UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996;
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or
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______to____
Commission file #0-15797
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XIOX CORPORATION
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(Name of small business issuer as specified in its charter)
Delaware 953824750
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(State or other jurisdiction of incorporation ( I.R.S. Employer
or organization) Identification Number)
577 Airport Boulevard, Suite #700
Burlingame, California 94010
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (415) 375-8188
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of Class)
Check whether the issuer (l) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. __X__
Issuer's revenues for its most recent fiscal year were: $5,460,673.
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The aggregate market value of the voting stock held by non-affiliates as of
March 3, 1997 was approximately $ 3,758,703 (based upon the average bid and
asked prices of such stock as reported by the National Association of Securities
Dealers Quotations Listing on that date). As of March 1, 1997 the total number
of shares of common stock of the Registrant outstanding was 2,372,384.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the parts of Form
10-KSB indicated: (1) Xiox Annual Report to Stockholders for the year ended
December 31, 1996 for Part II; (2) Proxy Statement dated April 14, 1997 for the
Annual Meeting of Stockholders to be held May 19, 1997 for Part III.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
those projected in the forward-looking statements included herein as a result of
a number of factors, including but not limited to those discussed in Item 1,
"Description of Business," of this report and Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," incorporated by
reference to pages 2 through 5 of the Company's 1996 Annual Report to
Stockholders.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. The Company
Xiox Corporation, a Delaware corporation (the "Company" or "Xiox"), was
incorporated in California in September 1982 and became a publicly held company
in February 1986.
The Company designs, develops, manufactures and markets telecommunications
management software and hardware systems which operate on personal computers,
Local Area Networks and stand-alone proprietary hardware. The Company's systems
efficiently provide information to facilitate telephone expense control; client,
department or project billback; and call traffic monitoring and analysis. In
addition, the Company markets voice mail and a complete family of telephone and
network security products.
Since the Company's incorporation, its product line has expanded from a single
software system to a full range of Telecommunication Management Systems, each of
which has been designed to address the needs of small or large businesses in
many different industries. In addition to its software and hardware-based
systems, the Company also provides call costing rate tables and system
enhancements to end users under subscription arrangements.
The Company markets its systems with its own sales force, through dealers who
include subsidiaries of the Regional Bell Operating Companies ("RBOC's"), and
through Original Equipment Manufacturers ("OEM's"). The agreements with the
RBOC's and many other dealers do not include any commitment by such dealers to
purchase a minimum number of systems.
Developments During 1996
In February of 1996 the Company introduced the Summa Pro version 5.0.
Enhancements included the capability to automatically interface to many PBX and
PMS systems, significantly reducing the time required for installation. Another
significant change was the ability to add up to 100 new area codes and/or
prefixes per rate update.
In May of 1996 the Company released its GBS for Windows Lite Software. This
system is designed for smaller companies that want the flexibility of a robust
system without the high cost. The system is scaleable from 16 to 200 stations.
In June of 1996 the Company released a stand-alone version of the Traffic
Engineering for Windows Software ("TES"). The software is offered on a yearly
lease basis and is sold in host and remote site versions. The TES analyzes the
Station Message Detail Recording ("SMDR") information and makes recommendations
to increase the efficiency of the Telecommunications system. Traffic Engineering
for Windows also offers a Traffic Calculator allowing users to solve "What-If"
scenarios for blockage, traffic carried and size.
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In September of 1996 Xiox released Facility Management System software ("FMS")
version 4.5. The Equipment module now includes management of telephone stations
down to individual telephone function keys. The Consolidated Bill module was
expanded to include any billing item in the corporate consolidated bill and now
provides multi-period billing comparisons. To assist corporations in evaluating
their Help Desk function, this module was enhanced to record the time intervals
between the first report of trouble, technician dispatch, time on-site, repair
and final paperwork. Observing that FMS requires a large investment to build the
initial database, routines were added to auto-build most FMS databases from
minimal input. Finally, because customers desired to build their own reports, a
Custom Reports module was added to allow ad hoc reports from any module.
B. Products
Xiox products are sold to the Commercial and Hospitality markets and are
comprised of six product categories: Call Accounting, Traffic Engineering,
Facilities and Alarm Management, PBX security, Voice Mail/Auto Attendant and
Answer Detection systems. Often the first four of these categories are combined
into an integrated package called Telecommunications Management System ("TMS").
These products are provided on several platforms: proprietary stand-alone
hardware, personal computers, Local Area Networks or as a Service Bureau
offering. The Company has implemented TMS for clients as a managed outsourcing
project when customers are looking for an alternative to running call accounting
themselves.
TMS or Telemanagement products can be used in most industries. The primary
benefits customers look for in implementing a telemanagement system are a
decrease in communications costs through reductions in the number of minutes of
telephone time utilized and a reduction in the cost per minute of
telecommunication usage.
Xiox Commercial Industry Product Applications
Call Accounting Software
Call Accounting software is used to collect data on telephone calls, generally
from the PBX, and to price these calls by applying interexchange and local
exchange carrier tariffs to them. The rated calls are placed into a database and
can be sorted, summed and printed in a variety of report formats. Savings
generated by implementing a call accounting system range between 10-40% of the
total number of minutes used each month compared to telecommunication networks
not using a call accounting system. Call Accounting generates savings by
allowing a company to use its telecommunications network more efficiently by
reducing its minutes of usage. If each employee were to reduce phone usage by
five minutes per day, the direct savings for 100 employees at $0.12 per minute
cost would save $15,000 per year.
Call Accounting software systems and related subscription services are designed
to be utilized in connection with the user's computerized telephone system and
personal computer or local area network. The Company does not manufacture the
computers and provides them only upon customer request.
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The Company's Call Accounting systems do not require additional expansion boards
to be inserted into the computer. Nor does an end user's computer need to be
dedicated to perform only call accounting functions under a Windows based
operating system (Win 3.1x, Win95 and NT3.5X workstations). For additional data
security, Xiox offers a Call Storage Buffer. These external call storage devices
are built to Xiox's specifications and are sold by Xiox through its channels of
distribution as part of an integrated system.
The software is also used by professional and legal firms to pass on, usually
with a mark-up, telephone expenses incurred on behalf of clients. Hotels,
university campuses, hospitals, and shared tenant organizations use the software
to charge guests, students, faculty, patients, and tenants for their telephone
usage.
GBS for Windows(TM) was designed for ease of use. All of the Xiox tools and
reports are accessible with point and click functionality, including macros for
viewing information in colorful graphical formats; Intelligent Configuration(TM)
(patent applied for) for automatic and simple installation; scheduled polling,
processing and reporting; icon management of multiple sites; and rate table
updates at a click of a button.
By utilizing these tools, a Xiox GBS for Windows(TM) user can install, run and
make high impact graphical presentations within hours. In comparison, DOS-based
and other competitive packages can take up to several days to install, configure
and train, with additional time needed to prepare the first graph. Xiox GBS for
Windows(TM) is built upon its predecessor GBS product's reputation for accuracy,
flexibility and quality of support.
The Xiox General Business Software Plus ("GBP") product line is designed to
operate on a Personal Computer and share data on Local Area Networks. Systems
are configured to report on up to 30,000 Telephone Extensions and can process an
unlimited number of Call Records.
A menu of standard reports provides selections from a library of up to 126
different detail and summary report topics, or from one of 324 available custom
reports. A pre-select feature allows users to retrieve small, manageable files
quickly from large databases in order to facilitate generation of any of the
systems reports. The flexibility of this table-driven interface provides the
ability to pinpoint call exceptions and offer ad hoc reporting.
Customers may choose from five separate Rate Table products to match their
common carrier rate options for accurate call rating. Specialized carrier
arrangements like SDN's, VPN's, and Tariff 12 offerings can also be integrated.
When coupled with Xiox's table driven interface for Dialing Recognition
Templates and Call Processing Rules, the 99.5% or greater accuracy in matching
actual rates provides increased customer use of the information as a management
tool and subsequently greater savings.
Customers with more than one location may elect to establish a central (host)
site that will poll remote sites over telephone lines or through Wide Area
Networks ("WANS"). Xiox Central Polling Software works in conjunction with
pollable call storage buffers to create a networked
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telemanagement system. Since Xiox systems operate on Local Area Networks,
customers may use existing LAN-to-LAN connectivity to poll data.
Call Accounting Hardware
The Prophet Series, the Company's hardware-based Call Accounting Systems, are
microprocessor based stand-alone systems. Available with both general business
and lodging firmware, the Prophet systems are available in a range of sizes.
Call storage, call processing, and call rating are all performed within the
firmware of the device. An external keypad is available to allow one-button
report generation. Reports may also be generated via a touch-tone telephone.
This series is aimed at the lower-cost end user market and is sold through
Xiox's distribution channels.
An enhancement to the product includes the Prophet Writer software. When
downloaded to a customer-provided PC, call records may be stored to the PC hard
disk. Prophet Writer software greatly enhances the reporting capabilities of the
Prophet system. Also, a polling option allows data from multiple remote Prophet
devices to be collected and reported on a central site.
Traffic Engineering for Windows Software
The Xiox Traffic Engineering for Windows Software ("XTES") is a management tool
used to reduce the cost per minute of telecommunications expenses. This is
accomplished by analyzing the same call data used in call accounting, by
analyzing trunk utilization, and by identifying problems with Automatic Route
Selection (also called "Least Call Routing") programs in the PBX.
The product greatly simplifies the "Traffic Engineering" function. The "Alerts
and Suggestions" report identifies actions that should be considered to reduce
costs or eliminate blockage.
The Xiox Traffic Engineering Software works in conjunction with the Xiox Call
Accounting Software databases or as a separate application to reduce the user's
cost per minute. The use of the software and resulting improvements to automatic
route selection from implementation of the suggestions can materially reduce
most companies' cost per minute.
Facilities Management Software
The XIOX Windows Facilities Management ("XFMS") is a software system that
automates record keeping for voice and data facilities. XFMS provides financial
and operational control by integrating service order processing, equipment
inventory management, cost allocation, trouble management, directory, and cable
record management into a powerful database management system.
XFMS enables a user to integrate interrelated tasks with a minimum number of
entries. The system is also used to manage expenses and can be used in
conjunction with call accounting to
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provide a consolidated extension report of all telephony-related expenses
incurred by a user or tenant over a specific time period.
Companies are becoming increasingly aware of this type of product and the
benefits it provides in managing a complex telecommunications installation.
Fort Knox (R) PBX Security Products
PBX toll fraud costs U. S. businesses billions of dollars each year in lost
resources. Theft of a company's long distance service by criminals erodes
profits and costs the victims additional losses in personnel time, litigation
and problem resolution. In addition to these costs, victims of toll fraud risk
the security of sensitive information conveyed either by telephone or data
networks.
The Company's Fort Knox (R) Family of products provide protection against toll
fraud and other illicit entry to the corporate telecommunications network. The
Fort Knox products can be used singly to protect specific hacker entry points or
in combination to provide protection to the telecommunications network.
The Xiox Hacker Preventer(R) ("XHP") utilizes artificial intelligence and voice
energy analysis to separate hackers from legitimate users. The XHP protects an
entire telecommunications system, while allowing authorized users full use of
all of the system's money saving features. These standard PBX features such as
Direct Inward Service Access ("DISA") are usually disabled to thwart hackers;
the XHP restores the functionality of the PBX back to the users and provides
secure access to voicemail and other internal communication destinations.
The Xiox Hacker Deadbolt (R) ("XHDB") provides protection for the remote
maintenance and testing ports of the PBX system, Voice Mail systems, and other
customer premises equipment. The XHDB can be purchased as a stand-alone unit or
as an integrated component of the Xiox Hacker Preventer(TM).
The Xiox Hacker Tracker (R) ("XHT") is a cost-effective, dedicated software
package that alarms and reports on "suspicious" PBX traffic to help reduce the
risk of Toll Fraud. The XHT comes pre-configured with the most useful reports
for tracking and trapping illicit hackers. The XHT includes complete, easy to
follow software documentation, and allows a customer to silently monitor system
usage and traffic to potential fraudulent destinations.
Xiox Hospitality Industry Product Applications
Voice Mail/Auto Attendant
Summa Voice is a voice mail/auto attendant product specifically engineered for
50 to 250-room hotels. This product enables these properties to offer their
guests voice mail services that are easy to install, operate and use. With a
voice mail product, hotels are able to provide accurate, timely and confidential
message-taking service for their guests, thereby improving guest satisfaction.
The product also reduces the amount of time that hotel staff spend writing
messages. This
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increases the amount of time available for personal service to guests, which in
turn improves guest satisfaction.
Call Accounting Software
Xiox Lodging Software is specifically designed for hotels, motels, hospitals and
nursing homes. It immediately prices calls and produces a call receipt which is
posted to the guest's or patient's folio. If the business has a computerized
property management system, the call accounting system prices and processes call
records and communicates them to the property management system for automatic
integration into a guest's records.
Call Accounting Hardware
Xiox Summa Prophet H Series prices, marks up and can post to the hotel's
property management system or can provide easy-to-use guest billback capability
for properties without a Property Management System ("PMS"). The Prophet H
stores 1,000 call records and is available in two models: the H-3, which manages
up to 300 extensions, and the H-10, which manages up to 10,000 extensions.
Both Lodging systems interface with almost all available Property Management
Systems and produce daily and monthly profit reports.
Xiox Summa Pro is a stand-alone call accounting system designed for budget and
economy hotels with up to 500 extensions and provides a call storage capacity of
14,000 call records. The product is compliant with the new North American
Numbering Plan ("NANP") changes and allows smaller properties to afford the
revenue-producing benefits of call accounting systems such as accurate tracking
and billing of guest calls. It features smart, easy-to-use commands that allow
any property manager or front desk employee to learn to operate without lengthy
training and includes one-touch reporting and credit limit alarm.
The Xiox Summa Pro offers one-step processing of guest checkout, night audit
procedures, credit limit and current call reports. Additionally, it features an
array of system alarms including 911, accurate tracking and billing of guest
calls, with separate billing for administrative extensions, and a four line
display with easy prompting and descriptive problem identification. The compact
physical size of the Xiox Summa Pro is designed for the limited space in a front
desk environment. The microprocessor, touch-response keypad and LCD are internal
within the hardware with no external parts required.
Answer Detection
The Xiox Summa Call Detection Unit ("SCD") is a hardware system offered to
lodging properties to help accurately bill customers and often increase revenue.
With a 288-trunk capacity, the SCD can interface with most PBX's and supports
direct T-1 connection. This stand-alone unit provides diagnostics for remote
trunk troubleshooting and alarms for hardware
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or software failure. Detailed reporting enables tracking of Answered Calls,
Unanswered Calls and Recovered Revenue.
In the lodging industry, a 45-second grace period is usually used to determine
if a call is completed. Guests are charged for all calls over this threshold,
including calls to invalid numbers or numbers where no one answered. Shorter
calls, even those completed within 45 seconds, are not charged to the guest.
The SCD tags call records as having an actual answer instead of relying upon a
predetermined time period to presume actual call completion. This definite
tagging allows the typical lodging customer to charge for short calls that would
not have been charged prior to the installation. The average customer's
telephone related revenues are estimated to increase using this device.
Although hotels have used call accounting to bill guests for some time, these
systems have been unable to determine if calls were actually completed. Lost
revenues from undetected, yet completed calls under the 45-second threshold
result in lost revenue, as well as unrecovered expense. Furthermore, guest
complaints about billed calls not completed have been a problem for hotels,
motels and resorts.
Product Support and Subscription Services
The Company obtains and resells third-party hardware, primarily external
buffers. In addition, the Company provides an option for its customers and its
dealers for system installation and training and travel costs associated with
familiarizing customers with the Company's systems.
The Company renews Product Support subscriptions for its customers on an annual
basis. Renewal of Product Support entitles a client to unlimited access to the
Product Support Center. It also entitles the customer to receive any product
enhancements or "bug fixes" throughout that year.
The Company provides end users with call costing rate tables under annual
subscriptions. These rate tables provide the end user with current telephone
tariffs to generate accurate call rating. The Company offers several rate table
options, based on the complexity of the customer's telecommunications
environment. The Company also offers enhancements to and support of its systems
after the first year of use.
C. Sales and Marketing
The Company markets its systems to end users primarily through its network of
authorized dealers. The Company sells to over 450 dealers including the RBOC's (
i.e., US West Information Systems and Bellsouth Communications Systems) and
several independent business telephone dealers. Most of the Company's dealer
agreements do not include commitments by such dealers to purchase a minimum
number of systems and typically may be canceled at any time with 30 days prior
written notice.
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During each of the years ended December 31, 1996 and 1995 the Company's export
sales were less than 2% of total sales.
The Company's marketing approach varies depending upon the type of system. A
description of each of these approaches is set forth below:
Xiox General Business Software, Xiox Call Analyzer, Xiox GBS for Windows, Xiox
Traffic Engineering Software, Xiox Facilities Management Software and Fort Knox
(R) Security Products
These systems are typically marketed to large corporations primarily through the
Company's direct sales force, RBOC's or business telephone dealers. In order for
dealers to effectively establish and support their customer base, the Company
must commit technical and sales personnel to training dealers with respect to
installation and application support.
Xiox Lodging Software, Telephone Call Detection Devices, Summa Prophet H, Summa
Pro and Summa Voice.
The Summa Suite family of products are targeted to both independent and
chain-affiliated properties in the lodging industry. Marketing of Xiox Lodging
Software is through the direct sales force, value-added dealers specializing in
Lodging, and OEM's with Lodging specific systems.
Xiox Prophet Call Accounting Systems. These hardware devices are marketed
exclusively through the Company's distributors and original equipment
manufacturers.
D. Revenue Patterns
The Company's operating history has indicated a sales pattern reflective of both
the telecommunication and computer industries with sales generally weaker in the
first quarter of each calendar year than the last quarter of the previous year.
The year over year decreases in these quarters are attributable to a lower
number of North American Numbering Plan ("NANP") upgrades.
E. Industry and Competition
The telecommunications management systems industry has been characterized by
intense competition and rapid technological and marketing changes. Decisions of
the FCC and the divestiture by AT&T of the RBOC's significantly altered the
marketing and distribution of telecommunications equipment and systems. The
principal competitive factors in the market for telephone management and call
accounting software systems are customer service, dealer coverage, name
recognition, product performance, price and flexibility of product design. Many
of Xiox's competitors have significantly greater financial, marketing and
technical resources.
The actions of these companies may have a material adverse effect on the
Company. In order for Xiox to remain competitive, it must rapidly respond to
such changes, including the enhancement and upgrading of existing products and
the introduction of new products. There can be no assurance that the Company
will be able to respond to such changes.
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Original Equipment Manufacturers . Currently, Xiox products compete with systems
offered by manufacturers of computerized telephone systems. The Company competes
with these companies on the basis that its products operate on standard personal
computers and are typically offered at lower prices, as many of these
competitive products require a significant hardware investment.
Independent Hardware and Software Developers. Xiox also competes directly or
through dealers with numerous independent hardware and software developers.
The Company believes it effectively competes with other companies on the basis
of price, performance and more sophisticated features. However, because the
market in which the Company competes is intensely competitive, there can be no
assurance that the Company will remain competitive in respect to some or all of
these factors.
No single customer or dealer accounted for 10% or more of total revenues during
the years of 1996 and 1995.
F. Research and Development Expenses
Xiox is committed to the development of new products and to the continued
enhancement of its existing products. During 1996 significant enhancements were
made to the GBS for Windows software. In addition, new products released
included Traffic Engineering for Windows, Windows LAN Reporting Module, and GBS
for Windows Lite. During 1996 and 1995, research and development expenses were
$733,952 and $1,130,795, respectively.
G. Patents, Copyrights, Trademarks and Licenses
The Company has filed for copyrights on its computer programs and algorithms.
The Company has filed or received trademark protection for its service marks
under its Fort Knox (R) Family of products including Hacker Tracker(R), Hacker
Preventer(TM), Hacker Deadbolt(R), and Hacker Stopper (R). The Company applied
for a patent on its intelligent configuration and remote rate table delivery
system as well as its technology in the Xiox Hacker Preventer(TM). The Company
has received a patent on certain answer detection technology.
H. Production and Backlog
The Company produces its products from a library of master diskettes upon
receipt of firm orders. Software orders are usually placed on an as needed basis
and are shipped by the Company shortly after receipt of an order. As a result,
the Company does not have a substantial backlog, and the Company's backlog at
any particular time is generally not indicative of its future level of sales.
The Company's hardware products are manufactured to Xiox specifications by
outside suppliers. These products are also available from alternate domestic
suppliers. The company defers substantial revenue from annual subscriptions for
its annual rate table and maintenance and support agreement subscriptions. This
deferred revenue is amortized over the life of the subscription.
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I. Employees
The Company had 43 full-time employees as of December 31, 1996. The Company is
not a party to any collective bargaining agreement and considers its
relationship with its employees to be satisfactory. In January 1996, the Company
reduced full-time headcount by seven employees as a reduction in force.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 13,168 square feet of office space at
577 Airport Boulevard, Suite 700, Burlingame, California, 4,339 square
feet of which is subleased. The lease expires in July 2000. In
addition, the Company leases 8,205 square feet of multi-use space at
150 Dow Court, Manchester, N. H. under a five-year lease expiring in
December, 1997. The Company also leased a 734-square foot facility at
600 E. Baseline, Suite B2, Tempe, Arizona under a one-year lease which
expired January 1, 1997. The Company relocated the Tempe facility in
November, 1996 to a 692-square foot facility at 8010 East McDowell
Road, Scottsdale, Arizona under a three-year lease which expires
October 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
This information is set forth under the caption "Stock Trading Information" on
page 21 of the Company's 1996 Annual Report to Stockholders (the "Annual
Report") and is hereby incorporated by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information is set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 2 through 5
of the Annual Report and is hereby incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements of the Company and the independent auditors'
report appearing on pages 6 through 20 of the Annual Report are hereby
incorporated herein by reference.
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
The Annual Report, except for those portions which are expressly incorporated by
reference in this filing, is furnished for the information of the Securities and
Exchange Commission and is not to be deemed as filed as part of this Report on
Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to instruction E(3) to Form 10-KSB, the information required by Item 9
of Form 10-KSB with respect to the members of the Board of Directors and
Executive Officers of the Company is incorporated by reference to the
information contained in the sections captioned "Nominees", "Business Experience
of Directors", "Executive Officers" and "Compliance with Section 16(a) of the
Exchange Act" in the Company's definitive proxy statement for the 1997 annual
meeting of stockholders to be filed with the Securities Exchange Commission (the
"SEC").
ITEM 10. EXECUTIVE COMPENSATION
Pursuant to instruction E(3) to Form 10-KSB, the information required by Item 10
of Form 10-KSB with respect to executive compensation is incorporated by
reference to the information contained in the section captioned "Executive
Compensation" in the Company's definitive proxy statement for the 1997 annual
meeting of stockholders to be filed with the SEC.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to instruction E(3) to Form 10-KSB, the information required by Item 11
of Form 10-KSB with respect to security ownership of certain beneficial owners
and management is incorporated by reference to the information contained in the
sections captioned "Principal Stockholders" and "Security Ownership of
Management" in the Company's definitive proxy statement for the 1997 annual
meeting of stockholders to be filed with the SEC.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to instruction E(3) to Form 10-KSB, the information required by Item 12
of Form 10-KSB with respect to certain relationships and related transactions is
incorporated by reference to the information contained in the section captioned
"Certain Relationships and Related Transactions" in the Company's definitive
proxy statement for the 1997 annual meeting of stockholders to be filed with the
SEC.
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ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements: The following Consolidated Financial
Statements of Xiox Corporation and Report of KPMG Peat Marwick LLP,
Independent Auditors, are incorporated by reference to pages 6 through
20 of the Registrant's Annual Report to Stockholders:
Page(s) in 1996
Annual Report
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Independent Auditors' Report 20
Consolidated Balance Sheets as of 6
December 31, 1996 and 1995
Consolidated Statements of Operations 7
for the years ended December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for 8
the years ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows 9-10
for the years ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements 11-19
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2. Exhibits: The Exhibits listed on the accompanying Index to
Exhibits immediately following the financial statement schedules are
filed as part of, or incorporated by reference into, this Report.
Exhibit
Number Description
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2.1 Proposed Agreement and Plan of Merger between the Company and
Xiox Corporation, a Delaware Corporation, to affect the
reincorporation of the Company in Delaware, filed as Exhibit
2.1 to the Company's Report on Form 10-K for the year ended
December 31, 1986, is hereby incorporated by reference.
3.l Certificate of Incorporation as filed with the Secretary of
State of the State of Delaware on April 7, 1987 filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1987, is hereby incorporated by
reference.
3.2 Bylaws, filed as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1987, is hereby
incorporated by reference.
4.1 Reference is made to Exhibits 3.l and 3.2.
10.02 Authorized Dealer Sales Agreement dated April 25, 1985 between
Registrant and PacTel InfoSystems, filed as Exhibit 10.2 to
Company's Registration Statement, is hereby incorporated by
reference.
10.04 Xiox Corporation Restated 1984 Stock Option Plan filed as
Exhibit 28.1 to the Company's Registration Statement on Form
S-8 (File No. 33-42433 ), filed with the SEC is hereby
incorporated by reference.
10.05 Form of Notice of Grant and Stock Option Agreement to Restated
1984 Stock Option Plan to be used in connection with the Plan,
filed as Exhibit 28.2 to the Company's Registration Statement
on Form S-8 (file No. 33-37686) filed with the SEC (the "S-8
Registration Statement"), is hereby incorporated by reference.
10.06 Form of Stock Purchase Agreement generally used in connection
with the exercise of an immediately exercisable option granted
under the Restated 1984 Stock Option Plan, filed as Exhibit
28.3 to the S-8 Registration Statement, is hereby incorporated
by reference.
10.07 Form of Automatic Option Agreement for use in connection with
Restated 1984 Option Plan, filed as Exhibit 28.4 to the S-8
Registration Statement, is hereby incorporated by reference.
16
<PAGE>
10.08 Form of Stock Purchase Agreement generally used in connection
with the exercise of an automatic option granted under the
1984 Restated Option Plan, filed as Exhibit 28.5 to the S-8
Registration Statement, is hereby incorporated by reference.
10.09 Lease Agreement between the Company and Bay Park Plaza dated
March 20, 1987, filed as Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987, is
hereby incorporated by reference.
10.10 Amended Lease Agreement between the Company and Bay Park Plaza
dated July 28, 1994, filed as Exhibit 10.091 to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1995, is hereby incorporated by reference.
10.11 Sublease and Lease Agreements between the Company and Hands-On
Technology dated November 8, 1995, filed as Exhibit 10.092 to
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995, is hereby incorporated by reference..
10.12 Sublease and Lease Agreement between the Company C. E. Heath
Compensation and Liability Company dated April 1, 1996.
10.13 Form of Director Indemnity Agreement filed as Exhibit 10.22 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1987, is hereby incorporated by reference.
10.14 Xiox Corporation 1994 Stock Plan, filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (File No.
33-88996) filed with the SEC on February 1, 1995, is hereby
incorporated by reference.
10.15 Form Stock Option Agreement to 1994 Stock Plan to be used in
connection with the Plan, filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (file No.
33-88996) filed with the SEC (the "S-8 Registration
Statement"), is hereby incorporated by reference.
10.25 Agreement for the Purchase and Sale of Stock of SFX, Inc.
(formerly Summa Four Business Products, Inc.) dated March 27,
1991 filed as an exhibit to the Company's Form 8-K filed with
the SEC on March 27, 1991, as amended on June 7, 1991, is
hereby incorporated by reference.
17
<PAGE>
10.26 Agreement for Business Combination by and among Xiox
Corporation and Gemini Telemanagement Systems (principal
shareholders Richard Alter, Gregory Bell and Darrell Krulce)
dated August 17, 1994, filed as an exhibit to the Company's
Form 8-K filed with the SEC on August 29, 1994, as amended on
October 28, 1994, is hereby incorporated by reference.
10.27 Asset Purchase Agreement of Instor Systems Corporation dated
October 12, 1994 filed as an exhibit to the Company's Form 8-K
filed with the SEC on December 15, 1994, is hereby
incorporated by reference.
11.1 Computation of net income (loss) per share for the two years
ended December 31, 1996 and 1995.
13.1 1996 Annual Report to Stockholders.
21.1 The wholly owned subsidiaries of the Company are listed under
the caption "Principles of Consolidation" on Page 11 of the
Company's 1996 Annual Report to Stockholders, which is hereby
incorporated by reference.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
24.1 Power of Attorney (see page 19).
27.1 Financial Data Schedule.
B. Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the year ended
December 31, 1996.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Xiox Corporation
Date: By: /s/ William H. Welling
----------------------------------
March 29, 1997 William H. Welling
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Melanie D. Reid and William H. Welling,
jointly and severally, his respective attorneys-in-fact, each with the power of
substitution, for each other in any and all capacities, to sign any amendments
to this Report on Form 10-KSB, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his respective substitute or substitutes, may do or cause
to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
March 29, 1997 /s/ William H. Welling
------------------------------------------
William H. Welling
Chairman and Chief Executive Officer
(Principal Executive Officer) and Director
March 29, 1997 /s/ Mark A. Parrish, Jr.
------------------------------------------
Mark A. Parrish, Jr.
Director
March 29, 1997 /s/ Atam Lalchandani
------------------------------------------
Atam Lalchandani
Director and Assistant Corporate Secretary
19
<PAGE>
SIGNATURES (con't)
March 29, 1997 /s/ Bernard T. Marren
------------------------------------------
Bernard T. Marren
Director
March 29, 1997 /s/ Robert K. McAfee
------------------------------------------
Robert K. McAfee
Director
March 29, 1997 /s/ Melanie D. Reid
------------------------------------------
Melanie D. Reid
Vice President of Finance/Chief Financial
Officer/Corporate Secretary
20
<PAGE>
EXHIBIT INDEX
- -------------
Exhibit Number and Description
- ------------------------------
10.12 Sublease and Lease Agreement between the Company
and C. E. Heath Compensation and Liability Corporation.
11.1 Computation of Net Income (Loss) Per Share
13.1 1996 Annual Report to Stockholders
(incorporated by reference)
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule.
21
Exhibit 10.12
SUBLEASE AGREEMENT
This Sublease is made on April 1, 1996, 1995, between XIOX Corporation
("Sublessor"), whose address is 577 Airport Blvd., Suite 700, Burlingame, CA
94010, and CE Heath and Liability Company, a California Corporation
(Sublessee"), whose address is 577 Airport Blvd., Burlingame, CA 94010, and Bay
Park Plaza Associates, L.P. ("Landlord").
Recitals. This Sublease is made with reference to the following facts and
objectives:
a. Sublessor entered into that certain office lease dated March 20, 1986 and
amended on October 24, 1990, and May 31, 1994 ("Master Lease") with Bay Park
Plaza Associates, L.P., ("Landlord") for certain premises consisting of
approximately 13,168 square feet ("original premises") commonly known as 577
Airport Blvd., Suite 700 Burlingame, CA 94010, as more particularly described in
the Master Lease. A copy of the Master Lease is attached hereto as Exhibit A and
made a part hereof.
b. Sublessor (XIOX Corporation) desires to sublease to Sublessee (CE Heath
Compensation and Liability Company, a California Corporation) and Sublessee
desires to sublease from Sublessor a portion of the original premises now called
"Premises" as defined in Section 1. below under the terms and conditions set
forth herein.
Now, therefore, Sublessor and Sublessee agree as follows:
1. Premises: Sublessor leases to Sublessee and Sublessee from said Sublessor the
following described premises together with the appurtenances, situated in the
City of Burlingame, County of San Mateo, State of California commonly known as
Bay Park Plaza Office Building, consisting of approximately 4,339 square feet on
the seventh floor, Suite 700 as more particularly set forth in Exhibit B
("Premises"). Sublessee shall take Premises in an "As-is" excepting normal wear
and tear, broom clean, professional appearing condition. Sublessor makes no
representations or warranties of any kind with respect to the improvements, or
physical conditions on, or bearing on, the use of the Premises. Sublessee shall
rely solely on Sublessee's own inspection and examination of such items and not
on any representations of Sublessor, whether expressed or implied. Landlord
shall consent to this Sublease by its execution hereof. This Sublease shall take
effect on April 1, 1996, and Sublessor shall give possession of the Premises to
Sublessee on that date. In the event that Landlord fails to execute this
Sublease as evidence of its consent, this Sublease shall be of no force and
effect and neither party shall have any obligation to each other.
22
<PAGE>
Sublessee further agrees to return the premises to the Sublessor in the
same condition as Sublessee took possession of Premises including but not
limited to any modifications to cabling, wiring, network configurations, and
other areas within the Premises. Any such modifications by Sublessee must have
the prior written approval of Sublessor and Landlord.
2. Rental: Sublessee shall pay to Sublessor without deduction, off set, prior
notice or demand, as rental the sums per rentable square foot, per month for the
Premises (as defined in paragraph 1):
April 01, 1996 through November 14, 1996 = $1.42
November 15, 1996 - July 31, 1997 = $1.585
August 01, 1997 - April 23, 1998 = $1.67
Rent shall be paid on the first (1st) day of each month in lawful money
of the United States of America, commencing on the 1st day of April, 1996, and
continuing throughout the balance of the term. Monthly rental for any particular
month shall be prorated at the rate of 1/30th of the monthly rental per day.
Rent shall be paid in currency of the United States of America to Sublessor at
577 Airport Blvd., Suite 700, Burlingame, CA 94010 or at such other place or
places as Sublessor may from time to time direct.
3. Operating Expenses: Sublessee shall pay to Sublessor Sublessee's prorate
share of Sublessor's operating expense increases as defined in Section 8 of the
Master Lease, beginning November 15, 1996 through the remaining term of the
lease. Such expenses will be separately billed to Sublessee by Sublessor.
4. Prepaid Rent: Security Deposit: Receipt of $6,161.38 is hereby acknowledged
for rental for the first month, and the additional amount of $6,877.32 as
security deposit for the faithful performance of this Sublease as a security
deposit. In the event Sublessee has performed all of the terms and conditions of
this Sublease throughout the term, upon Sublessee vacating the Premises, the
amount paid shall be returned to Sublessee after first deducting any sums owing
to Sublessor.
5. Term: The term of this Sublease shall be for a period of twenty-four (24)
months and twenty-three (23) days commencing on the 1st day of April, 1996 and
ending on the 23rd day of April, 1998.
6. Use: Sublessee shall use the Premises for general office purposes and for no
other purpose. No shipping or receiving function shall be allowed.
Sublessee's business shall be established and conducted throughout the
term hereof in a first class manner. Sublessee shall not use the Premises for,
or carry on, or permit to be carried on, any offensive, noisy or dangerous
trade, business,
23
<PAGE>
manufacture or occupation nor permit any auction sale to be held or conducted on
or about the Premises. Sublessee shall not do or suffer anything to be done upon
the Premises which will cause structural injury to the premises or the building
of which the same form a part. The Premises shall not be overloaded and no
machinery, apparatus or other appliance shall be used or operated upon the
Premises made of the Premises which will in any way impair the efficient
operation of the sprinkler system (if any) within the building containing the
Premises. Sublessee shall not leave the Premises unoccupied or vacant during the
term. No musical instrument of any sort, or any noise making device will be
operated or allowed upon the premises for the purpose of attracting trade or
otherwise. Sublessee shall not use or permit the use of the Premises or any part
thereof for any purpose which will increase the existing rate of insurance upon
the building in which the Premises are located, or cause a cancellation of any
insurance policy covering the building or any part thereof. If any act on the
part of Sublessee or use of the premises shall cause directly or indirectly, any
increase of Sublessor's insurance expense, said additional expense shall be paid
by Sublessee or Sublessor upon demand. No such payment by Sublessee shall limit
Sublessor in the exercise of any other rights or remedies, or constitute a
waiver of Sublessor's right to require Sublessee to discontinue such act or use.
7. Sublessor's Liability: Sublessor shall remain liable for the performance of
the provisions of the Master Lease.
8. Sublessee to Hold Sublessor Harmless: Sublessor warrants that as of the
commencement date of this Sublease, there will be no uncured default under the
Master Lease. If Sublessee defaults under this Sublease or causes a breach or
default the Master Lease, Sublessee shall indemnify, defend, protect and hold
Sublessor harmless from and against any and all damages, liabilities, costs and
expenses (including without limitation reasonable attorney's fees) resulting
from Sublessee's default or breach. If Sublessee defaults in its obligations
under this Sublease or causes a breach or default under the Master Lease, and
Sublessor elects, in its sole discretion, to pay rent to Landlord or fulfill any
of Sublessee's other obligations in order to prevent Sublessee from being in
default, Sublessee immediately shall reimburse Sublessor for the amount of rent
or costs incurred by Sublessor in fulfilling Sublessee's obligations under this
Sublease, together with interest on those sums at the rate of nine percent ( 9%)
per annum, or the highest legal rate.
9. Amendment of Sublease: Sublessee and Sublessor shall not enter into any
agreement that amends the Sublease without such amendment being in writing and
being signed by Sublessor and Sublessee, and Landlord. Any agreement in
violation of this provision shall have no force or effect on Sublessor.
10. Miscellaneous:
24
<PAGE>
a. Attorney's Fees: If any party commences an action against any of the parties
arising out of or in connection with the Sublease, the prevailing party or
parties shall be entitled to recover from the losing party or parties reasonable
attorney's fees and cost of suit.
b. Notice: Any notice, demand, consent, approval or communication that either
party desires or is required to give to the other party or other person shall be
in writing and either served personally or sent by prepaid, first-class mail.
Any notice, demand, request, consent, approval, or communication that either
party desires or is required to give to the other party shall be addressed to
the other party at the address set forth in the introductory paragraph of this
Sublease. Either party may change its address by notifying the other party of
the change of address. Notice shall be deemed communicated within 72 hours from
the time of mailing, if mailed as provided in this paragraph.
c. This Sublease shall be subject to all of the terms, covenants and conditions
of the Master Lease. In addition to Sublessee's obligations under this Sublease,
Sublessee agrees to perform all of Sublessor's covenants, conditions and
obligations under the Master Lease relating the Premises and accruing or arising
during the term of this Sublease in the manner and within the time required
under the Master Lease, except for covenants, conditions and obligations which
Sublease is unable to perform because Sublessor is specifically required to
perform them under the Master Lease; provided, however, that in no event shall
Sublessee have the right to exercise any of Sublessor's rights or options under
the Master Lease, including , without limitation, any options to extend the
Master Lease term or to lease additional space. Sublessee shall not commit or
permit to be committed any act or omission which shall violate any terms,
convenience or conditions of the Master Lease. The Sublease shall automatically
terminate if the Master Lease is terminated. Sublessor shall have no liability
to Sublessee for any termination of this Sublease or any other matters as a
result of the termination of this Sublease if the Master Lease is terminated for
any reason.
d. Sublessor hereby agrees to immediately notify Sublessee of any and all
defaults by Sublessor in the Master Lease. Sublessee shall have the right to
cure any such default, so as to keep the Master Lease in force, without cost to
Sublessor.
e. Sublessee shall upon Lease execution hereof, pay to Interbay Leasing a
brokerage fee equal to $ 3,688.15 and a brokerage fee equal to $ 3,688.15 to BT
Commercial Real Estate.
f. Except for the following paragraphs contained in the Master Lease:
25
<PAGE>
2nd Amendment to Lease: Paragraphs 1, 2, 4, 5, 6, 7. 1st Amendment to Lease: 1,
2, 3, 4, 5, 7, 8, 10, 11, Exhibit B. Master Lease: 1, 2.1, 2.5, 3, 4, 5.1, 5.2,
18.8, Lease Rider paragraphs 19, 20, 21, 22, 24, 25, 26, 27, Exhibit A, Exhibit
C, Exhibit D, Exhibit E, Exhibit F, Exhibit H, Exhibit I, which are hereby
deleted, the terms, covenants, and conditions of the Master Lease are hereby
incorporated by reference hereto and shall constitute the terms, covenants, and
conditions of this sublease. For purposes of each party's obligations, rights,
and remedies, each reference to "Landlord" in such incorporated language of the
Master Lease shall be deemed to refer to XIOX Corporation ("Sublessor") and each
reference to Tenant shall be deemed to refer to CE Heath Compensation and
Liability Company, a California Corporation ("Sublessee").
AGREES AND ACCEPTED;
Landlord
Bay Park Plaza Associates, L.P.
___________________________________
___________________________________
___________________________________
By:________________________________
Its:_______________________________
Date:______________________________
Sublessor: Sublessee:
XIOX Corporation CE Heath Compensation
a California Corporation and Liability Company,
________________________________ ___________________________________
________________________________ ___________________________________
________________________________ ___________________________________
By: Melanie D. Reid James L. Johnson
------------------------------ -----------------------------------
Its: Vice President of Finance/CFO Its: Executive Vice President
------------------------------ -----------------------------------
Date: April 10, 1996 Date: April 10, 1996
------------------------------ -----------------------------------
26
<PAGE>
FURNITURE LEASE AGREEMENT
This Furniture Lease Agreement is made on April 1, 1996, between XIOX
Corporation ("Lessor"), whose address is 577 Airport Blvd., Suite 700,
Burlingame, CA 94010, and C. E. Heath Compensation & Liability Insurance
Company, ("Lessee"), whose address is 577 Airport Blvd., Suite 540, Burlingame,
CA 94010.
Recitals. This Furniture Lease Agreement is made with reference to the following
facts and objective:
a. Lessor (XIOX Corporation) entered into that certain office Sublease dated
April 1, 1996 with, Lessee (C. E. Heath Compensation & Liability Insurance
Company) and Bay Park Plaza Associates, L.P. (Landlord) for certain premises
consisting of 4,339 square feet commonly known as 577 Airport Blvd., Suite 700,
Burlingame, CA 94010, as more particularly described in the Sublease Agreement.
A copy of the Sublease Agreement is attached hereto as Exhibit A and made a part
hereof.
b. Lessor (XIOX Corporation) desires to lease to Lessee ( C. E. Heath
Compensation & Liability Insurance Company) and Lessee desires to lease from
Lessor the "Furniture" as defined below under the terms and conditions set forth
herein.
Now, therefore, Lessor and Lessee agree as follows:
Furniture: Lessor leases to Lessee and Lessee from said Lessor the following
described furniture situated within the Premises as defined in Paragraph 1 of
the Sublease Agreement (Exhibit A).
- Twenty-six assembled office cubicles including desks
- Thirty-one chairs
- One stand-alone desk
- Two stand-alone circular tables
- One Lanier copy machine
Lessee shall take Furniture in an "As-is" excepting normal wear and tear, broom
clean, professional appearing condition. Lessor makes no representations or
warranties of any kind with respect to the improvements, or physical conditions
on, or bearing on, the use of the Furniture. Lessee shall rely solely on
Lessee's own inspection and examination of such items and not on any
representations of Lessor, whether expressed or implied. This Furniture Lease
shall take effect on April 1, 1996, and Lessor shall give possession of the
Furniture to Lessee on that date.
Lessee further agrees to return the furniture to the Lessor in the same
condition, excepting normal wear and tear, as Lessee took possession of said
furniture.
2. Rental: Lessee shall pay to Lessor without deduction, off set, prior notice
or demand, as rental the sum of $0.18 per rentable square foot per month of the
Premises defined in Paragraph 1 of Sublease Agreement (Exhibit A) upon
commencement of the Sublease and continuing through the end of its term. The
duration of this Furniture
27
<PAGE>
Lease shall be coterminous with the duration of the Sublease, and the rentable
square footage of the Premises for purposes of this Furniture Lease shall not
exceed 4,339 square feet. Rent shall be paid on the first (1st) day of each
month in lawful money of the United States of America, commencing on the first
day of the Sublease term and continuing on the 15th day of each calendar month
throughout the balance of the term. Monthly rental for any particular month
shall be prorated at the rate of 1/30th of the monthly rental per day. Rent
shall be paid in currency of the United Stated of America to Lessor at 577
Airport Blvd., Suite 700, Burlingame, CA 94010 or at such other place or places
as Lessor may from time to time direct.
3. Prepaid Rent: Security Deposit: Receipt of $781.02 is hereby acknowledged for
rental for the first month, and the additional amount of $781.02 as security
deposit for the faithful performance of this Furniture Lease as a security
deposit. In the event Lessee has performed all of the terms and conditions of
this Furniture Lease throughout the term, upon Lessee returning the Furniture,
the amount paid shall be returned to Lessee after first deducting any sums owing
to Lessor.
4. Term: The term of this Furniture Lease shall be coterminous with the Sublease
(Exhibit A).
5. Use: Lessee shall use the Furniture for general office purposes and for no
other purpose.
6. Amendment of Furniture Lease: Lessee and Lessor shall not enter into any
agreement that amends the Furniture Lease without such amendment being in
writing and being signed by Lessor and Lessee. Any agreement in violation of
this provision shall have no force or effect on Lessor.
7. Miscellaneous:
This Furniture Lease shall be subject to all of the terms, convenience
and conditions of the Sublease Agreement. (Exhibit A).
8. Lessor's Warranty:
Lessor warrants that it is the sole owner of the Furniture, that is has
complete authority to lease the Furniture to Lessee, and that no other person or
entity has any ownership interest or claim thereto which would in any way
interfere with Lessee's full use and enjoyment of the Furniture during the
duration of this Furniture Lease.
28
<PAGE>
AGREES AND ACCEPTED:
Lessor: Lessee:
XIOX Corporation C. E. Heath Compensation &
Liability Insurance Company
- -------------------------------------- --------------------------------
By: Melanie D. Reid By: James L. Johnson
----------------------------------- -----------------------------
Its: Vice President of Finance/CFO Its: Executive Vice President
---------------------------------- ----------------------------
Date: April 10, 1997 Date: April 10, 1997
--------------------------------- --------------------------
29
Exhibit 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Year ended December 31,
1996 1995
---- ----
Net Income (Loss) $ 92,310 $(1,299,456)
=========== ===========
Weighted average number of shares of
common stock outstanding 2,370,030 1,896,792
Number of common stock equivalents as a
result of stock options outstanding using
the treasury stock method 8,615 --
----------- -----------
Total 2,378,645 1,896,792
=========== ===========
Net Income (Loss) per share $ 0.04 $ (0.69)
=========== ===========
30
Exhibit 13.1 of 10-KSB for December 31, 1996
XIOX CORPORATION
1996 ANNUAL REPORT
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Annual Report to Shareholders contains forward-looking
information which is based upon current expectations of the
Company. Actual results could differ materially for the
reasons noted and due to other risks, including but not
limited to those discussed under "Certain Risk Factors Which
May Impact Future Operating Results and Market Price of
Stock" commencing on page 3.
The following discussion and analysis should be read in
conjunction with the Company's audited financial statements
and the notes thereto included herein.
Results of Revenues for the fiscal year ended December 31, 1996
Operations decreased by 19% or $1,292,495 to $5,460,673 in contrast to
revenues for the fiscal year ended December 31, 1995 of
$6,753,168. The decrease is attributable to the sale of a
portion of the Company's Gemini Telemanagement Systems
("GTS") business in the fourth quarter of 1995 and the
discontinuance of certain products. Revenues for the fiscal
year ended December 31, 1995 decreased by 10% or $758,010 to
$6,753,168 in contrast to revenues for the fiscal year ended
December 31, 1994 of $7,511,178. A significant portion of the
decrease is attributable to extraordinary sales in 1994 from
North American Numbering Plan upgrades in the Hospitality
Market.
Operating expenses were significantly reduced in 1996 due to
actions taken by management in late 1995 and early 1996 to
manage expenses including reduction of headcount and
discretionary spending. The results of these actions are
reflected in reduced operating expenses in 1996 which are
highlighted below. Operating expense and income component
comparisons, as a percentage of revenues are summarized as
follows:
1996 1995 1994
Revenues 100% 100% 100%
Product Costs 45% 52% 45%
Research and development 13% 17% 14%
Marketing and SG&A 40% 51% 46%
Income(loss) from operations 2% (20%) (5%)
Product costs decreased by 30% or $1,061,121 to $2,429,340 in
1996 versus product costs for 1995 of $3,490,461. As a
percentage of revenues, product costs decreased in 1996 to
45% from 52% as a result of discontinuance of certain
products and reduction in discretionary costs. In 1995,
product costs increased by 2% or $67,039 to $3,490,461 from
$3,423,422 in 1994. Product costs as a percentage of revenues
increased in 1995 to 52% from 45% as a result of increased
resources to accommodate new products.
Research and development expenses decreased to 13% of
revenues in 1996, a decrease of $396,843 or 35% in actual
expenditures from 1995 to 1996 due to the Company's
management of expenses as discussed above. In 1995, research
and development expenses increased to 17% of revenues, an
increase of $112,791 or 11% in actual expenditures from 1994.
The Company temporarily increased its research and
development resources during 1995 to accelerate the
completion of three new products.
2
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Marketing, sales and general and administrative expense
decreased from 51% to 40% of revenues in 1996, a decrease of
$1,250,707 or 36% in actual expenditures due to the Company's
planned reduction of expenses. Marketing, sales and general
and administrative expense, while increasing from 46% to 51%
of revenues in 1995, decreased overall by $27,789 or 1% in
actual expenditures due to miscellaneous expense reductions.
Other income, net decreased by $14,755 in 1996 primarily due
to a gain from the disposition of certain assets in 1995
which did not occur in 1996. The primary components of other
income, net in 1995 were a gain from the disposition of
certain assets of $109,236 offset by a net increase in
interest expense of $64,758 as well as write-offs of certain
assets of $42,000.
The Company earned $100,923 from operations in 1996.
Following the first quarter loss of $96,034, the Company
recorded increasing profits throughout the remainder of the
fiscal year due to the previously discussed management of
expenses and focus on selling through distributors. The
Company lost $1,315,253 from operations in 1995. The loss was
incurred evenly throughout the fiscal year.
Liquidity At December 31, 1996, Xiox had cash and cash equivalents of
and $291,488 and net working capital of $693,485, compared to
Capital cash and cash equivalents of $344,165 and net working capital
of $438,440 in 1995. During 1996 the Company expended $67,723
for capital equipment and software.
The Company repaid its bank line of credit in March of 1996.
The $750,000 bank line of credit was increased in May of 1996
to $1,000,000 and is expected by management to provide
adequate capital resources to conduct operations at the level
currently anticipated through May of 1997 when the bank line
expires. In addition, if working capital needs require, the
Company may need to seek additional capital funding. The
Company had no amounts outstanding on its line of credit as
of December 31, 1996. As of December 31, 1995 the Company had
$100,000 outstanding on its line of credit.
Certain Risk Xiox operates in a rapidly changing environment that involves
Factors a number of risks, some of which are beyond the Company's
Which May control. The following discussion highlights some of these
Impact risks and the possible impact of these factors on future
Future consolidated results of operations and the market price of
Operating the Company's stock.
Results and
Market Price The forward-looking statements included in Management's
of Stock Discussion and Analysis of Financial Condition and Results of
Operations, which reflect management's best judgment based on
factors known, involve risks and uncertainties. In addition,
the Company may from time to time make oral forward-looking
statements. The Company's actual results could differ
materially from those anticipated in these forward-looking
statements as a result of a number of factors, including but
not limited to those discussed below. Forward-looking
information provided by Xiox should be evaluated in the
context of these factors.
3
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
Fluctuations in Quarterly Operating Results
The Company typically experiences weaker sales in the first
quarter of each calendar year compared to sales for the last
quarter of the previous year.
Shortfalls in the Company's revenues or earnings from levels
expected by securities analysts could have an immediate and
significant adverse effect on the trading price of the
Company's common stock. Moreover, the Company's stock price
is subject to the volatility generally associated with
technology stocks and may also be affected by broader market
trends unrelated to performance.
Competition
The market for the Company's software products is competitive
and is characterized by change in technology and user needs
and the introduction of new products. In order for the
Company to remain competitive, it must rapidly respond to
such changes, including the enhancement and upgrading of
existing products and the introduction of new products. Most
of the Company's competitors and many potential competitors
have substantially greater financial, marketing and
technology resources than the Company. The Company's major
competitors are Moscom, Telco Research and Active Voice.There
can be no assurance that the Company will be able to compete
successfully against either current or potential competitors
or that competition will not have a material adverse effect
on the Company's business, operation results and financial
condition.
Product Concentration
Xiox derives a substantial portion of its revenues from sales
of new call accounting products, updates and rate table
renewals. As such, any factor adversely affecting sales of
new call accounting products, updates and rate table
renewals, including such factors as market acceptance,
product performance and reliability, reputation, price
competition and the availability of third-party applications,
could have a material adverse effect on the Company's
business, consolidated results of operations and financial
condition.
Product Development and Introduction
The software products offered by the Company are internally
complex and, despite extensive testing and quality control,
may contain errors or defects ("bugs"), especially when first
introduced. In fiscal year 1996, the Company experienced
quality and performance issues associated with the call
analyzer product. These factors resulted in discontinuance of
the product and replacement with the GBS Win product. Any
future defects or errors could result in corrective releases
to the Company's software products, damage to the Company's
reputation, loss of revenues, an increase in product returns,
or lack of market acceptance of its products, any of which
could have a material and adverse effect on the Company's
business and consolidated results of operations.
The software industry is characterized by rapid technological
change as well as changes in customer requirements and
preferences. The Company believes that its future results
will depend largely upon its ability to offer products that
compete favorably with respect to price, reliability,
performance, range of useful features, continuing product
enhancements,
4
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
reputation and training. Delays or difficulties, including
the discovery of product defects similar to those experienced
with the call analyzer product may result in the delay or
cancellation of planned development projects and could have a
material and adverse effect on the Company's business and
consolidated results of operations. Further, increased
competition in the market for call accounting products could
also have a negative impact on the Company's business and
consolidated results of operations.
Dependence on Distribution Channels
The Company sells its products primarily through its network
of authorized dealers. Xiox's ability to effectively
distribute its products depends in part upon the financial
and business condition of its distribution network. While no
single customer accounted for more than 10 percent of the
Company's revenues in fiscal years 1996 or 1995, the loss of
or a significant reduction in business with any one of the
Company's major dealers could have a material adverse effect
on the Company's business and consolidated results of
operations in future periods.
5
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
1996 1995
---------- -----------
Assets
Current Assets:
Cash and cash equivalents $ 291,488 344,165
Accounts receivable, net of allowance
for doubtful accounts of $192,072 in
1996 and $328,624 in 1995 1,062,045 949,779
Other receivables 66,412 29,005
Inventories 433,769 348,230
Prepaid expenses and other assets 69,470 74,175
----------- -----------
Total current assets 1,923,184 1,745,354
Property and equipment, net 358,118 476,381
Purchased software, net 52,930 95,606
Notes receivable 131,138 131,138
Deposits and other assets 20,319 21,952
----------- -----------
$ 2,485,689 2,470,431
----------- -----------
Liabilities and Stockholders' Equity
Current Liabilities:
Bank line of credit $ -- 100,000
Accounts payable 140,627 146,139
Accrued expenses 212,081 81,915
Accrued compensation 114,380 60,280
Purchase deposits 41,025 231,266
Deferred revenue 721,586 687,314
----------- -----------
Total current liabilities 1,229,699 1,306,914
Commitments and Contingencies
Stockholders' equity:
Common stock, $0.01 par value, 23,724 23,578
Authorized 10,000,000 shares;
2,372,384 and 2,357,784 issued and
outstanding in 1996 and 1995 respectively
Paid-in capital 5,492,345 5,465,140
Note receivable from shareholder (27,188) --
Accumulated deficit (4,232,891) (4,325,201)
----------- -----------
Total stockholders' equity 1,255,990 1,163,517
----------- -----------
$ 2,485,689 2,470,431
=========== ===========
See accompanying notes to consolidated financial statements.
6
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 1996 and 1995
1996 1995
----------- -----------
Revenues $ 5,460,673 $ 6,753,168
----------- -----------
Product costs 2,429,340 3,490,461
Research and development 733,952 1,130,795
Marketing, sales, general and administrative 2,196,458 3,447,165
----------- -----------
5,359,750 8,068,421
----------- -----------
Income (loss) from operations 100,923 (1,315,253)
Other income, net 2,692 17,447
----------- -----------
Income (loss) before income taxes 103,615 (1,297,806)
Income taxes 11,305 1,650
----------- -----------
Net income (loss) $ 92,310 (1,299,456)
=========== ===========
Per Share Information:
Net income (loss) per share $ 0.04 (.69)
=========== ===========
Weighted average number of common shares
outstanding during the year 2,378,645 1,896,792
=========== ===========
See accompanying notes to consolidated financial statements.
7
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
<TABLE>
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1996, and 1995
<CAPTION>
Note Receivable
Common stock Paid-in from Accumulated
Shares Amount capital Shareholder deficit
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, December 31,1994 1,748,316 $ 17,483 $ 4,073,675 $ -- $(3,025,745)
---------- ----------- ----------- ----------- -----------
Common shares issued 572,894 5,729 1,333,334 -- --
Stock options exercised 36,574 366 58,131 -- --
Net loss -- -- -- -- (1,299,456)
---------- ----------- ----------- ----------- -----------
Balances, December 31,1995 2,357,784 23,578 5,465,140 -- (4,325,201)
=========== =========== =========== =========== ===========
Stock options exercised 14,600 146 27,205 (27,188) --
Net income -- -- -- -- 92,310
---------- ----------- ----------- ----------- -----------
Balances, December 31,1996 2,372,384 $ 23,724 $ 5,492,345 $ (27,188) $(4,232,891)
=========== =========== =========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
8
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1996 and 1995
1996 1995
---------- ----------
Cash from operating activities:
Net income (loss) $ 92,310 (1,299,456)
Reconciling adjustments from operating activities:
Depreciation and amortization 228,662 173,387
Gain on disposition of certain assets -- (109,236)
Decrease (increase) in
Accounts receivable, net (112,266) 518,421
Other receivables (37,407) (12,771)
Inventories (85,539) 21,822
Prepaid expenses, deposits
and others assets 6,338 66,180
Increase (decrease) in
Accounts payable and accrued expenses 178,754 (390,622)
Purchase deposits (190,241) 164,089
Deferred revenue 34,272 (32,005)
---------- ----------
Net cash provided by (used in) operations 114,883 (900,191)
---------- ----------
Cash from investing activities:
Acquisition of property and equipment (56,633) (28,862)
Acquisition of software (11,090) (6,898)
---------- ----------
Net cash used in investing activities (67,723) (35,760)
---------- ----------
Cash from financing activities:
Bank line of credit repayments (100,000) (440,000)
Borrowings from bank line -- 270,000
Proceeds from sale of common stock 163 1,397,560
---------- ----------
Net cash (used in) provided by financing activities (99,837) 1,227,560
---------- ----------
continued
9
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
<TABLE>
Consolidated Statements of Cash Flows, continued
For the years ended December 31, 1996 and 1995
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents (52,677) 291,609
Beginning cash and cash equivalents 344,165 52,556
--------- ---------
Ending cash and cash equivalents $ 291,488 $ 344,165
========= =========
Supplemental Cash Flow Information:
Interest paid during the year $ 6,392 62,635
========= =========
Income taxes paid during the year $ 2,806 1,650
========= =========
Noncash financing activities:
Common stock issued upon exercise of stock options in
exchange for note receivable from shareholder $ 27,188 --
========= =========
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
10
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Summary of Xiox Corporation (the Company) is a Delaware corporation
Significant engaged in developing, producing, and marketing telephone
Accounting management and call accounting systems. The Company
Policies manufactures and sells its products primarily through
distributors to companies located in the United States.
Principles of consolidation
The consolidated financial statements of Xiox Corporation
include the accounts of its wholly owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
Revenue recognition
Software License and Hardware. Revenue is recognized when a
product is shipped or upon customer acceptance as stipulated
in the sales agreements. Payments received from customers
prior to shipment are recorded as purchase deposits. Payments
received and due from customers after shipment but prior to
acceptance, when applicable, are recorded as deferred
revenue.
Maintenance and rate tariff table subscriptions. Maintenance
service and rate tariff table subscriptions entitle a
customer to receive future releases and enhancements of the
related software products and/or to receive the current local
and long distance provider tariff rates for their call
accounting systems for the subscription period. Maintenance
and rate table subscription revenues are recognized ratably
over the period of the maintenance and subscription
agreements in accordance with American Institute of Certified
Public Accountants (AICPA) Statement of Position (SOP), 91-1
"Software Revenue Recognition".
Cash and cash equivalents
Cash and cash equivalents include cash on hand or held in
banks, amounts due from banks, and short-term investments
with remaining maturities of less than three months at date
of purchase. Cash equivalents consist primarily of short-term
money market funds and interest-bearing certificates of
deposits in the amounts of $85,098 and $46,204 at December
31, 1996 and 1995, respectively. Realized gains and losses,
and declines in value judged to be other than temporary are
included in other income, net. The Company considers its cash
equivalents to be held "available for sale" and accordingly
carries such assets at fair value, with any unrealized gain
or loss recorded as a separate component of stockholders'
equity. As of December 31, 1996 and 1995, gross unrealized
gains and losses were not significant.
Inventories
Inventories are stated at the lower of cost (first-in,
first-out basis) or market.
Property and equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets, generally three to five years.
11
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Summary of Software capitalization
Significant
Accounting Internal software development costs, which consist of
Policies software updates, are expensed in the year of development.
Continued Software updates are a result of internal software
development and are released annually for software products.
Management believes that the benefit of these updates does
not extend beyond one year.
Purchased software with a benefit extending beyond one year
is capitalized. Purchased software is stated at cost.
Amortization is computed on the straight-line basis over
three years.
Income taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date.
Net income (loss) per share
Net income (loss) per share is computed using the weighted
average number of outstanding common stock during the period
plus, when their effect is dilutive, common stock equivalents
consisting of certain shares subject to stock options (using
the treasury method).
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from such estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" on January 1, 1996. This
Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
12
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of the Statement did not
have a material impact on the Company's financial position,
results of operations or liquidity.
Inventories Inventories consist primarily of purchased hardware products
(finished goods). Major classes of inventories as of December
31 consisted of the following:
1996 1995
-------- --------
Purchased parts and components $ 85,359 11,848
Work in process 18,749 12,159
Finished goods 329,661 324,223
-------- --------
$433,769 348,230
-------- --------
Property A summary of property and equipment as of December 31
and consisted of the following:
Equipment
1996 1995
------------ -----------
Office equipment $ 1,075,298 1,019,919
Furniture and fixtures 305,638 304,384
----------- -----------
1,380,936 1,324,303
Less accumulated depreciation (1,022,818) (847,922)
----------- -----------
$ 358,118 476,381
=========== ===========
Purchased A summary of purchased software as of December 31 consisted of
Software the following:
1996 1995
--------- ---------
Purchased software $ 200,037 188,947
Less accumulated amortization (147,107) (93,341)
--------- ---------
$ 52,930 95,606
========= =========
Bank Line The Company maintains a $1,000,000 line of credit
of Credit collateralized by eligible accounts receivable. The line
bears interest at prime plus 1.50% (9.75% at December 31,
1996) and expires in May 1997.
13
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Lease Future minimum lease payments and related sublease rental
Commitments receivables with respect to noncancelable operating leases in
excess of one year are as follows:
Rental Receivable
Year ended December 31: Rental Payments under Sublease
1997 312,379 93,744
1998 272,095 30,236
1999 270,727 --
2000 153,934 --
------- ---------
$ 1,009,135 $ 123,980
=========== =========
Total rent expense included in overhead expenses for the
Company's operating leases was approximately $211,610, net of
sublease income of $84,474, and $296,714 for the years ended
December 31, 1996 and 1995, respectively.
Taxes The provision for income taxes in 1996 and 1995 consists
entirely of current state income taxes.
The provision for income taxes differs from the amounts
computed by applying the U.S. Federal tax rate of 34% to the
Company's income (loss) before income taxes as a result of
the following:
1996 1995
---- ----
Computed tax expense (benefit) $ 35,229 (441,254)
Change in the valuation allowance
for deferred tax assets (34,401) 508,149
State income taxes, net of
federal income tax benefit 7,461 1,089
Other, net 3,016 (66,334)
--------- ---------
Provision for income taxes $ 11,305 $ 1,650
========= =========
14
<PAGE>
<TABLE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
<CAPTION>
Taxes The tax effect of temporary differences that give rise to
Continued significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 1996 and 1995 are as follows:
Deferred tax assets: 1996 1995
----------- -----------
<S> <C> <C>
Reserves and accruals for financial
reporting purposes not taken for tax purposes $ 457,376 $ 422,317
Research and development costs
principally due to capitalization and
amortization for tax reporting purposes 511,477 667,688
Net operating loss carryforwards 646,426 592,378
Research and development and investment tax
credit carryforwards 111,512 110,601
----------- -----------
Total gross deferred tax asset 1,726,791 1,792,984
less: Valuation allowance (1,696,695) (1,762,020)
----------- -----------
Deferred tax asset, net of allowance 30,096 30,964
----------- -----------
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation (30,096) (30,964)
----------- -----------
Total gross deferred tax liability (30,096) (30,964)
----------- -----------
Net deferred tax asset $ -- --
----------- -----------
</TABLE>
As of December 31, 1996, the Company has Federal and State
net operating loss carryforwards of approximately $1,879,352
and $52,720 respectively, expiring during the years 1998
through 2009. As of December 31, 1996, the Company has
research and development tax credits and investment tax
credits of approximately $111,512 which expire during the
years 1998 through 2009. Under IRS Section 382, the Company's
future utilization of its net operating loss carryforwards
and certain of its general business tax credits for Federal
and State tax reporting purposes is limited to approximately
$94,000 per year for operating losses generated prior to a
change in ownership in the year ended December 31, 1989.
15
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Share- In 1995, the Company raised $1,339,063 (net of offering
holders' expenses) through private equity offerings of 572,894 shares
Equity of restricted common stock ranging in price from $1.50 to
$3.625 per share. The shares were sold under Regulation S of
the Securities and Exchange Act of 1933.
Employee The Company has 1994 and 1984 incentive stock option plans
Stock which provide for granting of stock options with exercise
Options prices equal to the fair value of the underlying common
stock at the date of grant. There are 200,000 shares of
common stock currently reserved for issuance under the 1994
plan of which 178,179 have been granted. During 1994, the
1984 Stock Option Plan terminated. Under the plans, incentive
options are to be granted to officers and employees, while
non-qualified options are to be granted to non-employees. All
options under these plans vest at a rate determined by the
Board of Directors beginning from the date of grant and
expiring up to ten years from the date of grant. A summary of
transactions relating to outstanding stock options is as
follows:
Shares Options Exercise
Available Outstanding Price
--------- ----------- -----
Outstanding
at December 31, 1994 30,600 261,600 $ 1.13 - 5.00
======== =======
Additional shares reserved 100,000 --
Options granted (111,700) 111,700 2.88 - 5.50
Options exercised -- (36,574) 1.44 - 1.88
Options canceled 72,300 (109,244) 1.44 - 5.00
------ -------
Outstanding
at December 31, 1995 91,200 227,482 1.13 - 5.50
======== =======
Options granted (166,400) 166,400 2.44 - 3.56
Options exercised -- (14,600) 1.63 - 1.88
Options canceled 97,021 (137,803) 1.44 - 5.50
------ -------
Outstanding
at December 31, 1996 21,821 241,479 $ 1.13 - 5.50
======== =======
As of December 31, 1996, options to purchase a total of
79,208 shares of common stock were exercisable.
16
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Employee Certain options offered under the 1984 Stock Option Plan may
Stock be exercised immediately upon grant but are subject to the
Options Xiox Corporation Stock Purchase Agreement, which restricts
Continued transfers of the shares until the shares are fully vested.
Under the terms of this agreement, the Company may repurchase
at the option price any or all of the unvested shares
purchased if the employee terminates his employment with the
Company prior to vesting. The Company also has the right of
first refusal in the event of any proposed disposition of the
purchased shares. At December 31, 1996, no outstanding stock
was subject to the Stock Purchase Agreement.
Accounting for Stock-based Compensation
The Company has elected to continue to use the intrinsic
value-based method to account for all of its employee
stock-based compensation plans. Under APB Opinion No. 25,
"Accounting for Stock Issued to Employees", the Company has
recorded no compensation costs related to its stock option
plans for the years ended December 31, 1996 and 1995 because
the exercise price of each option equals or exceeds the fair
value of the underlying common stock as of the grant date for
each stock option.
Pursuant to SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company is required to disclose the
effects on the net income (loss) and income (loss) per share
data as if the Company had elected to use the fair value
approach to account for all its employee stock-based
compensation plans. Had compensation cost for the Company's
plans been determined consistent with the fair value approach
enumerated in SFAS No. 123, the Company's net income (loss)
and income (loss) per share for the years ended December 31,
1996 and 1995 would have changed as indicated below:
Year ended Year ended
December 31, 1996 December 31, 1995
Net income (loss)
As reported $ 92,310 $ (1,299,456)
Adjusted Pro Forma $ 51,764 $ (1,309,886)
Net income (loss) per share
As reported $ 0.04 $ (0.69)
Adjusted Pro Forma $ 0.02 $ (0.69)
The fair value of options granted was estimated on the date
of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in
1996 and 1995; risk-free interest rate of 6.4%; expected life
of 5 years; 60% expected volatility; forfeiture rate of 20%;
and no dividends.
17
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
A summary of the status of the Company's stock option plans
as of December 31, 1996 and 1995 and changes during the years
ended on those dates is presented below:
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Stock Options
Outstanding at beginning of year 227,482 $3.28 261,600 $3.07
Granted 73,000 3.24 111,700 3.82
Granted under Stock Repricing 93,400 3.44
Exercised (14,600) 1.87 (36,574) 1.60
Forfeited (44,403) 3.54 (109,244) 3.87
Forfeited under Stock Repricing (93,400) 4.32
--------
Outstanding at end of
year 241,479 $2.97 227,482 $3.28
======= =======
Options exercisable at year end 79,208 $1.64 107,260 $1.70
Weighted average fair value -------- -------
of options granted during the
period at exercise price equal
to market price at grant
date. $1.49 $ 2.37
-------- -------
</TABLE>
The following table summarizes information about fixed stock
options outstanding at December 31 1996:
Options Outstanding
-------------------
Range of Exercise Prices: $1.13 - $5.50
Weighted average remaining contractual life: 8 years
Weighted average exercise price: $2.97
18
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Transactions In 1991, the Company advanced cash to an employee in return
with Related for a promissory note in the amount of $100,000. The
Parties promissory note bears a stated interest rate of 9% with an
original due date of 1996, which date was extended in 1996 to
2001. In 1994, the Company paid certain unscheduled
liabilities in conjunction with the purchase of certain
assets for Instor Systems Corporation, a related party, in
return for a $31,138 promissory note at 9% annual interest.
The unpaid principal balance as of December 31, 1996 and 1995
was $131,138.
Employee Effective January 1, 1990, the Company adopted the Xiox
Benefit Corporation Employee Profit Sharing Plan (the Plan). The Plan
Plans covers all regular full-time employees who have been employed
by the Company continuously for a period of three months
during the Plan year prior to the period of determination and
are employees through the date of distribution. Distributions
are determined based on certain arithmetic formulas included
in the Plan document and are ultimately at the discretion of
the Board of Directors. The Company did not make any
significant distributions under the Plan during 1996 or 1995.
The Company sponsors a defined contribution plan covering
substantially all of its employees. Under the plan, employees
may elect to contribute up to 20% of their salary not to
exceed an annual maximum of approximately $9,500. As the
Company has no current plans to participate in a matching
contribution program, no such contributions were accrued or
expensed during 1996 and 1995, respectively.
Major The Company sells directly to end-users, original equipment
Customers manufacturers (OEMs), and through telephone dealer
arrangements. The Company conducts its business within one
industry segment. No single customer accounted for more than
10% of revenues during 1996 or 1995. Approximately 30% of the
Company's sales are to the hospitality industry and,
accordingly, these sales may be subject to economic change
affecting this industry. The Company provides for allowances
on accounts receivable, and credit losses to date have not
been significant.
19
<PAGE>
Independent The Board of Directors
Auditors' Xiox Corporation and Subsidiaries:
Report
We have audited the accompanying consolidated balance sheets
of Xiox Corporation and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
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 consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Xiox Corporation and subsidiaries
as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Jose, California
February 21, 1997
20
<PAGE>
Stock The Company's common stock is traded on the over-the-counter
Trading market on NASDAQ under the symbol XIOX. Xiox completed its
Information initial public offering on February 14,1986. The quarterly
high and low bid prices over the past two years were as
follows:
High Low
Fiscal 1996
Fourth Quarter 3 1/2 3
Third Quarter 3 5/8 3 1/8
Second Quarter 4 2
First Quarter 2 1/2 2 1/4
Fiscal 1995
Fourth Quarter 4 1/2 2 1/2
Third Quarter 5 1/8 3 1/2
Second Quarter 6 3/4 3 3/4
First Quarter 3 3/4 2 1/4
Bid Price Quotations are as reported by the National
Association of Security Dealers, Inc. All bid prices reflect
interdealer prices, without retail markup, markdown, or
commission and may not represent actual transactions.
As of December 31, 1996, there were approximately 55
shareholders of record of common stock of the Company. Xiox
Corporation has never paid dividends and has no present plans
to do so. On March 24, 1997, the closing bid price was $3.25
per share.
21
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS CORPORATE OFFICES
<S> <C>
Atam Lalchandani, Director and Assistant 577 Airport Boulevard, Suite 700
Corporate Secretary Burlingame, CA 94010
Consultant
Robert K. McAfee, Director Xiox - New Hampshire Office
Consultant 150 Dow Street
Manchester, NH 03101
Bernard T. Marren, Director
Private Investor Xiox - Arizona Office
8010 East McDowell Road
Mark A. Parrish, Jr., Director Suite 118
Consultant Scottsdale, AZ 85257
William H. Welling, Director
Chairman and Chief Executive LEGAL COUNSEL
Officer
Wayne F. Benoit Wilson, Sonsini, Goodrich & Rosati
Vice President of Business Development 650 Page Mill Road
Palo Alto, CA 94304
Robert W. Boyd
Vice President of Operations
Anthony DiIulio
Vice President of Sales & Marketing INDEPENDENT ACCOUNTANTS
Melanie D. Reid KPMG Peat Marwick LLP
Vice President of Finance, Chief Financial 50 West San Fernando Street
Officer and Corporate Secretary San Jose, CA 95113
David Y. Schlossman TRANSFER AGENT
Vice President of Engineering
Chase Mellon Shareholder Service
Los Angeles, CA
FORM 10-KSB
Stockholders will be provided
without charge, a copy of the
Company's Form 10-KSB Annual
Report for 1996 upon written
request to:
Xiox Corporation
577 Airport Boulevard, Suite 700
Burlingame, CA 94010
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Xiox Corporation:
We consent to the incorporation by reference in the registration statements
(Nos. 33- 4989, 33-16019 and 33-37686) on Form S-8 of Xiox Corporation of our
report dated February 21, 1997, relating to the consolidated balance sheets of
Xiox Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows each for the years then ended, which report is incorporated by reference
in the December 31, 1996, annual report on Form 10-KSB of Xiox Corporation.
/s/ KPMG Peat Marwick LLP
--------------------------------------
KPMG Peat Marwick LLP
March 31, 1997
San Jose, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED
FROM the Company's Consolidated
Balance Sheets and Statements of
Operations AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCES TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000782995
<NAME> Xiox Corporation
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> $291,488
<SECURITIES> $0
<RECEIVABLES> $1,254,117
<ALLOWANCES> $(192,072)
<INVENTORY> $433,769
<CURRENT-ASSETS> $1,923,184
<PP&E> $1,580,973
<DEPRECIATION> $(1,169,925)
<TOTAL-ASSETS> $2,485,689
<CURRENT-LIABILITIES> $1,229,699
<BONDS> 0
<COMMON> $23,724
0
0
<OTHER-SE> $1,232,266
<TOTAL-LIABILITY-AND-EQUITY> $2,485,689
<SALES> $5,460,673
<TOTAL-REVENUES> $5,460,673
<CGS> $2,429,340
<TOTAL-COSTS> $5,359,750
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $(1,536)
<INCOME-PRETAX> $103,615
<INCOME-TAX> $(11,305)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $92,310
<EPS-PRIMARY> $0.04
<EPS-DILUTED> 0.00
</TABLE>
