financial statements.
4
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XCEED INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
November 30,
------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,081) $ (1,231)
---------- ----------
Adjustment to reconcile net loss to net
cash used in operating activities:
Gain on sale of marketable securities - (5)
Depreciation and amortization 1,735 947
Non-cash compensation 349 358
Deferred income taxes (1,591) (312)
Provision fro doubtful accounts 600 -
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (4,272) (2,038)
Inventories 54 (55)
Program costs and earnings in excess of customer billings (2,360) 1,496
Prepaid expenses and other current assets (36) (256)
Other assets 73 (94)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 764 (1,511)
Income taxes payable (5) (249)
Customer billings in excess of program costs and earnings 3,735 1,279
Other liabilities (159) (39)
---------- ----------
Total adjustments (1,113) (479)
---------- ----------
Net cash used in by operating activities (5,194) (1,710)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities - (130)
Proceeds from sale of marketable securities - 62
Business acquisitions, net of cash acquired (4,500) (6,286)
Acquisition of property and equipment (933) (234)
---------- ----------
Net cash used in investing activities (5,433) (6,588)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (107) (141)
Proceeds from excercise of warrants and options 1,169 297
---------- ----------
Net cash provided by financing activities 1,062 156
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,565) (8,142)
CASH AND CASH EQUIVALENTS - beginning of period 19,754 13,789
---------- ----------
CASH AND CASH EQUIVALENTS - end of period $10,189 $5,647
========== ==========
</TABLE>
See notes to consolidated financial statements.
5
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XCEED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1999
(UNAUDITED)
(in thousands, except share and per share data)
1. Basis of Quarterly Presentation:
--------------------------------
The accompanying quarterly financial statements have been prepared in
conformity with generally accepted accounting principles.
The financial statements of the Registrant included herein have been
prepared by the Registrant pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of management,
reflect all adjustments which are necessary to present fairly the
results for the period ended November 30, 1999.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations; however, management believes that the
disclosures are adequate to make the information presented not
misleading. This report should be read in conjunction with the
financial statements and footnotes therein included in the audited
annual report on Form 10-K as of August 31, 1999.
2. Principles of Consolidation:
----------------------------
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. Upon consolidation,
all significant intercompany accounts and transactions are eliminated.
3. Supplemental Information - Statements of Cash Flow:
---------------------------------------------------
Three Months Ended
November 30,
------------------
1999 1998
Interest paid.................. $ 72 $ 49
====== ======
Income taxes paid.............. $ - $291
====== ======
6
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Non-cash Financing and Investing Activities:
--------------------------------------------
Three Months Ended
November 30,
------------------
1999 1998
Common stock issued in
connection with acquisitions..... $8,200 $26,120
====== =======
Stock compensation............... $ 349 $ 358
====== =======
4. Earnings (Loss) Per Share:
--------------------------
Basic earnings (loss) per common share is computed by dividing the net
earnings by the weighted average number of shares of common stock
outstanding during the period. Dilutive earnings (loss) per share gives
effect to stock using and warrants which are considered to be dilutive
common stock equivalents. Treasury shares and shares held in escrow
have been excluded from the weighted average number of shares. Net
earnings for basic and dilutive computations were equivalent for all
periods presented.
5. Income Taxes:
-------------
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
6. Business Segments:
------------------
a. Segment reporting
The Company has two reportable business segments: Integrated Corporate
Communications and Travel Management.
The Integrated Corporate Communications segment provides marketing and
communication services. The segment helps companies develop e-commerce
and e-business solutions, improves people and business performance
through communication tools, techniques and technologies.
The Travel Management segment provides travel-related services and
consulting, including reservations and ticketing to major U.S.
corporations.
The Company's revenues are derived primarily from activities within the
United States, and all long-lived assets are located within the United
States.
7
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<TABLE>
<CAPTION>
Integrated
Corporate Travel General
Communications Management Corp.(1) Total
-------------- ---------- -------- -----
<S> <C> <C> <C> <C>
Three months ended November 30, 1999:
Revenues from external
Customers $15,492 $2,715 $ - $18,207
Intersegment revenues - - - -
Segment profit (loss) (5,500) 130 (884) (6,254)
Three months ended November 30, 1998:
Revenues from external
Customers $ 6,927 $2,774 $ - $ 9,701
Intersegment revenues - - - -
Segment profit (loss) (2,011) 365 (570) (2,216)
</TABLE>
(1) Column represents corporate-related items and, as it relates to segment
profit (loss).
b. Major customers
The Company earned revenues from the following significant
customers:
%of
Amount Total
------ -----
Three months ended November 30, 1999:
Integrated corporate communications $1,902 10.4%
Three months ended November 30, 1998:
Integrated corporate communications $1,324 13.6%
7. Reclassifications:
------------------
Certain reclassifications have been made to the financial statements
for the three months ended November 30, 1998 to conform with the
classifications used in 1999.
8. Business Combinations:
----------------------
During the three month period ended November 30, 1999, the Company
completed the acquisitions of three internet professional services
firms in various transactions accounted for as purchase business
combinations. The aggregate purchase price of these acquisitions was
approximately $12,900, including 434,419 shares of common stock
($8,200) and cash of $4,700. Certain of the agreements provide for
additional
8
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consideration in the event certain specific performance criteria are
met.
The acquisition prices were allocated, on an entity-by-entity basis, to
the assets acquired, including tangible and intangible assets and
liabilities assumed based upon the fair values of such assets and
liabilities on the dates of the acquisitions. The historical carrying
amounts of the tangible assets and liabilities approximated their fair
values on the dates of acquisitions. Approximately $12,448 of the
aggregate purchase price was allocated to goodwill and will be
amortized over its estimated useful life of seven years.
9
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------
The following discussion and analysis of financial conditions and
results of operations of Xceed Inc. should be read in conjunction with the
Company's consolidated financial statements that appear in this document.
Overview
- --------
The Company is a leading interactive architect and solutions builder as
well as an integrated marketing and communications company with interactive
services as its core. The Company helps companies develop e-commerce and
e-business solutions, improving people and business performance through
communication tools, techniques and technologies.
The following table sets forth the percentage of total revenues
represented by certain items reflected in the Company's consolidated statements
of operations.
Three Months ended November 30,
-------------------------------
1999 1998
---- ----
Revenue 100% 100%
Operating Expenses:
Cost of Revenues 65 54
Selling, general & admin. 59 56
Stock compensation 2 4
Research & development - 1
Depreciation & amortization 9 9
--- ---
Total operating expenses 135% 124%
--- ---
Operating loss (35)% (24)%
Net loss (22)% (13)%
RESULTS OF OPERATIONS:
- ----------------------
Net revenues for the three months ended November 30, 1999 and 1998,
respectively, were $18,207 and $9,701 representing a 88% increase. The
significant increase in net revenues for the current period is a direct result
of the Company's continued rapid growth of its Interactive business, which
accounted for substantially all the increase.
Cost of revenues for the three months ended November 30, 1999 and 1998
were $11,855 and $5,193, representing an increase of $6,662, or 128% in the
current period. This continued increase is a direct result of increased staffing
and infrastructure and cost
10
<PAGE>
of acquisitions resulting from the rapid growth and continuing increase in
market share of the Company's Interactive business.
Selling, general and administrative expenses for the three months ended
November 30, 1999 and 1998 were $10,609 and $5,418, respectively, representing
an increase of $5,191 or 96% during the current period. The continued increase
in selling, general and administrative expense is a direct result of increased
selling, marketing and corporate expenses associated with the expansion of the
Company's Interactive business. In addition, the Company has incurred additional
general and administrative expenses related with acquisitions as part of its
ongoing effort to evolve its core business into a fully integrated and
communications company. As a percentage of revenues, selling, general and
administrative expense increased to 59% during the current period as compared to
56% for the corresponding prior period.
Stock compensation expense for the three months ended November 30,1999
were $349 and $358, respectively. These expenses resulted from stock and stock
option grants to consultants and employees in lieu of cash payments for services
rendered. As a percentage of revenues, stock compensation expense decreased to
2% during the current period from 4% for the corresponding prior period.
Depreciation and amortization for the three months ended November 30,
1999 and 1998 were $1,718 and $911, respectively, representing an increase of
$807 for the current period. The increase is a result of the amortization of
intangible assets from acquisitions made in the Interactive business. In
addition, the Company has incurred increased depreciation expense as a result of
increased fixed assets purchases of computer and other related equipment. As a
percentage of revenues, depreciation and amortization expense approximated 9%
for both periods.
Other income for the three months ended November 30, 1999 was $87 as
compared to $76 for the corresponding prior period.
The Company's effective tax rate for the three months ended November
30, 1999 was (28%) as compared to (33)% for the three months ended November 30,
1998. The rate reflects the impact of the amortization of non-tax deductible
goodwill in connection with the acquisitions.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
At November 30, 1999 the Company had working capital of $20,490 as
compared to $27,919 at August 31, 1999. The decrease in working capital for the
current period is a result of a decrease in cash and cash equivalent of $9,565.
In January 2000, the Company received cash proceeds of $3,828 in connection with
the divestiture of the net assets of the Water-Jel First Aid division.
11
<PAGE>
The consolidated statement of cash flows for the period ended November
30, 1999 reflects net cash used in operating activities of $5,194 resulting from
a net loss of $4,081, an increase in accounts receivable of $3,672, and an
increase in customer billings in excess of program costs of $3,735. Cash used in
investing activities was $5,433, resulting from business acquisitions of $4,500.
Cash provided by financing activities approximated $1,062 resulting from the
exercise of warrants and options.
The Company's growth strategy is anticipated to be financed through its
current cash resources, cash flow from operations and existing and prospective
third party credit facilities including a bank line of credit from Chase
Manhattan in the amount of $5 million. The Company believes the combination of
these sources will be sufficient to fund its operations and to satisfy the
Company's cash requirements for the next twelve months. There may be
circumstances, however, that would accelerate the Company's use of its liquid
resources. If this occurs, the Company may, from time to time, incur additional
indebtedness or issue, in public or private transactions, equity or debt
securities. However, there can be no assurance that suitable debt or equity
financing will be available to the Company.
12
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PART II - OTHER INFORMATION
---------------------------
ITEM 1 - Legal Proceedings
- ------ -----------------
There is no material litigation currently pending against the
Company, its officers or employees.
ITEM 2 - Changes in Securities
- ------ ---------------------
None
ITEM 3 - Defaults on Senior Securities
- ------ -----------------------------
None
ITEM 4 - Submission to a Vote of Security Holders
- ------ ----------------------------------------
None
ITEM 5 - Other Information
- ------ -----------------
None
ITEM 6 - Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) None
(b) None
13
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XCEED INC.
----------
488 MADISON AVENUE
------------------
NEW YORK, N.Y. 10022
--------------------
------------------------
FILE # 0-13049
------------------------
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934,the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BY: /s/ Werner Haase
-----------------
WERNER HAASE,
CEO
DATE: January 14, 2000
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 10,189
<SECURITIES> 847
<RECEIVABLES> 15,071
<ALLOWANCES> 1,790
<INVENTORY> 0
<CURRENT-ASSETS> 38,389
<PP&E> 6,612
<DEPRECIATION> 2,564
<TOTAL-ASSETS> 101,158
<CURRENT-LIABILITIES> 17,899
<BONDS> 2,526
186
0
<COMMON> 0
<OTHER-SE> 79,384
<TOTAL-LIABILITY-AND-EQUITY> 101,158
<SALES> 18,207
<TOTAL-REVENUES> 18,207
<CGS> 11,855
<TOTAL-COSTS> 11,855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> (6,255)
<INCOME-TAX> (1,783)
<INCOME-CONTINUING> (4,472)
<DISCONTINUED> 391
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,081)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
