UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period March 31, 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
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(Exact name of small business issuer as specified in its charter)
Delaware 95-3824750
------------------------------ ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No)
577 Airport Blvd, Suite 700,
Burlingame, California 94010
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (650) 375-8188
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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 April 30, 1999 3,185,388 shares
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PAGE 1 of 17
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X I O X C O R P O R A T I O N
INDEX
Page No.
--------
PART I Financial Information
Item 1.
Condensed Consolidated Balance Sheets -
March 31, 1999 (unaudited) and
December 31, 1998 (unaudited) 3
Condensed Consolidated Statements of Operations
Three Months ended March 31, 1999 (unaudited)
and March 31, 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 1999 (unaudited)
and March 31, 1998 (unaudited) 5-6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-15
PART II Other Information
Item 6.
Exhibits and Reports on Form 8-K 16
Signatures 17
PAGE 2
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XIOX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
***
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH & CASH EQUIVALENTS $ 6,440,993 8,272,251
ACCOUNTS RECEIVABLE, NET 737,766 714,200
OTHER RECEIVABLES 13,135 9,585
INVENTORIES 443,414 433,149
PREPAID EXPENSES AND OTHER ASSETS 220,040 96,413
------------ ------------
TOTAL CURRENT ASSETS 7,855,348 9,525,598
PROPERTY, EQUIPMENT AND SOFTWARE, NET 1,692,950 1,445,977
NOTES RECEIVABLE 100,000 100,000
DEPOSITS & OTHER ASSETS 324,366 336,645
------------ ------------
TOTAL ASSETS $ 9,972,664 11,408,220
============ ============
LIABILITIES/STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 359,181 325,198
ACCRUED EXPENSES 297,067 312,248
ACCRUED COMPENSATION 207,214 158,870
PURCHASE DEPOSITS 35,270 42,382
DEFERRED REVENUE 813,540 872,536
------------ ------------
TOTAL CURRENT LIABILITIES $ 1,712,272 1,711,234
NOTES PAYABLE 32,716 42,473
COMMITMENTS & CONTINGENCIES
MINORITY INTEREST 123,794 117,883
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $0.01 par value; 2,000,000 shares authorized;
1,877,989 issued and outstanding as of March 31, 1999 and
December 31, 1998: liquidation preference of $9,389,945 18,780 18,780
COMMON STOCK, $.01 Par, 10,000,000 shares authorized, 3,178,399 and
3,177,387 shares issued and outstanding as of March 31, 1999 and
December 31,1998, respectively 31,784 31,774
ADDITIONAL PAID-IN CAPITAL 17,491,533 17,489,554
DEFERRED COMPENSATION (7,465) (8,265)
WARRANTS FOR COMMON STOCK 108,275 108,275
ACCUMULATED OTHER COMPREHENSIVE LOSS (58,715) (17,644)
ACCUMULATED DEFICIT (9,480,310) (8,085,844)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 8,103,882 9,536,630
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,972,664 11,408,220
============ ============
<FN>
*** Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
PAGE 3
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<TABLE>
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
REVENUES $ 1,314,165 1,197,861
----------- -----------
PRODUCT COSTS 545,448 583,747
RESEARCH AND DEVELOPMENT 1,431,708 932,066
MARKETING, SALES, GENERAL AND ADMINISTRATIVE 815,387 735,586
----------- -----------
2,792,543 2,251,399
----------- -----------
LOSS FROM OPERATIONS (1,478,378) (1,053,538)
OTHER INCOME, NET 87,037 28,337
----------- -----------
LOSS BEFORE INCOME TAXES (1,391,341) (1,025,201)
INCOME TAX PROVISION 3,125 1,200
----------- -----------
NET LOSS $(1,394,466) (1,026,401)
=========== ===========
PER SHARE INFORMATION:
BASIC NET LOSS PER SHARE $ (0.44) (0.33)
=========== ===========
NUMBER OF SHARES USED IN BASIC
PER SHARE COMPUTATION 3,177,763 3,144,231
=========== ===========
DILUTED NET LOSS PER SHARE $ (0.44) (0.33)
=========== ===========
NUMBER OF SHARES USED IN DILUTED
PER SHARE COMPUTATION 3,177,763 3,144,231
=========== ===========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
PAGE 4
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<TABLE>
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(1,394,466) (1,026,401)
ADJUSTMENTS TO RECONCILE NET LOSS TO
CASH USED IN BY OPERATIONS
DEPRECIATION AND AMORTIZATION 109,300 63,189
AMORTIZATION OF DEFERRED COMPENSATION 800 2,133
MINORITY INTEREST IN NET LOSS (2,648) (9,674)
CHANGE IN OPERATING ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE, NET (23,566) 243,755
OTHER RECEIVABLES (4,443) 411,384
INVENTORIES (10,265) (4,860)
PREPAIDS, DEPOSITS AND OTHER ASSETS (135,606) 74,687
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 69,575 96,187
PURCHASE DEPOSITS (7,111) (19,300)
DEFERRED REVENUE (58,996) (42,823)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,457,426) (211,723)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITION OF PROPERTY, EQUIPMENT AND SOFTWARE (357,272) (439,217)
CASH FROM FINANCING ACTIVITIES:
PROCEEDS FROM BORROWINGS (9,757) 69,464
PROCEEDS FROM SALE OF COMMON STOCK 1,988 --
REPAYMENT OF STOCKHOLDER NOTE -- 15,938
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (7,769) 85,402
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (8,791) (5,928)
----------- -----------
NET DECREASE IN CASH & CASH EQUIVALENTS (1,831,258) (571,466)
BEGINNING CASH AND CASH EQUIVALENTS 8,272,251 2,633,860
----------- -----------
ENDING CASH AND CASH EQUIVALENTS $ 6,440,993 2,062,394
=========== ===========
(continued)
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
PAGE 5
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<TABLE>
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ,(cont.)
(unaudited)
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID $ 626 485
INCOME TAXES -- 2,250
NONCASH FINANCING ACTIVITIES:
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE FLANDERS
LANGUAGE VALLEY STOCK $-- 2,113
===== =====
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
PAGE 6
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X I O X C O R P O R A T I O N
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% (8.75% as of
March 31, 1999) which the Company intends to renew upon expiration in May 1999.
No amounts were outstanding under the line as of March 31, 1999.
PAGE 7
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X I O X C O R P O R A T I O N
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 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.
The shares used in per share computations for the periods ended March 31, 1999
and 1998 are as follows:
March 31, March 31,
1999 1998
--------- ---------
Weighted-average common shares used to
calculate basic net income (loss) per share 3,177,763 3,144,231
Dilutive incremental shares -- --
--------- ---------
Shares used in diluted per-share computations 3,177,763 3,144,231
========= =========
Excluded from the computation of diluted loss per share for March 31,1999 are
warrants to acquire 50,000 shares of common stock, 1,877,989 shares of preferred
stock which are generally convertible to common stock on a one-to-one basis,
614,908 shares of stock options outstanding. Excluded from the computation of
diluted loss per share for March 31, 1998 are 349,400 shares of stock options
outstanding.
PAGE 8
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X I O X C O R P O R A T I O N
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: COMPREHENSIVE INCOME
Total comprehensive loss was $1,453,181 and $1,044,045 for the three months
ended March 31, 1999 and March 31, 1998, respectively. 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. Although the new product line did not generated any revenue
during 1998, revenue is expected in the second half of 1999 concurrent with
product release. 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. Additionally, there were no unallocated corporate expenses in the three
months ending March 31, 1999 and March 31, 1998.
The revenues for Xiox products are as follows:
Three months ended Three months ended
March 31, March 31,
1999 1998
---------- ----------
Telephone management products $ 816,526 750,933
Service and support 497,639 446,928
---------- ----------
Total revenue $1,314,165 1,197,861
========== ==========
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 months ending
March 31, 1999 and March 31, 1998.
PAGE 9
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X I O X C O R P O R A T I O N
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 2000. 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, 2000. 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 operaitons or cash flows.
PAGE 10
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X I O X C O R P O R A T I O N
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 12. 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
Revenue for the three months ended March 31, 1999 was $ 1,314,165, an increase
of 10% versus the $1,197,861 recorded during the three months ended March 31,
1998. The $116,304 increase in revenue is attributable to higher demand for call
accounting products in the first quarter of 1999 versus the first quarter of
1998.
Total operating expenses for the three months ended March 31, 1999 were
$2,792,543, an increase of 24% or $541,144 versus the $2,251,399 of operating
expenses incurred during the three months ended March 31, 1998. Total product
costs as a percentage of revenue decreased to 42% in the first quarter of 1999
from 49% in the first 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 54% or $499,642 to $1,431,708 in
the first quarter of 1999 compared to $932,066 in the first 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 first quarter of
1999 increased by 11% or $79,801 to $815,387 compared to $735,586 in the first
quarter of 1998, primarily due to marketing costs associated with new product
business development.
Other income increased by $58,700 from the first quarter of 1998 primarily due
to income earned on cash equivalent investments of $87,663 in the first quarter
of 1999 versus $29,723 earned in the first quarter of 1998. The increase in cash
equivalent investments is a result of the Companys Series A financing in the
Fall of 1998.
The Company lost $1,478,378 from operations during the first quarter of 1999 and
reported a net loss after taxes of $1,394,466 versus a loss of $1,053,538 from
operations and a net loss after taxes of $1,026,401 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, offset by increase sales.
PAGE 11
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X I O X C O R P O R A T I O N
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital
At March 31, 1999, Xiox held cash and cash equivalents totaling $6,440,993 and
had working capital of $6,143,076 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 $357,272.
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.
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
(8.75% as of March 31, 1999) which the Company intends to renew upon expiration.
No amounts were outstanding under the line as of March 31, 1999.
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 first quarter of each
calendar year compared to sales for the last quarter of the previous year.
PAGE 12
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X I O X C O R P O R A T I O N
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 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 first 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 85% 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 second 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
PAGE 13
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X I O X C O R P O R A T I O N
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 mid-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 mid-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 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.
PAGE 14
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X I O X C O R P O R A T I O N
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 15
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PART II - OTHER INFORMATION
XIOX CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
NONE
PAGE 16
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********************************************************************************
X I O X C O R P O R A T I O N
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: May 17, 1999 /s/ William H. Welling
--------------------------------
William H. Welling, Chairman/CEO
(Duly Authorized Officer)
Date: May 17, 1999 /s/ Melanie D. Johnson
--------------------------------
Melanie D. Johnson, VP Finance
/CFO/Secretary
(Duly Authorized Officer)
PAGE 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS 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.
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<NAME> Xiox Corporation
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