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Web Shop Xceed Files Ch. 11 Bankruptcy

April was a cruel month for Worldwide Xceed Group , one of the hardest hit Web design shops in the aftermath of the dot-com meltdown.

Facing a delisting notice from the Nasdaq Stock Market for failing to maintain a high enough bid price on its stock, the Alley firm filed a voluntary petition for Chapter 11 bankruptcy protection late Monday. Its shares closed at 55 cents at the end of trading Monday.

At 7:55 a.m today, trading in Xceed stock was halted with the Nasdaq exchange requesting additional information from the company.

The company continues to operate its business and manage its assets as a debtor-in-possession. More details on its assets, liabilities and creditors are expected to be forthcoming from the US Bankruptcy Court for the Northern District of Illinois.

The firm has also withdrawn its request for an oral hearing about the Nasdaq's notice that Xceed's stock price had not complied with the minimum bid price of $1 required to continue listing on the exchange. It will likely be delisted this month.

The bankruptcy filing caps a year of management shake-ups, asset sales, internal restructurings and shareholder lawsuits that hit the digital consultancy in wave after wave following the spring pullback in dot-com fundings and corporate tech spending.

The firm continues to sell off assets in order to raise cash. As part of its bankruptcy filing on Monday, Xceed announced the arms length sale of the Colorado Springs office and Netherlands subsidiary, Pulse Interactive B.V. as well as its Chandler, Arizona office.

With losses mounting each quarter and a depressed stock price, the increasingly cash-strapped company had no choice but to petition for protection from creditors.

Its net losses for fiscal second quarter 2001 (ending February 28) were $11.6 million (25 cents per share) on revenues of $11.3 million. The prior year's net loss during the similar period was $14.8 million (82 cents per share), on revenues of $25.5 million. As of the end of February, the company listed cash and cash equivalents of $1.5 million.

For the prior fiscal year which ended August 31, 2000. Xceed reported a net loss to common shareholders of approximately $173.8 million, or $8.30 per share. At the time, Xceed said $9.3 million of that loss came from dot-com accounts receivable that could not pay.

Aside from Xceed's exposure to Web design work for dot-coms that later lost their venture backing, Xceed is also on its way to becoming a poster child for an acquisition frenzy in the digital consultancy ranks, commonly referred to as a roll-up strategy to get big fast.

Back in 1998, then-named X-Ceed was a $60-million a year holding company with a medical supplies and corporate travel business. But it was also into its second Silicon Alley acquisition, at the time acquiring Mercury Seven, a startup Web implementation and consulting company (which also published ChannelSeven, the news service for Internet marketers which this publication's parent now owns).

The buy followed X-Ceed's $6.25 million stock swap purchase of Silicon Alley design shop Reset. The plan was to merge and acquire its way to a full service Internet communications consulting and implementation firm, said Werner Haase, who would later resign as the firm's chairman and chief executive officer. To a large degree, that's what the firm did, issuing stock for the acquisitions when its price was in the $30-40 range and its acquisitions going for five or six times their revenues.

By March of this year, Xceed was implementing a one-for-ten reverse stock split in an attempt to bump its share price above the $1.00 mark in an attempt to stay listed on the Nasdaq exchange.

On March 21, with the one-for-ten reverse split behind it, the stock price bumped to $1.56 just after the opening bell but, within hours, the price had fallen back below $1.00, close to 100 percent below its year-high of $44.62.

In a filing with the Securities and Exchange Commission (SEC) in April, Xceed warned that its ability to fund current operations was uncertain. The filing followed the firm's final $1 million installment of a $5 million loan from Spherion, a Florida-based human resources consulting firm.

"Accordingly, the company currently has no additional borrowing availability under its credit agreement with Spherion. In addition, many of the [our] creditors are making payment demands on the Company to pay its significant backlog of accumulated obligations."