United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Period Ended February 29, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from ______________________ to
_________________________.
Commission file number 0-22814
_______________
XCEL MANAGEMENT, INC.
_______________
(Exact name of registrant as specified in its charter)
Utah 87-0363613
---- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1101 Broadway Plaza
Tacoma, Washington 98402
-------------------------
(Address of Principal Executive Office)(Zip Code)
Telephone Number (253) 284-2000
-------------------------------
(Registrant's telephone number, including area code)
_________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
================================================================================
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.001 Par Value --- 9,915,424 shares as of June 27, 2000.
================================================================================
XCEL MANAGEMENT, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements and Exhibits
Index to the Financial Statements
Report of Independent Accountants........................ 3
Pro Forma Combined Balance Sheets At
February 29, 2000 and May 31, 1999....................... 4
Pro Forma Combined Statement of Income for the
Three Months ended February 29, 2000 and
February 28, 1999, and for the Nine Months
ended February 29, 2000 and February 28, 1999 ........... 6
Pro Forma Combined Statements of Cash Flows
for the Nine Months ended February 29, 2000
and February 28, 1999.................................... 7
Notes to Financial Statements............................ 8
SIGNATURES ................................................................ 13
2
G. BRAD BECKSTEAD
- ------------------
Certified Public Accountant
330 E. Warm Springs
Las Vegas, NV 89119
702.528.1984
425.928.2877 (efax)
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
Board of Directors
Xcel Management, Inc.
(formerly Palace Casinos, Inc.)
Tacoma, WA
I have reviewed the accompanying balance sheet of Xcel Management, Inc.
(formerly Palace Casinos, Inc.) as of February 29, 2000 and the related
statements of income for the three-month and nine-month periods ended February
29, 2000 and February 28, 1999, and statements of cash flows for the nine-month
periods ending February 29, 2000 and February 28, 1999. These financial
statements are the responsibility of the Company's management.
I conducted my reviews in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, I do not express such an
opinion.
Based on my reviews, I am not aware of any material modifications that should be
made to the accompanying financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
Other auditors have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Xcel Management, Inc. (formerly Palace
Casinos, Inc.) (a development stage company) as of May 31, 1999, and the related
statements of operations, stockholders' equity, and cash flows for the year then
ended (not presented herein) and in their report dated December 29, 1999, they
expressed an unqualified opinion on those financial statements.
/s/G. Brad Beckstead, CPA
June 21, 2000
Las Vegas, Nevada
License #2701
3
Xcel Management, Inc.
(formerly Palace Casinos, Inc.)
(proforma combined)
Balance Sheet
February 29, 2000 and May 31, 1999
Unaudited Unaudited
2/29/00 5/31/99
------------------------ ------------------------
Assets
Current assets:
Cash and equivalents $ 374,592 $ 501
Accounts receivable, net of allowance for doubtful accounts 41,915 3,424
Employee advances 10,209 --
Resale inventory 8,104 2,246
Work in process 43,450 --
Prepaid expenses 21,539 --
Refundable expenses -- 30,180
------------------------ ------------------------
Total current assets 499,809 36,351
------------------------ ------------------------
Fixed assets:
Computer hardware 124,292 50,637
Computer Software 92,087 8,876
Equipment 166,450 24,948
Furniture and fixtures 74,481 --
Capitalized lease equipment 587,517 --
Leasehold improvements 35,442 --
------------------------ ------------------------
1,080,269 84,461
Less accumulated depreciation (65,182) (5,459)
------------------------ ------------------------
Total fixed assets 1,015,087 79,002
------------------------ ------------------------
Other assets:
Intellectual property, net of amortization 91,738 128,616
Deposits 164,043 --
Deferred tax benefits 352,958 43,500
------------------------ ------------------------
Total other assets 608,739 172,116
------------------------ ------------------------
Total Assets $2,123,635 $287,469
======================== ========================
See Accountant's Review Report and Notes to Financial Statements.
4
Xcel Management, Inc.
(formerly Palace Casinos, Inc.)
(proforma combined)
Balance Sheet
February 29, 2000 and May 31, 1999
Unaudited Unaudited
2/29/00 5/31/99
------------------------ -------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 197,919 $ 155,330
Accrued payroll taxes 26,777 626
Accrued sales tax 13,979 1,137
Interest payable -- 6,050
Employee benefits payable 1,675 --
Accrued bonuses 15,000 --
Customer deposits 15,419 --
Offering refunds 15,000 --
Deferred revenue 3,330 --
Current portion of long-term debt 166,869 --
------------------------ -------------------------
Total current liabilities 455,968 163,143
------------------------ -------------------------
Long-Term Debt:
Capital leases payable, net of current portion 475,825 70,000
Other Liabilities:
Deferred tax liability 50,966 --
------------------------ -------------------------
Total Liabilities 982,759 233,143
------------------------ -------------------------
Stockholders' Equity:
Common stock, $0.001 par value, 50,000,000 shares 9,404 1,800
authorized, 9,404,050 shares issued and outstanding
Additional paid-in capital 2,240,271 19,601,690
Subscriptions receivable -- (25,000)
(Deficit)/Retained earnings (1,108,799) (19,524,164)
------------------------ -------------------------
Total stockholders' equity 1,140,876 54,326
------------------------ -------------------------
Total Assets $ 2,123,635 $ 287,469
======================== =========================
See Accountant's Review Report and Notes to Financial Statements.
5
Xcel Management, Inc.
(formerly Palace Casinos, Inc.)
(proforma combined)
Income Statement
For the Three Months Ending February 29, 2000 and February 28, 1999
And For the Nine Months Ending February 29, 2000 and February 29, 1999
Three Months Ending Nine Months Ending
February February
---------------------------------------- ---------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
2000 1999 2000 1999
-------------------- ------------------- ------------------- ------------------
Sales $ 71,594 $ 5,334 $ 186,635 $ 8,879
Cost of Sales 179,984 6,993 345,564 25,980
-------------------- ------------------- ------------------- ------------------
Gross profit (108,390) (1,659) (158,929) (17,101)
-------------------- ------------------- ------------------- ------------------
Expenses
Amortization 11,932 3,278 29,611 3,278
Depreciation 54,753 5,277 59,723 5,823
Interest 1,687 3,800 7,090 3,801
General administrative expenses 876,217 31,035 1,157,353 64,587
-------------------- ------------------- ------------------- ------------------
Total Expenses 944,589 43,390 1,253,777 77,489
-------------------- ------------------- ------------------- ------------------
Other income (expenses) 2,678 - 45,415 -
-------------------- ------------------- ------------------- ------------------
Loss from operations before income
taxes and extraordinary income (1,050,301) (45,049) (1,367,291) (94,590)
-------------------- ------------------- ------------------- ------------------
Federal income tax expense:
Current expense - - - -
Deferred tax benefit 209,494 20,849 258,492 20,849
-------------------- ------------------- ------------------- ------------------
Total federal income tax expense 209,494 20,849 258,492 20,849
-------------------- ------------------- ------------------- ------------------
Loss from operations before
extraordinary income (840,807) (24,200) (1,108,799) (73,741)
==================== =================== =================== ==================
Extraordinary income:
Gain on extinguishment of debt net
of zero tax expense - 469,050 - 469,050
-------------------- ------------------- ------------------- ------------------
Total extraordinary income - 469,050 - 469,050
-------------------- ------------------- ------------------- ------------------
Net (loss) income (840,807) 444,850 (1,108,799) 395,309
==================== =================== =================== ==================
Weighted average number of common
shares outstanding 9,404,050 1,800,000 9,404,050 1,800,000
==================== =================== =================== ==================
Net income (loss) per share $(0.09) $0.25 $(0.12) $0.22
==================== =================== =================== ==============
See Accountant's Review Report and Notes to Financial Statements.
6
Xcel Management, Inc.
(formerly Palace Casinos, Inc.)
(proforma combined)
Statement of Cash Flows
For the Nine Months Ending February 29, 2000 and February 28, 1999
Unaudited Unaudited
Nine Months Ending Nine Months Ending
2/29/00 2/28/99
------------------ ------------------
Cash flows from operating expenses
Net (loss) income $(1,108,799) $ 395,309
Adjustments to reconcile net income to net cash (used) provided
by operating activities
Amortization expense 29,611 3,278
Depreciation expense 59,723 5,458
Deferred income tax benefits (332,109) (20,849)
Gain on extinguishment of debt -- (469,050)
(Increase) decrease in:
Accounts receivable, net (48,700) (3,900)
Prepaid expense (21,539) -
Inventories (49,308) -
Other current assets (128,164) (5,699)
Increase (decrease) in:
Accounts payable 96,340 97,975
Accrued expenses 50,966
Other liabilities 25,002 4,792
------------------ ------------------
Net cash (used) provided by operating activities (1,426,977) 7,314
------------------ ------------------
Cash flows from investing activities
Purchase of fixed assets (990,435) (208,165)
------------------ ------------------
Net cash (used) by investing activities (990,435) (208,165)
------------------ ------------------
Cash flows from financing activities
Increase in notes payable 571,611 70,000
Receipt of stock subscription 25,000 -
Issuance of common stock 2,193,650 128,760
Additional paid-in capital 1,242 2,139
------------------ ------------------
Net cash provided by financing activities 2,791,503 200,899
------------------ ------------------
Net increase in cash 374,091 48
Cash - beginning 501 -
------------------ ------------------
Cash - ending $ 374,592 $ 48
================== ==================
Supplemental disclosures
Interest paid $- $-
================== ==================
Income taxes paid $- $-
================== ==================
Non-cash financing activities
Common stock issued for debt $- $ 900
================== ==================
See Accountant's Review Report and Notes to Financial Statements.
7
XCEL MANAGEMENT, INC.
NOTES TO THE FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------
Company Background: Xcel Management, Inc. (the "Company") was incorporated in
the state of Utah on May 22, 1980, under the name "Ward's Gas & Oil," to engage
in the oil and gas business. This business was terminated after a few years of
operations. From November 1992 until approximately the end of 1995, the Company
(which had changed its name to "Palace Casinos, Inc."), was engaged, through its
then wholly-owned subsidiary, Maritime Group, Ltd. (the "Subsidiary"), in the
development of a dockside gaming facility in Biloxi, Mississippi. In April,
1994, the Subsidiary completed the development of the Biloxi gaming facility,
"Palace Casino," and commenced operations. On December 1, 1994, the Company and
the Subsidiary separately filed voluntary petitions for relief under Chapter 11
of the federal bankruptcy laws. Although the Company's original bankruptcy
petition was filed in the United States Bankruptcy Court for the District of
Utah, Central Division, the supervision of the Company's Chapter 11 proceedings
was transferred to the United States Bankruptcy Court for the Southern District
of Mississippi (the "Bankruptcy Court"). On September 22, 1995, the Company,
which had been operating as debtor-in-possession in connection with the
bankruptcy proceeding, entered into an Asset Purchase Agreement under the terms
of which it agreed, subject to the approval of the Bankruptcy Court, to sell
substantially all of the Subsidiary's operating assets. This transaction was
approved by the Bankruptcy Court, and completed in the end of 1995, with all of
the net proceeds of the transaction being distributed to creditors. Following
the completion of the sale of the Subsidiary's assets, the Company had
essentially no assets and liabilities and the Company's business operations
essentially ceased, except for efforts to complete a plan of reorganization,
described below.
On January 26, 2000, the Company entered into an Asset Purchase Agreement with
Insynq, Inc. ("Insynq"), a closely-held Washington corporation engaged in
providing hardware, software, computer internet and related telecommunications
services and products to small to medium size businesses and high-end home
offices. (See Note 18 below).
Inventory: Inventories are stated at the lower of cost or market and represent
parts and supplies on hand for resale. Cost is determined on the first-in,
first-out method.
Property and Depreciation: Equipment and hardware is stated at cost.
Depreciation, including amortization of capital leases, for financial statement
purposes is calculated using straight-line and declining balance methods. The
cost of maintenance and repairs is charged to income as incurred; significant
replacements are capitalized.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Income Taxes: Income taxes are provided for the tax effects of transactions
reported in the financial statements, and consist of taxes currently due plus
deferred taxes. Deferred taxes are recognized on all significant differences
between the basis of assets and liabilities for financial statement and income
tax purposes. The differences relate primarily to depreciable assets (use of
different depreciation methods and lives for financial statement and income tax
purposes), and net operating losses carried forward. Deferred tax assets and
liabilities represent the future tax return consequence of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled in the future, based upon enacted tax laws and rates
applicable at that time. Non-current income tax expense reflects the net change
during the period in deferred tax assets and liabilities.
8
XCEL MANAGEMENT, INC.
NOTES TO THE FINANCIAL STATEMENTS
Cash and Cash Equivalents: For the purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Note 2 - CASH
- ------
The Corporation had cash with Wells Fargo Bank that exceeded the maximum amount
of FDIC coverage. The amount at risk as of February 29, 2000 was $267,279.
Note 3 - ACCOUNTS RECEIVABLE
- ------
The Company had established an allowance for doubtful accounts based upon the
history of account collection and prior bad debts. The provision at February
29, 2000 is $1,469.
Note 4 - RESALE INVENTORY
- ------
Inventory consisting of computer hardware, parts and supplies is carried at cost
and held for resale to customers, and totaled $8,104 at February 29, 2000.
Note 5 - WORK IN PROCESS
- ------
Work in process consists of computer hardware, parts and supplies of $37,641 and
labor charges of $5,809 for jobs in process as of February 29, 2000.
Note 6 - FIXED ASSETS
- -------
Depreciation expense for the nine months ended February 29, 2000 is $59,723.
Additions to fixed assets for the same period are as follows:
Computer hardware $ 73,655
Computer software 83,211
Equipment 141,502
Furniture and fixtures 74,481
Capitalized lease equipment 587,517
Leasehold improvements 35,442
---------
Total additions to fixed assets $ 995,808
=========
Note 7 - INTELLECTUAL PROPERTY, PATENTS, AND OTHER INTANGIBLES
- ------
Insynq acquired the rights to the "Insynq Project" on September 16, 1998 in
exchange for 5,500,000 common shares of stock valued at $130,000. The "Insynq
Project" consisting of tangible and intangible properties is the development of
a proprietary data utility services system. The cost is amortized over sixty
months with accumulated amortization of $29,611 at February 29, 2000.
9
XCEL MANAGEMENT, INC.
NOTES TO THE FINANCIAL STATEMENTS
Note 8 - CAPITAL LEASE OBLIGATION
- ------
1.47% capital lease payable to Hewlett Packard with monthly principal
and interest payments beginning in April 2000 of $21,133, secured by
computer equipment, due March 2003. $ 587,517
2.14% capital lease payable to Capital Connection with monthly principal
and interest payments beginning in April 2000 of $1,186, secured by
computer equipment, due January 2003. 28,450
2.18% capital lease payable to Capital Connection with monthly principal
and interest payments beginning in February 2000 of $1,144, secured by
telephone equipment, due November 2002. 26,727
---------
642,694
Less current portion (162,735)
---------
Total long-term debt $ 479,959
=========
Fiscal Year Amount
------------ ----------
2001 $ 162,735
2002 210,757
2003 215,077
2004 20,827
------------
609,396
Add deferred discount 33,298
------------
Total lease payments over the
contract period $ 642,694
============
The Corporation has executed a nine-year lease with Colliers International, Inc.
for office space located at 1101 Broadway Plaza, Tacoma, Washington commencing
February 1, 2000 in the amount of $14,963 per month.
Note 9 - INCOME TAXES
- ------
Income tax expense consists of the following components:
Current provision $ 0
Deferred provision:
Tax benefit of operating loss carryforward (403,924)
Deferred tax liability on
accelerated depreciation methods 50,966
---------
Total income tax expense benefit $ (352,958)
==========
10
XCEL MANAGEMENT, INC.
NOTES TO THE FINANCIAL STATEMENTS
Note 9 - INCOME TAXES (CONT.)
- ------
The following reconciles pre-tax income reported in the financial statements to
the current provision:
Pre-tax accounting income or loss $ (1,050,301)
Permanent differences arising from:
Non-deductible expenses 5,551
Temporary differences arising from:
Accelerated tax depreciation (149,900)
------------
Taxable income or (loss) $ (1,194,650)
============
The Company has unused net operating loss carryforwards of $66,661 expiring in
the year 2013, and $971,492 expiring in the year 2014.
Note 10 - RELATED PARTY TRANSACTIONS
- --------
Insynq, Inc. was capitalized with $130,000 of stated value for `Intellectual
Property' acquired from the founding shareholders in exchange for 5,500,000 of
common stock (See Note 7). The Company purchased $70,000 of equipment from
Charles Benton, a founding shareholder. The equipment was purchased with a
demand note, secured by the equipment. The note was paid in full on December
20, 1999.
Note 11 - COMMITMENTS
- -------
The Company has an operating lease with Vantas Sacramento, LLC for use of
executive offices and administrative staff at the Roseville, California business
location dated September 13, 1999 for a monthly fixed fee of $4,032. The term
of the lease is for six months and the minimum future rental payments total
$16,128.
The Company has entered into a sublease agreement with Duane and Eddy Ashby for
office space located in the Seafirst Plaza Building, Tacoma, Washington dated
November 1, 1999 for a term commencing November 15, 1999 and expiring July 31,
2000 for a monthly fee of $2,345. There is a second lease agreement covering
the same property commencing August 1, 2000 through July 31, 2003 at $2,479 per
month. The future minimum rental payments through the year 2003 is $105,659.
Note 12 - SUPPLEMENTARY CASH FLOW INFORMATION
- -------
The following non-cash transactions have been appropriately excluded from the
statement of cash flows:
The Company has entered into an agreement with Horizon Holdings I, LLC to
provide facilities management services at its location in Tacoma, Washington at
the Tacoma Technology Center. The agreement to provide collaborative management
services is effective July 1, 1999 for a monthly base fee of $3,000 and will
continue through December 31, 2000. The Company will have the use of this
location for its data utility equipment in exchange for managing the facilities.
The rental value of the office space is offset with an appropriate charge to
service income. Future minimum rental payments over the life of the agreement
total $42,000.
NOTE 13- RETAINED EARNINGS
- -------
The amount of deferred tax asset and liability estimates as of December 31, 1998
has been reflected in the prior year retained earnings balance for presentation
purposes to conform with the Statements on Financial Accounting Standards and
generally accepted accounting principles.
11
XCEL MANAGEMENT, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 - ASSET PURCHASE AGREEMENT
- -------
On January 26, 2000, the Company entered into an Asset Purchase Agreement with
Insynq, Inc. ("Insynq"), a closely-held Washington corporation engaged in
providing hardware, software, computer internet and related telecommunications
services and products to small businesses and high-end home offices. The terms
of the Agreement were substantially completed on February 18, 2000. Under the
terms of the Agreement, the Company acquired substantially all of the assets of
Insynq, and assumed substantially all of the obligations of Insynq, in exchange
for the issuance by the Company of a total of 7,604,050 shares of restricted
common stock of the Company, to the Insynq shareholders pro rata in a
liquidating distribution. As a result of the transaction, the Company now has a
total of approximately 9,404,050 shares issued and outstanding, of which
7,604,050 shares, or approximately 81% are now held by the former Insynq
shareholders. In connection with the Agreement, Insynq obtained approval of the
sale of its assets by its shareholders at a duly called and convened
shareholders' meeting.
As a result of the Agreement, the Company has acquired essentially all of the
assets, tangible and intangible, of Insynq, and has become engaged in Insynq's
business, described below. These assets include computer hardware and software,
related equipment, furniture and fixtures, proprietary technology developed by
Insynq, described below, all contractual rights including capitalized lease
equipment and other leasehold rights, tradenames and trademarks and all client
lists and marketing data and materials, cash and cash equivalents, accounts
receivable, inventory, work in progress and related assets. As indicated below,
the asset considered most valuable by Insynq and the Company in completing the
Agreement, is Insynq's proprietary data utility services system that was
designed to offer enhanced technological computer processing and communication
capabilities.
In addition, the Company has agreed to assume all equipment leases, leasehold
obligations covering office space utilized by Insynq, all consulting contracts,
and all other contract obligations. Finally, at the time of completion of the
Insynq asset acquisition, Insynq had outstanding to various shareholders, a
number of warrants and options, entitling the holders to purchase shares up to a
total of 4,267,000 shares of restricted common stock of Insynq, which warrants
and options have been converted into options and warrants to purchase a total of
approximately 4,267,000 shares of the Company's common stock, at prices of
between $.50 to $15.00 per share, not including options to purchase a total of
approximately 4,010,150 shares of common stock granted under the Company's
Incentive Plans. The exercise of all or any portion of these outstanding options
and warrants would have the effect of substantially diluting the ownership of
the present shareholders in the Company.
12
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.
Dated: July 3, 2000
XCEL MANAGEMENT, INC.
(Registrant)
By: /s/ JOHN P. GORST
-------------------------------
John P. Gorst
Chief Executive Officer
(Principal Executive Officer)
By: /s/ D.J. JOHNSON
-------------------------------
D.J. Johnson
Chief Financial Officer
(Principal Financial Officer)
13