UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
F O R M 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period June 30, 1999;
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
XIOX CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 95-3824750
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
577 Airport Blvd, Suite 700,
Burlingame, California 94010
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (650) 375-8188
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant:
(1) Has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports). Yes _X_ No ___
(2) Has been subject to such filing requirements for the past 90
days. Yes _X_ No ___
Issuer's number of common shares
outstanding at July 31, 1999 3,395,751 shares
- --------------------------------------------------------------------------------
PAGE 1 of 18
<PAGE>
XIOX CORPORATION
INDEX
Page No.
--------
PART I Financial Information
Item 1.
Condensed Consolidated Balance Sheets (unaudited)
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations (unaudited)
Three Months ended June 30, 1999 and June 30, 1998 4
Condensed Consolidated Statements of Operations (unaudited)
Six Months ended June 30, 1999 and June 30, 1998 5
Condensed Consolidated Statements of Cash Flows (unaudited)
Six Months ended June 30, 1999 and June 30, 1998 6-7
Notes to Condensed Consolidated Financial Statements 8-11
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-16
PART II Other Information
Item 6.
Exhibits and Reports on Form 8-K 17
Signatures 18
PAGE 2
<PAGE>
XIOX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, 1999 December 31, 1998
------------- -----------------
***
ASSETS:
CURRENT ASSETS
CASH & CASH EQUIVALENTS $ 4,680,094 8,272,251
ACCOUNTS RECEIVABLE, NET 1,024,472 714,200
OTHER RECEIVABLES 9,930 9,585
INVENTORIES 456,999 433,149
PREPAID EXPENSES AND OTHER ASSETS 212,359 96,413
------------ ------------
TOTAL CURRENT ASSETS 6,383,854 9,525,598
PROPERTY, EQUIPMENT AND SOFTWARE, NET 1,850,187 1,445,977
NOTES RECEIVABLE 100,000 100,000
DEPOSITS & OTHER ASSETS 336,567 336,645
------------ ------------
$ 8,670,608 11,408,220
============ ============
LIABILITIES/STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 326,402 325,198
ACCRUED EXPENSES 370,655 312,248
ACCRUED COMPENSATION 272,035 158,870
PURCHASE DEPOSITS 41,661 42,382
DEFERRED REVENUE 1,176,345 872,536
CAPITAL LEASE 14,288 --
------------ ------------
TOTAL CURRENT LIABILITIES $ 2,201,386 1,711,234
NOTES PAYABLE 21,800 42,473
CAPITAL LEASE - LESS CURRENT PORTION 33,705 --
MINORITY INTEREST 114,646 117,883
STOCKHOLDERS' EQUITY
PREFERRED STOCK, $0.01 par value;
10,000,000 shares authorized;
1,797,989 and 1,877,989 shares
issued and outstanding as of
June 30, 1999 and December 31, 1998,
respectively 17,980 18,780
COMMON STOCK, $.01 Par, 50,000,000 shares
authorized, 3,323,985 and 3,177,387 shares
issued and outstanding as of June 30, 1999
and December 31,1998, respectively 33,240 31,774
PAID-IN CAPITAL 17,661,933 17,489,554
DEFERRED COMPENSATION (6,665) (8,265)
WARRANTS ISSUED 86,620 108,275
ACCUMULATED OTHER COMPREHENSIVE LOSS (43,504) (17,644)
ACCUMULATED DEFICIT (11,450,533) (8,085,844)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,299,071 9,536,630
------------ ------------
$ 8,670,608 11,408,220
============ ============
*** Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
PAGE 3
<PAGE>
<TABLE>
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three months ended Three months ended
June 30, 1999 June 30, 1998
------------------------- ------------------------
<S> <C> <C>
REVENUES $ 1,374,839 1,357,915
----------- -----------
PRODUCT COSTS 619,608 638,099
RESEARCH AND DEVELOPMENT 1,841,156 1,062,681
MARKETING, SALES, GENERAL AND ADMINISTRATIVE 946,066 696,176
----------- -----------
3,406,830 2,396,956
----------- -----------
LOSS FROM OPERATIONS (2,031,991) (1,039,041)
OTHER INCOME, NET 64,053 15,559
----------- -----------
LOSS BEFORE INCOME TAXES (1,967,938) (1,023,482)
INCOME TAXES 2,286 5,302
----------- -----------
NET LOSS $(1,970,224) (1,028,784)
=========== ===========
PER SHARE INFORMATION:
BASIC NET LOSS PER SHARE $ (0.60) (0.33)
=========== ===========
NUMBER OF SHARES USED IN BASIC
PER SHARE COMPUTATION 3,259,816 3,147,231
=========== ===========
DILUTED NET LOSS PER SHARE $ (0.60) (0.33)
=========== ===========
NUMBER OF SHARES USED IN DILUTED
PER SHARE COMPUTATION 3,259,816 3,147,231
=========== ===========
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</FN>
</TABLE>
PAGE 4
<PAGE>
<TABLE>
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Six months ended Six months ended
June 30, 1999 June 30, 1998
----------------------- -----------------------
<S> <C> <C>
REVENUES $ 2,689,005 2,555,776
----------- -----------
PRODUCT COSTS 1,165,056 1,221,846
RESEARCH AND DEVELOPMENT 3,272,864 1,994,747
MARKETING, SALES, GENERAL AND ADMINISTRATIVE 1,761,453 1,431,762
----------- -----------
6,199,373 4,648,355
----------- -----------
LOSS FROM OPERATIONS (3,510,368) (2,092,579)
OTHER INCOME, NET 151,090 43,896
----------- -----------
LOSS BEFORE INCOME TAXES (3,359,278) (2,048,683)
INCOME TAXES 5,411 6,502
----------- -----------
NET LOSS $(3,364,689) (2,055,185)
=========== ===========
PER SHARE INFORMATION:
BASIC NET LOSS PER SHARE $ (1.05) (0.65)
=========== ===========
NUMBER OF SHARES USED IN BASIC
PER SHARE COMPUTATION 3,219,016 3,145,739
=========== ===========
DILUTED NET LOSS PER SHARE $ (1.05) (0.65)
=========== ===========
NUMBER OF SHARES USED IN DILUTED
PER SHARE COMPUTATION 3,219,016 3,145,739
=========== ===========
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</FN>
</TABLE>
PAGE 5
<PAGE>
<TABLE>
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Six months ended Six months ended
6/30/99 6/30/98
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(3,364,689) (2,055,185)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATIONS
DEPRECIATION AND AMORTIZATION 257,340 137,232
AMORTIZATION OF DEFERRED COMPENSATION 1,600 2,933
MINORITY INTEREST IN NET LOSS (6,396) (12,042)
CHANGE IN OPERATING ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE, NET (310,272) 158,767
OTHER RECEIVABLES 22,032 417,483
INVENTORIES (23,850) 468
PREPAIDS, DEPOSITS AND OTHER ASSETS (152,533) 106,837
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 176,446 158,931
PURCHASE DEPOSITS (721) (17,835)
DEFERRED REVENUE 303,809 (79,106)
----------- -----------
NET CASH USED IN OPERATIONS (3,097,234) (1,181,517)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITION OF PROPERTY, EQUIPMENT AND SOFTWARE (615,068) (613,859)
CASH FROM FINANCING ACTIVITIES:
(REPAYMENTS) PROCEEDS FROM BORROWINGS (20,673) 60,467
PROCEEDS FROM SALE OF COMMON STOCK 151,390 2,762
REPAYMENT OF STOCKHOLDER NOTE -- 15,938
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 130,717 79,167
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (10,572) 724
----------- -----------
NET DECREASE IN CASH & CASH EQUIVALENTS (3,592,157) (1,715,485)
BEGINNING CASH AND CASH EQUIVALENTS 8,272,251 2,633,860
----------- -----------
ENDING CASH AND CASH EQUIVALENTS $ 4,680,094 918,375
=========== ===========
</TABLE>
(continued)
PAGE 6
<PAGE>
<TABLE>
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Six months ended Six months ended
06/30/99 06/30/98
----------------- -----------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID $ 1,649 2,771
======= ======
INCOME TAXES -- 3,850
======= ======
NONCASH INVESTING AND FINANCING ACTIVITIES
ASSETS RECORDED UNDER CAPITAL LEASES $47,993 --
======= ======
ADDITIONAL SHARES ISSUED IN CONNECTION WITH
THE FLANDERS LANGUAGE VALLEY STOCK
PURCHASE AGREEMENT $ -- 2,113
======= ======
SHARES ISSUED ON STOCK OPTION EXCERCISE IN
EXCHANGE FOR SURRENDER OF COMMON STOCK $32,805 --
======= ======
SHARES ISSUED IN EXCHANGE FOR WARRANTS $21,655 --
======= ======
CONVERSION OF PREFERRED STOCK TO
COMMON STOCK $ 800 --
======= ======
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</FN>
</TABLE>
PAGE 7
<PAGE>
XIOX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 : BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by the
Company, pursuant to the rules and regulations of the Securities and Exchange
Commission. The results of operations for the interim periods shown in this
report are not necessarily indicative of results to be expected for the fiscal
year. In the opinion of management, the information contained herein reflects
all adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. For further information, refer to
the consolidated financial statements and footnotes thereto, included in the
Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission
for the year ended December 31, 1998.
NOTE 2 : REVENUE RECOGNITION AND DEFERRED REVENUE
Effective January 1, 1998, the Company adopted Statement of Position (SOP) 97-2,
"Software Revenue Recognition." Under SOP 97-2, revenue from product sales is
recognized when evidence of the arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collection is probable. The Company provides
reserves for estimated returns of product sales and accrues for the estimated
costs of providing customer support when deemed necessary.
Under SOP 97-2, the Company is required to defer revenue related to customer
support and rate tariff table subscriptions and to recognize this revenue
ratably over the period of the agreements. Support 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.
NOTE 3 : INVENTORIES
Inventories have been stated at the lower of first-in, first-out cost or market.
Inventories consist solely of purchased hardware and software products (finished
goods).
NOTE 4 : BANK LINE OF CREDIT
The Company maintains a $1,000,000 line of credit collateralized by eligible
accounts receivable. The line bears interest at prime plus 1.0% (9.00% as of
June 30, 1999) which the Company intends to renew upon expiration in May 2000.
No amounts were outstanding under the line as of June 30, 1999.
PAGE 8
<PAGE>
XIOX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: XIOX FLANDERS N.V.
Xiox Flanders N.V. ("Xiox Flanders") was incorporated in Belgium pursuant to an
agreement between the Company and Flanders Language Valley (Flanders") and is
owned 94.9% by the Company and 5.1% by Flanders. The Company has committed to
fund Xiox Flanders with approximately $1,700,000 in 1999. The actual amount of
funding provided by the Company will depend on the business needs of Xiox
Flanders and can be modified by a vote of the Board of Directors.
NOTE 6: EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income or loss by
weighted average common shares outstanding during the period. Diluted earnings
per share reflects the net incremental shares that would be issued if preferred
stock were converted to common stock, outstanding warrants were exercised, and
dilutive outstanding stock options were exercised, using the treasury stock
method.
In the case of a net loss, it is assumed that no incremental shares would be
issued because they would be antidilutive. In addition, certain options and
warrants are considered antidilutive because the options' exercise price was
above the average market price during the period. Antidilutive shares are not
included in the computation of diluted earnings per share.
<TABLE>
The shares used in per share computations for the periods ended June 30, 1999
and 1998 are as follows:
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding-basic 3,259,816 3,147,231 3,219,016 3,145,739
Dilutive incremental shares -- -- -- --
-------------------- ------------------- ------------------ -----------------
Shares used in diluted per
share computations 3,259,816 3,147,231 3,219,016 3,145,739
==================== =================== ================== =================
</TABLE>
Excluded from the computation of diluted loss per share for the three and six
months ending June 30, 1999 are warrants to acquire 40,000 shares of common
stock, 1,797,989 shares of preferred stock which are generally convertible to
common stock on a one-to-one basis and 705,051 shares of stock options
outstanding. Excluded from the computation of diluted loss per share for the
three and six months ending June 30, 1998 are 498,200 shares of stock options
outstanding.
PAGE 9
<PAGE>
XIOX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: COMPREHENSIVE INCOME
Total comprehensive loss was $1,955,013 and $1,020,541 for the three months
ended June 30, 1999 and June 30, 1998, respectively. For the six months ended
June 30, 1999 and June 30, 1998 the total comprehensive loss was $3,390,549 and
$2,061,682. The difference between net loss and comprehensive loss is the result
of translation of the Company's foreign subsidiary, which has a local functional
currency.
NOTE 8: SEGMENT AND GEOGRAPHIC REPORTING
During 1998, the Company adopted the provisions of SFAS No.131, "Disclosure
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the reporting by public business enterprises of
information about operating segments, products and services, geographic areas,
and major customers. The Company has two segments, telephone management products
and the development of a new product line that addresses the combined telecom
and datacom markets. The two segments have been aggregated because their
long-term economic characteristics will be similar. The nature of the product,
the production process, type of customer, and methods of distribution will also
be similar. The Company did not generate any revenue from the new product line
and there were no unallocated corporate expenses in the three and six months
ending June 30, 1999 and June 30, 1998.
<TABLE>
The revenues for Xiox products are as follows:
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Telephone management
products 874,834 869,236 1,691,360 1,620,169
-------------------- ------------------- ------------------ -----------------
Service and support 500,005 488,679 997,645 935,607
-------------------- ------------------- ------------------ -----------------
Total revenue 1,374,839 1,357,915 2,689,005 2,555,776
==================== =================== ================== =================
</TABLE>
The Company's assets are primarily located in the United States and are not
allocated to any specific segment. The Company does not measure the performance
of its segments based on any asset-based metrics; therefore, segment information
is not provided for assets.
The Company has not separately reported segment information on a geographic
basis, as international sales have not been material for the three and six
months ending June 30, 1999 and June 30, 1998.
PAGE 10
<PAGE>
XIOX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
and requires the Company to recognize all derivatives as either assets or
liabilities on the balance sheet and measure them at fair value. Gains and
losses resulting from changes in fair value would be accounted for depending on
the use of the derivative and whether it is designated and qualifies for hedge
accounting. The Company will be required to implement SFAS No. 133 for its
fiscal year 2001, as amended by SFAS No. 137. The Company does not expect that
the adoption of SFAS No. 133 will have a material effect on the Company's
consolidated financial statements.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions." SOP 98-9 establishes
the method of recognizing revenue for certain multiple element software
arrangements. The Company will be required to adopt SOP 98-9 for transactions
entered into beginning January 1, 2001. The Company expects that the adoption of
SOP 98-9 will not have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
PAGE 11
<PAGE>
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The forward-looking statements included in this Quarterly Report filed on Form
10-QSB, which reflect management's best judgment based on factors known, involve
risks and uncertainties. In addition, the Company may from time to time make
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 under "Certain
Risk Factors Which May Impact Future Operating Results and Market Price of Stock
on page 14. Forward-looking information provided by Xiox should be evaluated in
the context of these factors.
The following is management's discussion and analysis of certain significant
factors which have effected Xiox's financial position and operating results
during the periods included in the accompanying condensed consolidated financial
statements.
Results of Operations
Second Quarter 1999 vs. 1998
Revenue for the three months ended June 30, 1999 was $ 1,374,839, an increase of
1% or $16,924 versus the $1,357,915 recorded during the three months ended June
30, 1998.
Total operating expenses for the three months ended June 30, 1999 were
$3,406,830, an increase of 42% or $1,009,874 versus the $2,396,956 of operating
expenses incurred during the three months ended June 30, 1998. Total product
costs as a percentage of revenue decreased to 45% in the second quarter of 1999
from 47% in the second quarter in 1998, primarily due to variations in product
mix as a result of a slight shift to products with lower costs.
Research and development expenses increased by 73% or $778,475 to $1,841,156 in
the second quarter of 1999 compared to $1,062,681 in the second quarter of 1998
due to an increased investment in new product development. The Company expects
quarterly research and development spending to exceed 1998 levels throughout
1999.
Marketing, sales and general and administrative expenses in the second quarter
of 1999 increased by 36% or $249,890 to $946,066 compared to $696,176 in the
second quarter of 1998, primarily due to an increase in marketing expenditures
associated with new product business development.
Other income increased by $48,494 from the second quarter of 1998 primarily due
to income earned on cash equivalent investments of $64,333 in the second quarter
of 1999 versus $16,944 earned in the second quarter of 1998. The increase in
cash equivalent investments is a result of proceeds received from the Company's
Series A financing in the Fall of 1998.
The Company lost $2,031,991 from operations during the second quarter of 1999
and reported a net loss after taxes of $1,970,224 versus a loss of $1,039,041
from operations and a net loss after taxes of $1,028,784 in the comparable
quarter of 1998. The Company attributes this to increased research and
development expenses associated with its new product development in addition to
administrative and marketing expenses necessary to support this effort.
PAGE 12
<PAGE>
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
First Half 1999 vs. 1998
Revenue for the six months ended June 30, 1999 was $2,689,005, an increase of 5%
versus the $2,555,776 recorded during the six months ended June 30, 1998. The
$133,299 increase in revenue is attributable to higher demand for software
products in the first half of 1999 versus the first half of 1998.
Total operating expenses for the six months ended June 30, 1999 were $6,199,373,
an increase of 33% or $1,551,018 versus the $4,648,355 of operating expenses
incurred during the six months ended June 30, 1998. Total product costs as a
percentage of revenue decreased to 43% in the first half of 1998 from 48% in the
first half in 1997, primarily due to variations in product mix.
Research and development expenses increased by 64% or $1,278,117 to $3,272,864
in the first half of 1999 compared to $1,994,747 in the first half of 1998 due
to increased investment in new product development. The Company expects
quarterly research and development spending to exceed 1998 levels throughout
1999.
Marketing, sales and general and administrative expenses in the first half of
1999 increased by 23% or $329,691 to $1,761,453 compared to $1,431,762 in the
first half of 1998, primarily due to an increase in marketing expenditures
associated with new product business development.
Other income increased by $107,194 from the first half of 1998 primarily due to
income earned on cash equivalent investments of $151,995 in the first six months
of 1998 versus $46,667 earned in the first six months of 1998.
The Company lost $3,510,368 from operations during the first half of 1999 and
reported a net loss after taxes of $3,364,689 versus a loss of $2,092,579 from
operations and a net loss after taxes of $2,055,185 in the comparable period of
1998. The Company attributes this to increased research and development expenses
associated with its new product development in addition to administrative and
marketing expenses necessary to support this effort.
Liquidity and Capital
At June 30, 1999, Xiox held cash and cash equivalents totaling $4,680,094 and
had working capital of $4,182,468 versus cash equivalents of $8,272,251 and
working capital of $7,814,364 at December 31, 1998. The Company anticipates
investing in excess of $1,000,000 in capital equipment during 1999, consisting
primarily of computer hardware and software and testing equipment. Since
December 31, 1998, capital equipment procurements have totaled $663,061.
The Company has committed to fund Xiox Flanders N.V., a 94.9% owned subsidiary,
with approximately $1,700,000 in 1999. The actual amount of funding provided by
the Company will depend on the business needs of Xiox Flanders and can be
modified by a vote of the Board of Directors. In the current quarter, the
Company has not paid any money directly to Xiox Flanders.
PAGE 13
<PAGE>
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company maintains a bank line of credit of $1,000,000. The bank line, when
utilized, is collateralized by certain current assets and property and
equipment. The line carries a variable interest rate based upon prime plus 1.0
(9.00% as of June 30, 1999) which the Company intends to renew upon expiration.
No amounts were outstanding under the line as of June 30, 1999.
The Company is exploring raising additional funds to support the marketing and
development of a new product line addressing the combined telecom and datacom
markets.
Certain Risk Factors Which May Impact Future Operating Results and Market Price
of Stock
Xiox operates in a rapidly changing environment that involves a number of risks
and uncertainties, some of which are beyond the Company's control and any of
which may have an adverse effect on the Company's business, financial condition
and results of operations. These uncertainties include, but are not limited to,
the Company's reliance on the sale of few products; the Company's dependence on
the ability of its distribution channels to market the Company's products; the
fluctuations in the Company's quarterly results and the effect of these results
on the Company's ability to maintain its listed status on the Nasdaq Small Cap
Market; the ability of the Company's product developers to design products and
software that do not contain defects and "bugs" which render the products or
software inoperable or susceptible to breakdown, software viruses or "hacking";
and the outcome of any litigation the Company may be involved in. In addition,
the Company typically experiences weaker sales in the second quarter of each
calendar year compared to sales for the last quarter of the previous year.
Year 2000 Compliance
Definition. The Year 2000 issue is the result of computer programs written using
two digits rather than four to define the applicable year. Computer programs and
embedded systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. If one of our internal systems,
or those of a customer, supplier, or service provider, does not correctly
recognize date information when the year changes to 2000, there could be system
failures or malfunctions that result in an adverse impact on our operations.
We have assessed the capability of our products sold to customers and believe
that for these products we have no exposure to contingencies related to the Year
2000 issue that would have a material adverse effect on our financial position
or results of operations. A list of Year 2000 ready products has been posted on
our web site and has been sent to customers and distributors via Company
newsletters.
Products. Our products receive data from other equipment such as PC's and PBX's
and can only properly handle Year 2000 dates if they receive Year 2000 compliant
data. Some systems we sell or have sold with computer BIOS manufactured prior to
1996 will need to have the internal clock
PAGE 14
<PAGE>
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
reset or the BIOS modified in order to ensure proper performance. If the data
received from PBX equipment or PC's that are not Year 2000 compliant is
incorrect, Xiox products could generate erroneous information. If PC's on which
Xiox software operates are not Year 2000 compliant, Xiox products could also
generate erroneous information. We believe that the likelihood of a material
adverse impact due to problems with products sold to customers is low. We expect
that any costs to be incurred to assure Year 2000 capability relating to product
released or in development will not have a material adverse effect on our
financial position, results of operations, or cash flow.
Internal Systems. During the second quarter of 1999, we continued our efforts to
assess and remediate our computer systems, telecommunications systems, software
systems, and related equipment to ensure each system will function properly as
the Year 2000 approaches. The Year 2000 program is being conducted in four
phases: (a) identification, (b) assessment, (c) remediation, and (d) testing.
o The identification and assessment phases have been completed. All
systems acquired in the future will be subject to assessment prior to
purchase.
o The remediation phase is estimated at 95% complete based on the systems
requiring patches or upgrades. The primary system requiring attention
was our Manufacturing and Financial Management System, Macola. The
upgrade to this system was completed in the first quarter of 1999.
o The testing phase is currently in a preliminary stage. Testing of
systems and interfaces will occur near the end of the remediation
phase.
We currently believe our information systems will be Year 2000 compliant by the
end of the third quarter of 1999. However, we cannot be certain that our
internal systems will be Year 2000 compliant in a timely manner. The potential
risks include the inability to process and report financial and other
transactions in a timely and accurate manner. We do not believe that this will
have a material adverse effect on the our business or consolidated financial
statements.
External Suppliers. We have begun the process of seeking confirmation on the
Year 2000 compliance of our top suppliers. We are sending a Year 2000 compliance
survey to those suppliers with sizeable volume and to our single sources for
components or services. We expect this process to be completed by the end of the
third quarter of 1999.
We have been advised that the most critical systems, services, and products
supplied to us by external sources are Year 2000 ready or are expected to be
Year 2000 ready by the end of the third quarter of 1999.
We will be developing contingency plans for systems and services provided by
vendors that do not respond to our requests or fail in their readiness efforts.
However, we cannot be certain that our external suppliers will be Year 2000
compliant in a timely manner. The potential risks include the production of
inaccurate rate tables and delays in product deliveries. We do not believe that
this will have a material adverse effect on our business or consolidated
financial statements.
State of Readiness. As of this date, we have made significant progress in
identifying systems, completing assessments, and implementing solutions for the
high priority internal systems so
PAGE 15
<PAGE>
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
that our computer systems will function properly with respect to dates in the
year 2000 and thereafter.
We are actively participating with customers and suppliers to ensure progress is
being made and that the dates forecast are reasonable and attainable.
Costs. Other than time spent by our internal information technology and other
personnel, we have not incurred any significant costs in identifying, assessing,
and remediating Year 2000 issues.
Because we are in a growth phase, systems improvement initiatives are underway
to improve our primary business systems. We do not anticipate any significant
costs related to remediation efforts because planned systems improvements will
include Year 2000 readiness as a standard requirement.
This statement assumes that third party suppliers have accurately assessed the
compliance of their products and that they will successfully correct any issues
in non-compliant products. Because of the complexity of correcting the Year 2000
issue, actual costs may vary from estimates.
Although the total cost to obtain Year 2000 compliance is not known at this
time, we currently expect the cost to be less than $150,000. The actual cost,
however, could exceed this estimate. These costs are not expected to have a
material effect on our financial position, results of operations, or cash flows.
Contingency Plans. Based upon the progress of our plan, we expect that we will
not experience a material disruption of our operations as a result of the change
to the new millennium. However, we cannot be certain that the third parties who
have supplied technology used in our mission critical systems will be successful
in taking corrective action in a timely manner.
We are developing contingency plans, intended to enable us to continue
operations, with respect to certain key technology used in our mission critical
systems.
Contingency plans include performing certain processes manually, repairing
systems, and changing suppliers if necessary, although we cannot be certain that
these contingency plans will successfully avoid service disruption in the
operation of business as usual.
The Company believes that the most reasonably likely worst case scenario would
be if telephone, utility or shipping services were disrupted. A disruption to
any of these systems would limit our ability to service customers until such
services are restored. The Company is not currently aware of any evidence that
such a failure is likely to occur in any of its service areas.
PAGE 16
<PAGE>
PART II - OTHER INFORMATION
XIOX CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
None.
PAGE 17
<PAGE>
********************************************************************************
XIOX CORPORATION
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officers of the registrant.
XIOX CORPORATION
Registrant
Date: August 16, 1999
/s/ William H. Welling
--------------------------------------------
William H. Welling, Chairman/CEO
(Duly Authorized Officer)
Date: August 16, 1999
/s/ Melanie D. Johnson
--------------------------------------------
Melanie D. Johnson, VP Finance/CFO/Secretary
(Duly Authorized Officer)
PAGE 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM the Company's Condensed 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,680,094
<SECURITIES> 0
<RECEIVABLES> 1,155,402
<ALLOWANCES> 130,930
<INVENTORY> 456,999
<CURRENT-ASSETS> 6,383,854
<PP&E> 3,752,197
<DEPRECIATION> 1,902,010
<TOTAL-ASSETS> 8,670,608
<CURRENT-LIABILITIES> 2,201,386
<BONDS> 0
0
17,980
<COMMON> 33,240
<OTHER-SE> 6,247,851
<TOTAL-LIABILITY-AND-EQUITY> 8,670,608
<SALES> 2,689,005
<TOTAL-REVENUES> 2,689,005
<CGS> 1,165,056
<TOTAL-COSTS> 6,199,373
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,649
<INCOME-PRETAX> (3,359,278)
<INCOME-TAX> 5,411
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<NET-INCOME> (3,364,689)
<EPS-BASIC> (1.05)
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