Worldwide Xceed Group Inc – ‘8-K/A’ for 9/9/98

As of:  Monday, 11/30/98   ·   For:  9/9/98   ·   Accession #:  889812-98-2822   ·   File #:  0-13049

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Amendment to Current Report   —   Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K/A       Amendment to Current Report                           21    109K 

Document Table of Contents

8-K/A
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SECURITIES AND EXCHANGE COMMISSION    
Washington, D.C. 20549    

FORM 8-K/A    

Current Report    
Pursuant to Section 13 or 15(d)   
of the Securities Exchange Act of 1934    

Date of Report (Date of earliest event reported):   
September 17, 1998 (September 9, 1998)  

X-ceed, Inc.    
(Exact name of registrant as specified in its charter)    

Delaware    
--------    
(State or Other Jurisdiction of Incorporation)    

0-13049                                       13-3006788      
(Commission File Number)                  (I.R.S. Employer Identification No.)  

488 Madison Avenue, New York, New York 10022    
--------------------------------------------    
(Address and zip code of principal executive offices)     

212-753-5511    
------------    
(Registrant's Telephone Number)   

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Item 7.     FINANCIAL STATEMENTS AND EXHIBITS                                   

 1. On September 14, 1998, X-ceed completed the acquisition of Zabit and
Associates, Inc. and affiliate. Attached hereto are the Audited Financial       
Statements of Zabit and Associates, Inc. and affiliate for the years ended      
December 31, 1995, December 31, 1996 and December 31, 1997 and unaudited        
statements for the eight months ended August 31, 1997 and 1998. Said            
financial statements include:                                                   

(a)   Independent Auditor's Report                                    
(b)   Balance Sheets                                                  
(c)   Statement of Earnings                                           
(d)   Statement of Stockholders' Equity                               
(e)   Statement of Cash Flows                                         
(f)   Notes to Financial Statements.                                  

 2. Attached hereto are unaudited pro forma condensed combined financial
statements for X-ceed, Inc. and subsidiaries, Reset, Inc., Mercury Seven,       
Inc. and Zabit and Associates, Inc. as of May 31, 1998 and for the nine         
months ended May 31, 1998 and the year ended August 31, 1997.                   

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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 hereunto duly authorized.                                           

                      X-ceed, Inc.
                                      ----------------------------
                      (Registrant)

                             By:/s/ Werner Haase
                                         -------------------------
                                       Werner Haase, President

DATED:  November 25, 1998                                                       
-----------------                                               

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ZABIT & ASSOCIATES, INC. and WATER STREET DESIGN GROUP, INC.  

COMBINED FINANCIAL STATEMENTS 

YEARS ENDED DECEMBER 31, 1995, 1996, and 1997 

BAKER & BARNETT 
Certified Public Accountants  

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BAKER & BARNETT 
Certified Public Accountants  

To the Shareholders' of X-ceed, Inc                                             

INDEPENDENT AUDITORS' REPORT                                                    

We have audited the accompanying combined balance sheets of Zabit &             
Associates, Inc. and Water Street Design Group, Inc., as of December 31,        
1996, and 1997, and the related combined statements of operations, stockholders'
equity and cash flows for the three years ended December 31, 1997. 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 generally accepted auditing          
standards. 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 combined financial position of Zabit & Associates,   
Inc. and Water Street Design Group, Inc., at December 31, 1996, and 1997        
and the combined results of their operations and their cash flows for the       
three years ended December 31, 1997, in conformity with generally accepted      
accounting principles.                                                          

/s/Baker & Barnett                                                              
Corte Madera CA                                                                 
November 30, 1998                                                               

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                                                        [Enlarge/Download Table]


         Zabit & Associates, Inc. and Water Street Design Group, Inc.                                   
                            Combined Balance Sheets                                                     

                                                                            December 31,       Aug. 31, 
ASSETS                                                                    1996        1997       1998   
                                                                          ----        ----       ----   
                                                                                           (Unaudited)  
                                                                                                        
Current assets:                                                                                         
         Cash and cash equivalents                                  $    82,850  $   29,638  $  367,637 
         Accounts receivable                                          1,882,248   2,855,613   2,407,363 
         Allowance for doubtful accounts                                (63,000)   (260,000)   (260,000)
         Receivable from stockholders and employees                      76,866     134,341     112,565 
         Prepaid expenses and other current assets                       31,164     157,023     260,068 
                                                                    ----------------------------------- 

         Total current assets                                         2,010,128   2,916,615   2,887,633 
                                                                    ----------------------------------- 

Property and equipment:                                                                                 
         Property and equipment                                         476,988     957,633   1,432,081 
         Leasehold improvements                                          55,822      72,158      88,553 
                                                                    ----------------------------------- 
                                                                        532,810   1,029,791   1,520,634 
         Less accumulated depreciation                                  280,493     423,644     599,367 
                                                                    ----------------------------------- 

         Property and equipment, net                                    252,317     606,147     921,267 
                                                                    ----------------------------------- 

Other assets:                                                             1,311         407           0 
                                                                    ----------------------------------- 

                                                                     $2,263,756  $3,523,169  $3,808,900 
                                                                    =================================== 

LIABILITIES                                                                                             
Current liabilities:                                                                                    
         Accounts payable                                            $  672,159  $  900,130  $  766,673 
         Bank line of credit                                             75,000     600,000     787,000 
         Current portion of long-term debt                               77,524      60,480     160,297 
         Sales tax payable                                               39,772      59,990       8,090 
         Other accrued liabilities                                       91,498      15,112     349,938 
                                                                    ----------------------------------- 

         Total current liabilities                                      955,953   1,635,712   2,071,998 
                                                                    ----------------------------------- 

Long-term debt, less current portion                                    113,972     449,391     638,893 
                                                                    ----------------------------------- 

STOCKHOLDERS' EQUITY                                                                                    
         Common Stock                                                    10,000      10,000      10,000 
         Additional Paid in Capital                                       1,000       1,000       1,000 
         Retained Earnings                                            1,182,831   1,427,066   1,087,009 
                                                                    ----------------------------------- 

         Total stockholders' equity                                   1,193,831   1,438,066   1,098,009 
                                                                    ----------------------------------- 

                                                                     $2,263,756  $3,523,169  $3,808,900 
                                                                    =================================== 

See accompanying notes  

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Zabit & Associates, Inc. and Water Street Design Group, Inc.  
Combined Statements of Operations   

                                                        [Enlarge/Download Table]

                                                        Years Ended December 31,             Eight months ended August 31,
                                                    1995           1996          1997            1997          1998       
                                                    ----           ----          ----         -----------    -----------  
                                                                                               (Unaudited)    (Unaudited) 
                                                                                                                          
Sales                                            $3,575,826     $5,837,198      $7,872,578     $3,664,929    $6,148,711   

Cost of sales                                     1,335,774      2,112,127       2,248,216        949,180     1,434,016   
                                                 ----------------------------------------------------------------------   

Gross Profit                                      2,240,052      3,725,071       5,624,362      2,715,749     4,714,695   

Operating expenses                                1,846,447      2,905,807       5,030,586      2,887,072     4,770,606   
                                                 ----------------------------------------------------------------------   

Operating income (loss)                             393,605        819,264         593,776       (171,323)      (55,911)  

Other income - interest                                   0              0           4,784              0             0   

Other expense - interest                             37,619         26,647          82,327         78,194        64,280   
                                                 ----------------------------------------------------------------------   

Income (loss) before provision for income taxes     355,986        792,617         516,233       (249,517)     (120,191)  

Provision for income taxes                            7,279         23,688          13,998            800           800   
                                                 ----------------------------------------------------------------------   

Net income (loss)                                $  348,707     $  768,929      $  502,235     $ (250,317)   $ (120,991)  
                                                 ======================================================================   

Pro Forma Information:                                                                                                    

Historical Income (loss) before provision                                                                                 
    for taxes                                    $  355,986     $  792,617      $  516,233     $ (249,517)   $ (120,991)  
Pro forma provision for income taxes                154,142        343,203         223,529       (108,041)      (52,043)  
                                                 ----------------------------------------------------------------------   

Pro forma Net income (loss)                      $  201,844     $  449,414      $  292,704     $ (141,476)   $  (68,148)  
                                                 ======================================================================   

Pro forma Net income (loss) per share                  $.20           $.44            $.29         $(.14)         $(.07)  
                                                        ===            ===             ===          =====          ====   

See accompanying notes  

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Zabit & Associates, Inc. and Water Street Design Group, Inc.  
Combined Statement of Stockholders' Equity  

                                                        [Enlarge/Download Table]


                                        Common Stock           Additional                                 
                                Number of          Dollar       Paid in      Retained             Total   
                                 Shares            Amount       Capital      Earnings             Equity  
                                 ------            ------        ------      --------             ------  
                                                                                                          
Balance at December 31, 1994    1,000,000          $10,000                  $   90,195         $  100,195 
Issuance of Water Street stock     10,000                        $1,000                             1,000 
Net Income December 31, 1995                                                   348,707            348,707 
                                 ------------------------------------------------------------------------ 
Balance at December 31, 1995    1,010,000           10,000        1,000        438,902            449,902 

Distributions                                                                  (25,000)           (25,000)
Net Income December 31, 1996                                                   768,929            768,929 
                                 ------------------------------------------------------------------------ 
Balance at December 31, 1996    1,010,000           10,000        1,000      1,182,831          1,193,831 

Distributions                                                                 (258,000)          (258,000)
Net Income December 31, 1997                                                   502,235            502,235 
                                 ------------------------------------------------------------------------ 
Balance at December 31, 1997    1,010,000           10,000        1,000      1,427,066          1,438,066 

Distributions (Unaudited)                                                     (219,066)          (219,066)
Net Income August 31, 1998                                                                                
(Unaudited)                                                                   (120,991)          (120,991)
                                 ------------------------------------------------------------------------ 

Balance at August 31, 1998      1,010,000          $10,000       $1,000     $1,087,009         $1,098,009 
                                 ======================================================================== 

See accompanying notes  

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Zabit & Associates, Inc. and Water Street Design Group Inc. 
Combined Statements of Cash Flows 

                                                        [Enlarge/Download Table]


                                                                                                         Eight months ended     
                                                                                                             August 31,         
                                                                 Years Ended December 31,                1997          1998     
                                                               1995         1996        1997          (Unaudited)   (Unaudited) 
                                                               ----         ----        ----           ---------    ---------   
                                                                                                                                
Cash provided by (used in) operating activities:                                                                                
    Net income (loss)                                     $   348,707  $   768,929  $   502,235     $  (250,317)    $  (120,991)
                                                          --------------------------------------------------------------------- 
    Adjustments to reconcile net income (loss) to                                                                               
    net cash provided by (used in) operating activities:                                                                        
      Provision for doubtful accounts                          55,768      133,398      272,913         106,458         177,043 
      Depreciation and amortization                            88,316      118,583      144,055          80,648         176,130 
      Changes in operating assets and liabilities:                                                                              
        (Increase) Decrease in accounts receivable           (433,489)  (1,211,776)  (1,049,278)        478,939         271,207 
        (Increase) Decrease in other current assets           (27,571)      31,994     (125,859)        (56,076)       (103,045)
        Increase (Decrease) in accounts payable                22,726      414,726      227,971        (322,167)       (133,457)
        Increase (Decrease) in accrued liabilities             16,236       54,369      (56,168)         39,680         282,926 
                                                          --------------------------------------------------------------------- 
          Net cash provided by (used in) operating                                                                              
            activities                                         70,693      310,223      (84,131)         77,165         549,813 
                                                          --------------------------------------------------------------------- 

Cash used in investing activities:                                                                                              
    Acquisition of fixed assets                              (105,330)    (177,310)    (496,981)       (182,128)       (490,843)
    Additions to other assets                                    (270)           0            0               0               0 
                                                          --------------------------------------------------------------------- 
          Net cash used in investing activities              (105,600)    (177,310)    (496,981)       (182,128)       (490,843)
                                                          --------------------------------------------------------------------- 
Cash provided by (used in) financing activities:                                                                                
     Loans from (to) stockholders                               4,026      (51,088)     (57,475)        (79,003)         21,776 
     Loans from (Repayments to) banks                           4,602      (36,077)     843,375         506,931         476,319 
     Capital Stock investment                                   1,000            0            0               0               0 
     Shareholder Distribution                                       0      (25,000)    (258,000)       (258,000)       (219,066)
                                                          --------------------------------------------------------------------- 
          Net cash provided by (used in) financing                                                                              
            activities                                          9,628     (112,795)     527,900         169,928         279,029 
                                                          --------------------------------------------------------------------- 
          Net change in cash and cash equivalents             (25,279)      20,118      (53,212)         64,965         337,999 

Cash and cash equivalents:                                                                                                      
     Beginning of year                                         88,011       62,732       82,850          82,850          29,638 
                                                          --------------------------------------------------------------------- 

    End of year                                           $    62,732  $    82,850  $    29,638     $   147,815     $   367,637 
                                                          ===================================================================== 

See accompanying notes  

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Zabit & Associates and Water Street Design Group, Inc.  
Notes to Financial Statements 
Three Years Ended December 31, 1997 
And Eight Months Ended August 31, 1997 and 1998 
----------------------------------------------- 
(Information with respect to the eight months ended August 31, 1997 and 1998  
is unaudited)   

Note 1-Business of the Company                                                  

Zabit & Associates, Inc. (Zabit) was founded in July 1993 to be a full service  
provider of communication strategies. Zabit specializes in areas of company     
culture and organization assessment, human resources, benefits, executive       
compensation, stock plans, mergers, initial public offerings, organizational    
change and corporate communication, technology and new media, public            
relations, publicity communication, advertising, and marketing. The revenues    
of Zabit are primarily derived from customers in North America.                 

Water Street Design Group, Inc. (Water Street) was founded in September 1995    
to provide creative and design services across a wide spectrum of business      
applications. Substantially all of Water Street's revenues are derived from     
Zabit.                                                                          

Note 2-Summary of Significant Accounting Policies                               

Principles of Combination                                                       
The combined financial statements include the accounts of Zabit & Associates,   
Inc., a California Corporation, and Water Street Design Group, Inc., a Nevada   
Corporation. Water Street is wholly owned by the stockholders of Zabit. The     
combined entities shall be referred herein as the "Company". All inter-company  
account transactions have been eliminated.                                      

Use of Estimates                                                                
The preparation of financial statements in conformity with generally accepted   
accounting principles requires management to make estimates and assumptions     
that effect the reported amount 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.      
Actual results could differ from these estimates.                               

Cash Equivalents                                                                
For purposes of the statements of cash flows, the Company considers all highly  
liquid debt instruments purchased with an original maturity of three months or  
less to be cash equivalents.                                                    

Fixed Assets                                                                    
Fixed assets, other than leasehold improvements, are depreciated on a           
straight-line basis over their estimated useful lives (3-5 years). Leasehold    
improvements are amortized over the lesser of their useful life or remaining    
term of the related lease.                                                      

Revenue Recognition                                                             
Revenue is recognized as services are rendered.                                 

Income Taxes                                                                    
Both Zabit and Water Street are S corporations reporting taxable income on a    
cash basis. Both Zabit and Water Street pay California State taxes at one and   
one half percent (1.5%) on cash basis income. Zabit also pays New York State    

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and City taxes on cash basis income derived within those locales at 8% and 9%   
respectively.                                                                   

Interim financial statements                                                    
The unaudited financial statements for the eight months ended August 31, 1997   
and 1998 reflect all adjustments, consisting only of normal recurring           
accruals, which are, in the opinion of management, necessary for a fair         
statement of the results for the period. The results of operations are not      
necessarily indicative of the results expected for the fiscal year.             

                                                        [Enlarge/Download Table]


Supplemental Cash Flow Information                                                           
                                              December 31,                 August 31,        
                                        1995      1996         1997     1997         1998    
                                        ----      ----         ----     ----         ----    
                                                                     (Unaudited)  (Unaudited)
                                                                                             
Cash paid during the year for:      $36,242   $26,647      $82,327     $78,194       $64,279 
Interest                            $  0      $ 2,488      $26,995     $21,082       $(7,983)
Income Taxes (Refund)                                                                        

Concentrations of Credit Risk                                                   
Financial instruments that potentially subject the Company to concentrations    
of credit risk consist principally of cash and trade receivables. The Company   
currently places its cash and equivalents with one financial institution.       

Fair value of financial instruments, including cash and cash equivalents,       
accounts receivable, accounts payable and other accrued liabilities             
approximate fair value due to their short maturities.                           

Note 3-Fixed Assets                                                             

Depreciation expense was $55,408, $63,876, $102,321, $147,024, and $145,379     
for the years ended December 31, 1995, 1996, 1997, and the eight months ended   
August 31, 1997 and August 31, 1998, respectively. Amortization expense related 
to capital leases was $32,908, 54,707, $41,734, $28,691, and $27,751 for the    
years ended December 31, 1995, 1996, 1997, and the eight months ended August    
31, 1997 and August 31, 1998, respectively.                                     

Equipment recorded under capital leases included in Property and equipment is   
$152,170, $195,987, $195,987, $195,987, and $195,987 for the years ended        
December 31, 1995, 1996, 1997, and the eight months ended August 31, 1997 and   
August 31, 1998, respectively. Related accumulated amortization is $54,842,     
$109,549, $154,468, $138,244, and $182,219 for the years ended December 31,     
1995, 1996, 1997, and the eight months ended August 31, 1997 and August 31,     
1998, respectively.                                                             

Note 4-Advances to Stockholders                                                 

The Company has incurred certain liabilities on behalf of stockholders of the   
Company. An interest rate has been imputed on the balance which estimates a     
fair market value rate. As of December 31, 1997 the principal balance and       
related interest was $134,341.                                                  

Note 5-Notes Payable to Stockholders                                            

In July 1993, the Company entered into notes payable agreements with two        
stockholders to borrow $150,000. Principal and interest are payable in 60       
monthly installments through June 1998. Interest on the notes accrues at 9.5%   
per annum.                                                                      

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Future principal payments for years after 1997 are as follows:                  

Year Ending December 31, 1998               $18,389                             
Total                                       $18,389                             

Note 6-Borrowings on Line of Credit                                             

The Company entered into a line of credit agreement in July 1997 with           
WestAmerica Bank whereas the Company may issue up to $700,000 in notes payable  
to the bank. The notes bear interest at prime plus 1.75% (10.25% at 12/31/97).  

Note 7-Notes Payable to Bank                                                    

The Company entered into a loan agreement in September 1997 with WestAmerica    
Bank whereas the Company may draw up to $219,500 for the acquisition of         
equipment. $219,500 was drawn in September 1997. The loan bears interest at     
prime plus 1% (9.5% at 12/31/97). Principal and interest are payable in         
monthly installments of $3,658,                                                 
plus accrued interest.                                                 $211,586 

The Company entered into a loan agreement in July 1997 with                     
WestAmerica Bank whereas the Company may draw up to $200,000 for                
working capital requirements. $200,000 was drawn in July 1997.                  
The loan bears interest at prime plus 2% (10.5% at 12/31/97).                   
Principal and interest are payable in monthly installments of                   
3,333 plus accrued interest.                                            183,333 

Total                                                                $  394,919 

Future principal payments for years after 1997 are as follows:                  
Year Ending December 31,                                                        
1998                                                                 $   83,900 
1999                                                                     83,900 
2000                                                                     83,900 
2001                                                                     83,900 
2002                                                                     59,319 
                                                                     ---------
Total                                                                 $ 394,919 
                                                                     =========

Note 8-Commitments                                                              

The Company leases its facilities and certain operating equipment under         
non-cancelable operating leases which expire through June 2014. The Company is  
responsible for taxes, maintenance and insurance. Rent expense incurred under   
all operating leases charged to operations was $179,373, $228,140, and          
$399,490 for the years ended December 31, 1995, 1996, and 1997, respectively    
and, $370,847 and $283,790 for the eight months ended August 31, 1998 and 1997, 
respectively.                                                                   

Future minimum obligations under the facility leases at December                
31, 1997 are as follows:                                                        

1998                                     $  394,968                             
1999                                        289,902                             
2000                                        149,372                             
2001                                        142,176                             
            ----------
Total                                    $  976,422                             
            ==========

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Note 9-Capital Lease Obligations                                                

The Company leases certain of its office equipment and computers under capital  
leases which expire through June 2001. Capital lease obligations as of          
December 31, 1997 are as follows:                                               

1998                                              $52,558                       
1999                                               33,485                       
2000                                               22,539                       
2001                                                6,570                       
                           -------
Total minimum payments                            115,152                       
Less amount representing interest                 (18,892)                      
                           -------
Present value of minimum lease payments            96,260                       
Less current portion                              (41,809)                      
                           -------
Capital lease obligation, less current portion    $54,451                       
                           =======

Note 10-Stockholders' Equity                                                    

Under its Articles of Incorporation, Zabit is authorized to issue 100,000,000   
shares of no par value capital stock. As of December 31, 1997, 1,000,000 shares 
were issued and outstanding. Each share of capital stock is entitled to one     
vote. The holders of capital stock are entitled to receive dividends whenever   
funds are legally available and when declared by the Board of Directors.        

Under its Articles of Incorporation, Water Street is authorized to issue        
1,000,000 shares of $.000001 per share par value capital stock. As of December  
31, 1997, 10,000 shares were issued and outstanding. Each share of capital      
stock is entitled to one vote. The holders of capital stock are entitled to     
receive dividends whenever funds are legally available and when declared by     
the Board of Directors.                                                         

Stock Option Plan                                                               

The Company issued stock options to certain employees under a  stock option plan
whereby those employees may purchase an equivelent number of shares of common   
stock of the Company. The exercise price for options granted are at the sole    
discretion of the Board of Directors. All options are fully vested upon issuance
and expire on September 30, 1998. The Company has reserved 26,000 shares of     
authorized common stock for issuance under the plan. The grant of of these      
options did not result in a charge to operations.                               

The following is a summary of stock option activity under the plan:             

                                       Number of Shares         Option Price
                                       ----------------         ------------
Options granted                               20,000                 $1.00      
Options exercised                                 -                     -       
Options canceled                                  -                     -       
Outstanding at December 31, 1996              20,000                 $1.00      
                                        ----------------------------
Options granted                                6,000                 $1.00      
Options exercised                                 -                     -       
Options canceled                                  -                     -       
Outstanding at December 31, 1997              26,000                 $1.00      
                                        ----------------------------
Options granted (unaudited)                       -                     -       
Options exercised (unaudited)                     -                     -       
Options canceled (unaudited)                      -                     -       
Outstanding at August 31, 1998 (unaudited)    26,000                 $1.00      
                                        ============================

Stock Split                                                                     

In May 1998, Zabit's Board of Directors authorized a two for one stock split,   
thereby increasing the number of shares issued and outstanding to 1,000,000. All
references in the accompanying financial statements to the number of common     
shares and per share amounts have been retroactively restated to reflect the    
stock split.                                                                    

Note 11- Major Customers                                                        

Sales to four customers amounted to 16%, 15%, 14%, and 13% of revenue for the   
year ended December 31, 1995. Sales to four customers amounted to 16%, 11%, 11%,
and 11% of revenue for the year ended December 31, 1996. Sales to four customers
amounted to 13%, 12%, 11%, and 10% of revenue for the year ended December 31,   
1997. Sales to five customers amounted to 18%, 13%, 13%, 13%, and 11% of revenue
for the eight months ended August 31, 1997. Sales to one customer amounted to   
17% for the eight months ended August 31, 1998.      Note 12-Related Party      
Transactions                                                                    

The Company leases its main operating facilities from a partnership owned       
partially by a stockholder. Rent expense on this lease totaled $132,000,        
$137,440, $153,626, $98,877, and $104,809 in 1995, 1996, 1997, and the eight    
months ended August 31, 1997 and 1998, respectively.                            

The Company rents office equipment from a related party. Rent expense incurred  
from this related party totaled $7,911, $8,183, $10,221, $5,578, and $3,002 in  
1995, 1996, 1997, and the eight months ended August 31 1997 and 1998,           
respectively.                                                                   

The Company purchased office equipment from a related party. Capital equipment  
purchased from this related party totaled $3,847, $7,630, $94,652, $859, and    

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$122,049 in 1995, 1996, 1997, and the eight months ended August 31 1997 and     
1998, respectively.                                                             

Note 13-Subsequent Event                                                        

On September 14, 1998 the stockholders sold their shares in both companies to   
a corporation resulting in Zabit & Associates and Water Street Design Group     
becoming wholly-owned subsidiaries of the buyer. References to the "Company"    
and "Stockholders" in these financial statements are based on conditions, prior 
to the sale of the companies.                                                   

Note 14-Pro Forma Information (Unaudited)                                       

Pro forma tax expense                                                           
Pursuant to an acquisition of Zabit & Associates and Water Street Design        
Group, Inc., these entities would become taxable corporations for federal and   
state tax purposes. The object of the pro forma financial information is to     
show what the significant effects on historical information might have been     
had the combined entities been subject to federal and state taxes for the       
three years ended December 31, 1997 and the eight months ended August 31, 1997  
and 1998.                                                                       

Pro forma earnings per share                                                    
Earnings per share were computed by dividing earnings by the weighted average   
number of shares during each period presented. The weighted average number of   
shares is as follows:                                                           

                                                        [Enlarge/Download Table]


                            Year         Year          Year         Eight          Eight  
                            Ended        Ended         Ended       Months         Months  
                             Dec.         Dec.          Dec.         Aug.           Aug.  
                             31,          31,           31,          31,            31,   
                            1995         1996          1997         1997           1998   
                            --------------------------------------------------------------
                                                                                          
Pro forma weighted average                                                                
Shares outstanding          1,002,500    1,010,000    1,010,000    1,010,000     1,010,000
                            ==============================================================

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X-CEED, INC. AND SUBSIDIARIES AND 
RESET, INC. AND MERCURY SEVEN, INC. 
AND ZABIT & ASSOCIATES, INC.  

UNAUDITED PRO FORMA CONDENSED COMBINED  
FINANCIAL STATEMENTS  

The following unaudited pro forma condensed combined financial      
statements give effect to the mergers (the "Mergers") of X-Ceed, Inc.           
("X-Ceed") with Reset, Inc. ("Reset") and Mercury Seven Inc. ("Mercury Seven")  
and Zabit & Associates, Inc. and Water Street Design Group, Ltd. (collectively  
"Zabit"). The mergers were accounted for as purchase transactions. These pro    
forma financial statements are presented for illustrative purposes only, and    
therefore are not necessarily indicative of the operating results and           
financial position that might have been achieved had the Mergers occurred as    
of an earlier date, nor are they necessarily indicative of operating results    
and financial position which may occur in the future.                           

    A pro forma condensed combined balance sheet is provided as of May 31,
1998, giving effect to the Mergers as though they had been consummated on that  
date. The pro forma condensed combined balance sheet combines the consolidated  
balance sheet of X-Ceed as of May 31, 1998 with that of Reset and Mercury       
Seven as of June 30, 1998 and Zabit as of August 31, 1998. Pro forma condensed  
combined statements of operations are provided combining X-Ceed for the nine    
month period ended May 31, 1998 and the year ended August 31, 1997 with Reset   
and Mercury Seven for the nine month periods ended June 30, 1998 and the years  
ended September 30, 1997, and Zabit for the nine month period ended August 31,  
1998 and the year ended November 30, 1997, giving effect to the Mergers as      
though they had occurred on September 1, 1996.                                  

   The pro forma financial statements are based on preliminary estimates
of values and transaction costs and preliminary appraisals. The actual          
recording of the transactions will be based on final appraisals, values and     
transaction costs. Accordingly, the actual recording of the transactions can    
be expected to differ from these pro forma financial statements.                

     The historical condensed statement of operations presented for the year
ended August 31, 1997 is derived from the separate historical consolidated      
financial statements of X-Ceed, Reset and Mercury Seven, incorporated by        
reference, and Zabit, included elsewhere herein, and should be read in          
conjunction with the companies? separate financial statements. The historical   
condensed financial statements as of or for the nine months ended May 31, 1998  
are derived from the historical interim consolidated financial statements of    
X-Ceed, Reset and Mercury Seven, incorporated by reference, and Zabit, included 
elsewhere herein, and have been prepared in accordance with generally accepted  
accounting principles applicable to interim financial information and, in the   
opinion of X-Ceed's, Reset's, Mercury Seven's and Zabit's respective            
management's, include all adjustments necessary for a fair presentation of      
financial information for such interim periods.                                 

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X-CEED, INC. AND SUBSIDIARIES AND 
RESET, INC. AND MERCURY SEVEN, INC. 
AND ZABIT & ASSOCIATES, INC.  

PRO FORMA CONDENSED COMBINED BALANCE SHEET  

MAY 31, 1998  
(Unaudited) 

                                                        [Enlarge/Download Table]

                                                                               Historical                                          
                                                     -------------------------------------------------------------------           

                                                        X-Ceed,                          Mercury            Zabit &                
              ASSETS                                      Inc.        Reset, Inc.       Seven Inc.       Associates Inc.           
              ------                                 -----------      -----------      ------------      ---------------           
                                                                                                                                   
   CURRENT ASSETS:                                                                                                                 
   Cash and cash equivalents                         $15,993,800      $   42,721         $  36,832        $    367,637             
   Investment in marketable securities                   208,790             -                 -                   -               
   Accounts receivable, net                            9,776,409         611,201           259,697           2,147,363             
   Costs in excess of customer billings                1,276,520             -                 -               169,872             
   Inventories                                         1,060,210             -                 -                   -               
   Prepaid expenses and other current assets             669,214          64,916            10,025              90,196             
                                                     -----------      ----------         ---------        ------------             
       Total current assets                           28,984,943         718,838           306,554           2,775,068             

PROPERTY AND EQUIPMENT, net                            1,326,407         264,762            99,903             921,267             
INTANGIBLE ASSETS, net                                       -               -                 -                   -               
INVESTMENT AND ADVANCES IN SUBSIDIARY                    714,321             -                 -                   -               
DUE FROM OFFICER                                       1,222,483             -                 -               112,565             
DEFERRED INCOME TAXES                                    451,525          22,000               -                   -               
OTHER ASSETS                                             424,650          15,158            42,334                 -               
                                                     -----------      ----------         ---------        ------------             
                                                     $33,124,329      $1,020,758         $ 448,791        $  3,808,900             
                                                     ===========      ==========         =========        ============             
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                               

CURRENT LIABILITIES:                                                                                                               
   Accounts payable and other accrued expenses       $ 7,141,909      $   84,174         $  78,532        $    766,673             
   Income taxes payable, current                         276,599          65,000            16,092                 -               
   Note payable - bank                                       -               -                 -               787,000             
   Current maturities of long-term debt                   39,200         226,247               -               160,297             
   Notes payable                                             -               -                 -                   -               
   Customer billings in excess of costs                5,253,429             -                 -               217,235             
   Deferred revenue                                          -               -              40,000                 -               
   Other current liabilities                                 -               -                 -               140,793             
   Deferred income taxes                                 131,950         242,000               -                   -               
                                                     -----------      ----------         ---------        ------------             
       Total current liabilities                     $12,843,087         617,421           134,624           2,071,998             
                                                     -----------      ----------         ---------        ------------             

LONG-TERM LIABILITIES:                                                                                                             
   Long-term debt                                         22,100             -              96,000             638,893             
   Notes payable                                             -               -                 -                   -               
   Accrued lease obligation                              816,000          47,500               -                   -               
                                                     -----------      ----------         ---------        ------------             
       Total long-term liabilities                       838,100          47,500            96,000             638,893             
                                                      ----------      ----------         ---------        ------------             

STOCKHOLDERS' EQUITY:                                                                                                              
   Common stock, $.01 par value                           89,389          51,000            15,500              10,000             
   Preferred stock, $.05 par value                           -               -                 -                   -               
   Additional paid-in capital                         16,185,833             -              36,885               1,000             
   Unrealized gain (loss) on investments                    (232)            -                 -                   -               
   Unearned compensation                                (157,126)            -                 -                   -               
   Retained earnings                                   3,380,908         414,837           165,782           1,087,009             
                                                     -----------      ----------         ---------        ------------             
                                                      19,498,772         465,837           218,167           1,098,009             
   Treasury stock                                        (55,630)       (110,000)              -                   -               
                                                     -----------      ----------         ---------        ------------             
                                                      19,443,142         355,837           218,167           1,098,009             
                                                     -----------      ----------         ---------        ------------             

       Total stockholders' equity                    $33,124,329      $1,020,758         $ 448,791        $  3,808,900             
                                                     ===========      ==========         =========        ============             


                                                                              Pro Forma Adjustments                                
                                                ---------------------------------------------------------------------------------- 
                                                                         Acquisition of         Acquisition of                     
                                                  Acquisition of          Mercury Seven             Zabit &             Proforma   
ASSETS                                              Reset, Inc.               Inc.              Associates, Inc.       Combined    
------                                          ------------------   --------------------    ----------------------  ------------- 
                                                                                                                                   
  Cash and cash equivalents                          $        -      2a(ii)  $(1,500,000)    2a(iii)  $ (5,200,000)  $   9,740,990 
   Investment in marketable securities                        -                      -                         -           208,790 
   Accounts receivable, net                                   -                      -                         -        12,794,670 
   Costs in excess of customer billings                       -                      -                         -         1,446,392 
   Inventories                                                -                      -                         -         1,060,210 
   Prepaid expenses and other current assets                  -                      -                         -           834,351 
                                                     ------------            -----------              ------------   ------------- 
       Total current assets                                   -               (1,500,000)               (5,200,000)     26,085,403 

PROPERTY AND EQUIPMENT, net                                   -                      -                         -         2,612,339 
INTANGIBLE ASSETS, net                          2a(i)   5,985,313    2a(ii)    9,331,833     2a(iii)    24,014,556      39,331,702 
INVESTMENT AND ADVANCES IN SUBSIDIARY                         -                      -                         -           714,321 
DUE FROM OFFICER                                              -                      -       2a(iii)      (112,565)      1,222,483 
DEFERRED INCOME TAXES                                         -                      -                         -           473,525 
OTHER ASSETS                                                  -                      -                         -           482,142 
                                                     ------------            -----------              ------------   ------------- 
                                                     $  5,985,313            $ 7,831,833              $ 18,701,991   $  70,921,915 
                                                     ============            ===========              ============   ============= 
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                               

CURRENT LIABILITIES:                                                                                                               
   Accounts payable and other accrued expenses       $        -              $       -                $        -     $   8,071,288 
   Income taxes payable, current                              -                      -                         -           357,691 
   Note payable - bank                                        -                      -                         -           787,000 
   Current maturities of long-term debt                       -                      -                         -           425,744 
   Notes payable                                              -                      -       2a(iii)     4,800,000       4,800,000 
   Customer billings in excess of costs                       -                      -                         -         5,470,664 
   Deferred revenue                                           -                      -                         -            40,000 
   Other current liabilities                                  -                      -                         -           140,793 
   Deferred income taxes                                      -                      -                         -           373,950 
                                                     ------------            -----------              ------------   ------------- 
       Total current liabilities                              -                      -                   4,800,000      20,467,130 
                                                     ------------            -----------              ------------   ------------- 

LONG-TERM LIABILITIES:                                                                                                             
   Long-term debt                                             -                      -                         -           756,993 
   Notes payable                                              -                      -       2a(iii)     1,930,208       1,930,208 
   Accrued lease obligation                                   -                      -                         -           863,500 
                                                     ------------            -----------              ------------   ------------- 
       Total long-term liabilities                            -                      -                   1,930,208       3,550,701 
                                                     ------------            -----------              ------------   ------------- 

STOCKHOLDERS' EQUITY:                                                                                                              
   Common stock, $.01 par value                 2a(i)     (38,318)   2a(ii)       (4,767)  2a(iii)          12,587         135,392 
   Preferred stock, $.05 par value                            -                      -                         -               -   
   Additional paid-in capital                   2a(i)   6,328,468    2a(ii)    8,002,382   2a(iii)      18,046,205      48,600,772 
   Unrealized gain (loss) on investments                      -                      -                         -              (232)
   Unearned compensation                                      -                      -     2a(iii)      (5,000,000)     (5,157,126)
   Retained earnings                            2a(i)    (414,837)   2a(ii)     (165,782)  2a(iii)      (1,087,009)      3,380,908 
                                                     ------------            -----------              ------------   ------------- 
                                                        5,875,313              7,831,833                11,971,783      46,959,714 
   Treasury stock                               2a(i)     110,000                    -                         -           (55,630)
                                                     ------------            -----------              ------------   ------------- 
                                                        5,985,313              7,831,833                11,971,783      46,904,084 
                                                     ------------            -----------              ------------   ------------- 

       Total stockholders' equity                    $  5,985,313            $ 7,831,833              $ 18,701,991     $70,921,915 
                                                     ============            ===========              ============   ============= 

See accompanying notes to pro forma condensed combined financial statements 

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X-CEED, INC. AND SUBSIDIARIES AND 
RESET, INC. AND MERCURY SEVEN, INC. 
AND ZABIT & ASSOCIATES, INC.  

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS  

NINE MONTHS ENDED MAY 31, 1998  
(Unaudited) 

                                                        [Enlarge/Download Table]

                                                           Historical                                                         
                                       -----------------------------------------------------------                            
                                                                         Mercury         Zabit &                              
                                          X-Ceed,         Reset,          Seven         Associates,                           
                                           Inc.            Inc.            Inc.            Inc.                               
                                       -----------     ------------     ----------      -----------                           
                                                                                                                              
REVENUES, net                          $44,347,843     $  1,613,225     $1,505,142      $ 7,456,654                           
                                       -----------     ------------     ----------      -----------                           

COSTS AND EXPENSES:                                                                                                           
   Operating expenses                   42,226,240        1,071,552      1,345,691        7,206,261                           
   Amortization of intangibles                 -                -              -                -                             
   Non-cash compensation                   104,875              -              -                -                             
                                       -----------     ------------     ----------      -----------                           
                                        42,331,115        1,071,552      1,345,691        7,206,261                           
                                       -----------     ------------     ----------      -----------                           

INCOME (LOSS) FROM OPERATIONS            2,016,728          541,673        159,451          250,393                           

OTHER INCOME (EXPENSE)                     854,270          (15,362)           -            (73,335)                          
                                       -----------     ------------     ----------      -----------                           

INCOME (LOSS) BEFORE PROVISION                                                                                                
   (BENEFIT) FOR INCOME TAXES            2,870,998          526,311        159,451          177,058                           

PROVISION (BENEFIT) FOR INCOME TAXES     1,582,000          227,000         50,113           70,823                           
                                       -----------     ------------     ----------      -----------                           

NET INCOME (LOSS)                      $ 1,288,998     $    299,311     $  109,338      $   106,235                           
                                       ===========     ============     ==========      ===========                           

NET INCOME (LOSS) PER COMMON SHARE:                                                                                           
   Basic                                     $0.18                                                                            
                                             =====                                                                            
   Diluted                                   $0.16                                                                            
                                             =====                                                                            

WEIGHTED AVERAGE NUMBER OF SHARES                                                                                             
   OF COMMON STOCK OUTSTANDING:                                                                                               

     Basic                               7,279,691                                                                            
                                         =========                                                                            
     Diluted                             7,865,096                                                                            
                                         =========                                                                            



                                                                           Pro Forma Adjustments                              
                                           ---------------------------------------------------------------------------------- 
                                                                  Acquisition of            Acquisition of                    
                                          Acquisition of           Mercury Seven                Zabit &            Proforma   
                                            Reset, Inc.                 Inc.                Associates, Inc.       Combined   
                                      -------------------      ---------------------     ---------------------   ------------ 
                                                                                                                              
REVENUES, net                                  $      -                  $       -                  $       -     $54,922,864 
                                               ----------                -----------                -----------   ----------- 

COSTS AND EXPENSES:                                                                                                           
   Operating expenses                                 -                          -                          -      51,849,744 
   Amortization of intangibles        2b(i)       224,449      2b(i)         349,944     2b(i)          900,546     1,474,939 
   Non-cash compensation                              -                          -       2b(i)        1,875,000     1,979,875 
                                               ----------                -----------                -----------   ----------- 
                                                  224,449                    349,944                  2,775,546    55,304,558 
                                               ----------                -----------                -----------   ----------- 

INCOME (LOSS) FROM OPERATIONS                    (224,449)                  (349,944)                (2,775,546)     (381,694)

OTHER INCOME (EXPENSE)                                -                          -       2b(ii)        (407,336)      358,237 
                                               ----------                -----------                -----------   ----------- 

INCOME (LOSS) BEFORE PROVISION                                                                                                
   (BENEFIT) FOR INCOME TAXES                    (224,449)                  (349,944)                (3,182,882)      (23,457)

PROVISION (BENEFIT) FOR INCOME TAXES                  -                          -       2b(iii)     (1,114,801)      815,135 
                                               ----------                -----------                -----------    ---------- 

NET INCOME (LOSS)                              $ (224,449)               $  (349,944)               $(2,068,081)   $ (838,592)
                                               ==========                ===========                ===========    ========== 

NET INCOME (LOSS) PER COMMON SHARE:                                                                                           
   Basic                                                                                                               $(0.07)
                                                                                                                       ====== 
   Diluted                                                                                                             $(0.07)
                                                                                                                       ====== 

WEIGHTED AVERAGE NUMBER OF SHARES                                                                                             
   OF COMMON STOCK OUTSTANDING:                                                                                               
     Basic                                                                                                                    

     Diluted                                                                                                       11,879,978 
                                                                                                                   ========== 
                                                                                                                   11,879,978 
                                                                                                                   ========== 

See accompanying notes to pro forma condensed combined financial statements   

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X-CEED, INC. AND SUBSIDIARIES AND 
RESET, INC. AND MERCURY SEVEN, INC. 
AND ZABIT & ASSOCIATES, INC.  

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS  

YEAR ENDED AUGUST 31, 1997  
(Unaudited) 

                                                        [Enlarge/Download Table]

                                                           Historical                                                        
                                       -----------------------------------------------                                       
                                                                 Mercury    Zabit &                                          
                                           X-Ceed,    Reset,      Seven    Associates,                                       
                                            Inc.       Inc.        Inc.       Inc.                                           
                                       ------------ ----------  --------   -----------                                       
                                                                                                                             
REVENUES, net                          $62,885,464  $  686,259  $759,029   $ 7,186,832                                       
                                       -----------  ----------  --------   -----------                                       

COSTS AND EXPENSES:                                                                                                          
   Operating expenses                  58,961,258      443,733   717,848     6,972,839                                       
   Amortization of intangibles                 -           -         -             -                                         
   Non-cash compensation                       -        50,000       750           -                                         
                                       ----------   ----------  --------   -----------                                       
                                       58,961,258      493,733   718,598     6,972,839                                       
                                       ----------   ----------  --------   -----------                                       

INCOME (LOSS) FROM OPERATIONS           3,924,206      192,526    40,431       213,993                                       

OTHER INCOME (EXPENSE)                    260,414          -         -         (71,172)                                      
                                       ----------   ----------  --------   -----------                                       

INCOME (LOSS) BEFORE PROVISION                                                                                               
   (BENEFIT) FOR INCOME TAXES           4,184,620      192,526    40,431       142,821                                       

PROVISION (BENEFIT) FOR INCOME TAXES    2,308,000       77,000    23,987        61,413                                       
                                       ----------   ----------  --------   -----------                                       

NET INCOME (LOSS)                      $1,876,620   $  115,526  $ 16,444   $    81,408                                       
                                       ==========   ==========  ========   ===========                                       

NET INCOME (LOSS) PER COMMON SHARE:                                                                                          
   Basic                                   $0.27                                                                             
                                           =====                                                                             
   Diluted                                 $0.26                                                                             
                                           =====                                                                             

WEIGHTED AVERAGE NUMBER OF SHARES                                                                                            
   OF COMMON STOCK OUTSTANDING:                                                                                              
     Basic                             7,023,770                                                                             
                                       =========                                                                             
     Diluted                           7,339,625                                                                             
                                       =========                                                                             

                                                                                                                             

                                                                        Pro Forma Adjustments                                
                                      -------------------------------------------------------------------------------------- 
                                                                Acquisition of       Acquisition of                          
                                          Acquisition of           Mercury                Zabit &                 Proforma   
                                            Reset, Inc.           Seven Inc.          Associates, Inc.            Combined   
                                      -------------------     -------------------  ----------------------        ----------- 
                                                                                                                             
REVENUES, net                                 $       -               $      -               $       -           $71,517,584 
                                              -----------             -----------             -----------        ----------- 

COSTS AND EXPENSES:                                                                                                          
   Operating expenses                                 -                       -                       -           67,095,678 
   Amortization of intangibles        2b(i)       299,266     2b(i)       416,592  2b(i)        1,200,728          1,916,586 
   Non-cash compensation                              -                       -    2b(i)        2,500,000          2,550,750 
                                              -----------             -----------             -----------        ----------- 
                                                  299,266                 416,592               3,700,728         71,563,014 
                                              -----------             -----------             -----------        ----------- 

INCOME (LOSS) FROM OPERATIONS                    (299,266)               (416,592)             (3,700,728)           (45,430)

OTHER INCOME (EXPENSE)                                -                       -    2b(ii)        (543,115)          (353,873)
                                              -----------             -----------             -----------        ----------- 

INCOME (LOSS) BEFORE PROVISION                                                                                               
   (BENEFIT) FOR INCOME TAXES                    (299,266)               (416,592)             (4,243,842)          (399,302)

PROVISION (BENEFIT) FOR INCOME TAXES                  -                       -    2b(iii)     (1,486,402)           983,998 
                                              -----------             -----------             -----------        ----------- 

NET INCOME (LOSS)                             $  (299,266)            $  (416,592)            $(2,757,441)       $(1,383,301)
                                              ===========             ===========             ===========        =========== 

NET INCOME (LOSS) PER COMMON SHARE:                                                                                          
   Basic                                                                                                              $(0.12)
                                                                                                                      ====== 
   Diluted                                                                                                            $(0.12)
                                                                                                                      ====== 

WEIGHTED AVERAGE NUMBER OF SHARES                                                                                            
   OF COMMON STOCK OUTSTANDING:                                                                                              
     Basic                                                                                                        11,624,057 
                                                                                                                  ========== 
     Diluted                                                                                                      11,624,057 
                                                                                                                  ========== 

See accompanying notes to pro forma condensed combined financial statements 

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X-CEED, INC. AND SUBSIDIARIES AND 
RESET, INC. AND MERCURY SEVEN INC.  
AND ZABIT & ASSOCIATES, INC.  

NOTES TO UNAUDITED PRO FORMA CONDENSED  
COMBINED FINANCIAL STATEMENTS 

1.     Basis of Presentation:                                                   

The unaudited pro forma condensed combined financial statements are 
presented for illustrative purposes only, giving effect to the mergers of       
X-Ceed, Inc. ("X-Ceed") with Reset, Inc. ("Reset"), Mercury Seven Inc.          
("Mercury Seven") and Zabit & Associate, Inc. ("Zabit"). The mergers were       
accounted for as purchase transactions. In accordance with Commission           
reporting rules, the pro forma combined statements of operations, and the       
historical statements from which they are derived, present only income from     
continuing operations and, therefore, do not include discontinued operations,   
extraordinary items, and the cumulative effects of accounting changes.          

 Reset, Mercury Seven and Zabit report on a calendar year basis. For
purposes of combining Reset's, Mercury Seven's and Zabit's historical           
financial information with X-Ceed's historical financial information in the     
pro forma condensed financial statements, the financial information of Reset    
and Mercury Seven has been accumulated for the twelve month period ended        
September 30, 1997 and the nine month period ended June 30, 1998 and the        
financial information of Zabit has been accumulated for the twelve month        
period ended November 30, 1997 and the nine month period ended August 31,       
1998.                                                                           

2.     Pro Forma Adjustments:                                                   

a.  Pro Forma Condensed Combined Balance Sheet                    

(i)    Acquisition of Reset by X-Ceed                     

               Reflects the estimated purchase price of $6,341,150 for the
merger of Reset with and into X-Ceed. Of such estimated purchase price,         
$6,341,150 represents the issuance of 1,268,230 shares of X-Ceed $.01 par       
value Common Stock. The 1,268,230 shares issued include 18,230 shares issued    
to a third party as a finder?s fee. The foregoing, although not necessarily     
indicative of future price levels, assumes a recent average market price of     
X-Ceed Common Stock.                                                            

             The preliminary allocation of the purchase price paid for
the net assets of Reset based upon the estimated fair values of such net        
assets is as follows:                                                           

                                                                [Download Table]
                                                                                
Estimated acquisition cost                                        $   6,341,150 
Less: historical book value of net assets, which                                
  approximate fair value, at May 31, 1998                              (355,837)
                                                                  ------------- 

Goodwill acquired (amortized over 20 years)                       $   5,985,313 
                                                                  ============= 

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2.     Pro Forma Adjustments:  (Cont'd)                                         

a.  Pro Forma Condensed Combined Balance Sheet  (Cont'd)          

(ii)   Acquisition of Mercury Seven by X-Ceed             

               Reflects the estimated purchase price of $9,550,000 for the
merger of Mercury Seven with and into X-Ceed. Of such estimated purchase price, 
$8,050,000 represents the issuance of 1,073,333 shares of X-Ceed $.01 par value 
Common Stock with the balance of $1,500,000 paid in cash.  The foregoing,       
although not necessarily indicative of future price levels, assumes a recent    
average market price of X-Ceed common stock.                                    

             The preliminary allocation of the purchase price paid for
the net assets of Reset based upon the estimated fair values of such net        
assets is as follows:                                                           

                                                                [Download Table]
                                                                                
Estimated acquisition cost                                        $   9,550,000 
Less: historical book value of net assets, which                                
  approximate fair value, at May 31, 1998                              (218,167)
                                                                  ------------- 
Intangible assets acquired                                        $   9,331,833 
                                                                  ============= 

Allocation of intangible assets acquired:                                       

Trademarks (amortized over 20 years)                              $   1,000,000 
Goodwill (amortized over 20 years)                                    8,331,833 
                                                                  ------------- 
                                                                  $   9,331,833 
                                                                  ============= 

(iii)  Acquisition of Zabit by X-Ceed                     

                Reflects the estimated purchase price of $30,000,000 for the
merger of Zabit with and into X-Ceed. Of such estimated purchase price,         
$18,069,792 represents the issuance of 2,258,724 shares of X-Ceed $.01 par      
value common stock with the balance of $11,930,208 paid in cash ($5,000,000)    
and the issuance of notes ($6,730,208) to shareholders of Zabit. $5,000,000 of  
the common stock consideration was issued to Zabit shareholders/employees in    
connection with future services to be provided. The foregoing, although not     
necessarily indicative of future price levels, assumes a recent average market  
price of X-Ceed common stock.                                                   

             The preliminary allocation of the purchase price paid for
the net assets of Zabit based upon the estimated fair values of such net        
assets is as follows:                                                           

                                                                [Download Table]
                                                                 
Estimated acquisition cost                        $   30,000,000 
Less: historical book value of net assets, which                 
  approximate fair value, at May 31, 1998               (985,444)
                                                  -------------- 
Intangibles acquired                              $   29,014,556 
                                                  ============== 

Allocation of intangible assets acquired:                        

Trademark (amortized over 20 years)               $    3,200,000 
Unearned compensation (amortized over 2 years)         5,000,000 
Goodwill (amortized over 20 years)                    20,814,556 
                                                  -------------- 
Intangibles acquired                              $   29,014,556 
                                                  ============== 

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2.     Pro Forma Adjustments:  (Cont'd)                                         

b.  Pro Forma Condensed Combined Statements of Operations         

(i)    Depreciation and Amortization                      

              Reflects adjustment to depreciation and amortization based
on the preliminary purchase accounting allocations related to intangible        
assets acquired in connection with the acquisitions of Reset and Mercury        
Seven, as more fully described in Note 2a.                                      

(ii)   Interest Expense                                   

            Reflects adjustment to interest expense on notes payable
issued to shareholders of Zabit.                                                

(iii)  Income Taxes                                       

          Reflects recognition of income tax effect of pro forma
adjustments related to acquisition of Zabit.                                    

(iv)   Earnings Per Common Share                          

                  Pro forma weighted average number of common shares outstanding
for the nine months ended May 31, 1998 and the year ended August 31,            
1997 are based upon X-Ceed's, Reset's, Mercury Seven's and Zabit's historical   
weighted average shares, after adjustment for the estimated conversion of       
Reset, Mercury Seven and Zabit shares to shares of X-Ceed common stock.         

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘8-K/A’ Filing		Date		First		Last			Other Filings
		12/31/98		12
Filed on:		11/30/98		5					10-Q,  10-Q/A,  NT 10-Q
		11/25/98		3					NT 10-K
		9/30/98		13
		9/17/98		1					8-K
		9/14/98		2		14
For Period End:		9/9/98		1					8-K
		8/31/98		2		19			10-K,  NT 10-K
		6/30/98		15		19
		5/31/98		2		21			10-Q
		12/31/97		2		14
		11/30/97		15		19			10-Q,  NT 10-Q
		9/30/97		15		19
		8/31/97		2		21			10KSB,  10KSB/A,  DEF 14A,  NT 10-K,  PRE 14A
		12/31/96		2		13
		9/1/96		15
		12/31/95		2		13
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