UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
F O R M 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, 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
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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: (650) 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 ___
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. __
Issuer's revenues for its most recent fiscal year were: $5,577,181
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As of March 1, 2000, the aggregate market value of the voting common stock held
by non-affiliates (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) was approximately $44,553,709. On the same date, the aggregate market
value of the voting preferred stock held by non-affiliates (based upon a
one-to-one conversion of preferred stock to common stock) was approximately
$34,075,938.
As of March 1, 2000, the registrant's outstanding shares totaled 3,613,262 of
common stock and 2,547,989 of preferred stock.
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, 1999 for Part II; (2) Proxy Statement dated April 17, 2000 for the
Annual Meeting of Stockholders to be held May 15, 2000 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 in this document as a
result of a number of factors, including but not limited to those discussed in
Item 1 of this report, "Description of Business," and Item 6, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
incorporated by reference to pages 2 through 8 of Xiox's 1999 Annual Report to
stockholders.
You can identify forward-looking statements by noting the use of terms such as
"believes," "expects," "plans," "estimates," and other similar words. Certain
risks, uncertainties, or assumptions that are difficult to predict may affect
such statements. The following risk factors and other cautionary statements
could cause our actual operating results to differ materially from those
expressed in any forward-looking statement. We caution you to keep in mind the
following risk factors and other cautionary statements and to refrain from
placing undue reliance on any forward-looking statements, which speak only as of
the date of this document.
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Table of Contents
Page
PART I
Item 1. Description of Business 4
A. The Company 4
B. Products 6
C. Sales, Marketing, and Distribution Methods 10
D. Revenue Patterns 10
E. Industry and Competition 11
F. Research and Development Expenses 12
G. Patents, Copyrights, Trademarks, and Licenses 12
H. Production and Backlog 12
I. Employees 12
Item 2. Description of Property 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 14
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7. Financial Statements 14
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
PART III
Item 9. Directors and Executive Officers of the Registrant 15
Item 10. Executive Compensation 15
Item 11. Security Ownership of Certain Beneficial Owners
and Management 15
Item 12. Certain Relationships and Related Transactions 15
Item 13. Exhibits, Financial Statements, and Reports on Form 8-K 16
Signatures 21
Exhibit Index 23
Exhibit 10.29 Amendment to November 18, 1997 Lease Agreement
between Xiox and One Dow Court, Inc., dated
November 10, 1999.
Exhibit 13.1, Xiox Corporation 1999 Annual Report
Exhibit 23.1, Consent of Independent Auditors
Exhibit 27.1, Financial Data Schedule
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PART I
Item 1. Description of Business
A. The Company
Xiox Corporation was originally incorporated in California in September 1982,
and was subsequently reincorporated in Delaware in April 1987. Xiox became a
publicly held company in February 1986.
We design, develop, manufacture and sell software and hardware systems that
assist companies in managing their telecommunications expenses. These software
and hardware solutions can operate on personal computers, local area networks,
and Xiox hardware. Our systems efficiently provide information to facilitate
telephone expense control; client, department, or project billback; and fraud
control prevention. These systems can meet the simple needs of a 25-person
office or the complex needs of a multi-site Fortune 500 corporation. In
addition, we market a complete family of telephone and network security
products.
Since our incorporation, our product line has expanded from a single software
system to a full range of telecommunication systems, each of which has been
designed to address the needs of small or large businesses in many different
industries. In addition to our software and hardware-based systems, we also
provide call costing rate tables and system enhancements to end users under
subscription arrangements. We market our systems through a sales force, dealers,
subsidiaries of the regional bell operating companies, and original equipment
manufacturers.
With the convergence of voice and data driving small business customers towards
more complex premise technology and the rapidly expanding global network
infrastructure, we formed a new product group. This group is developing, and
will market a new generation of highly integrated customer premise networking
products that seamlessly integrate data networks and telephony solutions. These
products will enable us and our sales channels to strategically address and
participate in a much larger global business. The new product line will provide
business customers with what they need for secure voice and data communications
between their customers, employees and suppliers. Not only will our solution
reduce the initial cost of acquisition, but it will also allow for reductions in
installation, system management and telecommunications costs associated with
today's complex converged systems. We will announce the product in the first
half of the year.
Developments During 1999
In March 1999 we announced the signing of a contract that endorses us as the
official call accounting solution for all Bass Hotels & Resorts franchise hotels
in North America. Under the agreement Bass has standardized on Xiox call
accounting as the solution for all new properties built under the Bass Hotels &
Resorts flag, such as Holiday Inn(R), Staybridge Suites(SM), Holiday Inn
Express(R), and Crowne Plaza(R) Hotels & Resorts. Bass Hotels & Resorts has also
selected
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us as the standard for call accounting for all existing hotels in North America
to meet their new telecommunications technical standards.
In May 1999 we announced with Promus Hotel Corporation the signing of a master
purchase agreement with INNCO Purchasing Management, a wholly-owned subsidiary
of Promus Hotel Corporation, that endorses Xiox as a preferred call accounting
solution for all Promus properties in North America. Under the agreement Promus
will standardize on Xiox call accounting in a Preferred Supplier Network for all
properties built under the Promus flag, including Doubletree Hotels, Embassy
Suites, Hampton Inns, and Homewood Suites.
Also in May 1999 we announced the completion of Directory Services Integration
for our call accounting and facilities management software utilizing Lightweight
Directory Access Protocol (LDAP). LDAP integration allows our products to be
automatically updated as changes are made from any LDAP enabled director server,
bringing true single point-of-entry for LDAP enabled telecommunication products
such as voice mail and PBX systems.
In December 1999, we received a total of approximately $7,500,000 from Flanders
Language Valley CVA, an affiliate of our company, Edmund Shea and Mary Shea Real
Property Trust, a holder of greater than ten percent of our common stock, and
other private investors for the purchase of our Series B preferred stock. This
occurred in an initial closing on December 30, 1999. A total of 375,000 shares
of our Series B preferred stock were sold at a purchase price of $20.00 per
share. The Series B Preferred Stock is convertible into Common Stock on a 1:1
basis, subject to certain antidilution provisions, on the date of issuance. The
purchase price of the Series B Preferred Stock was less than the prevailing
market price of the Company's common stock resulting in a beneficial conversion
right of $2,132,812, which has been reflected in the accompanying statement of
operations for the year ending December 31, 1999 as an increase in net loss
applicable to common shareholders.
A second closing occurred on February 7, 2000 in which an additional $12,900,000
of Series B preferred stock was sold to Flanders Language Valley and other
private investors. A total of 645,000 shares of Series B preferred stock were
sold at a purchase price of $20.00 per share. This was the second and final
closing of a $20,400,000 sale of 1,020,000 shares of Series B preferred stock.
As a result of the second closing, a beneficial conversion right of $5,482,500
will be reflected in the Company's 10-QSB for the quarter ending March 31, 2000
as an increase in net loss applicable to common shareholders. The second closing
was completed on the same terms as the first closing following an amendment to
the Stock Purchase and Investor Rights Agreement dated December 30, 1999.
The funds are being used on the development and marketing of a new product line
that addresses the combined telephony and data markets. We plan to announce the
product in the first half of 2000.
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B. Products
Our products are sold to the commercial and hospitality markets and are
comprised of three product categories:
o Call Accounting
o Traffic Engineering
o Facilities Management
These categories are often combined into an integrated package called a
Telecommunications Management System ("TMS"). These products are provided on
several platforms: on proprietary stand-alone hardware, personal computers,
local area networks, or as a service bureau offering. We have implemented TMS
for clients as a managed outsourcing project when customers are looking for an
alternative to running call accounting independently.
TMS or telemanagement products can be used in most industries. The primary
benefits that customers look for in 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 from telephone calls (generally
from the Private Branch Exchange or "PBX"), and to price calls by applying long
distance and local exchange carrier tariffs. Rated calls are placed into a
database and can be sorted, summed, and printed in a variety of report formats.
A call accounting system can generate savings ranging between 10 and 40 percent
of the total number of minutes used each month, compared to telecommunication
networks without call accounting. Savings are realized when call accounting
allows a company to increase the efficiency of its telecommunications network
and to reduce the minutes of usage. If each employee were to reduce phone usage
by five minutes per day, the savings for 100 employees at a cost of $0.08 per
minute, for example, would be over $10,000 per year.
Call accounting software systems and related subscription services are designed
to be utilized in connection with the user's telephone system and personal
computer or local area network. Although we do not manufacture computers; we can
provide computers upon customer request.
Our call accounting systems do not require insertion of additional expansion
boards into a computer. An end user's computer does not need to be dedicated to
perform only call accounting functions under a Windows-based operating system
(Win95, Win98, NT3.5, and NT4.0 workstations).
For additional data security, we offer a call storage buffer. These external
call storage devices are built to our specifications and sold through our
distribution channels as part of an integrated system.
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Our 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,
universities, 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 our tools and reports
are accessible with point and click functionality, including:
o macros for viewing information in colorful graphical formats
o Intelligent Configuration(TM) (patented) for automatic and simple
installation
o scheduled polling, processing, and reporting
o intuitive management of multiple sites
o rate table updates at a click of a button or automatically scheduled
By utilizing these tools, a GBS for Windows(TM) user can install the software
and create high impact graphical presentations within hours. In comparison,
other DOS-based and Windows(TM) competitive packages can take up to several days
to install, configure, and learn, with additional time needed to prepare the
first graph. Our current GBS for Windows(TM) is built upon its predecessor's
reputation for accuracy, flexibility, and quality of support.
Customers with more than one location may elect to establish a central (host)
site that will poll remote sites over telephone lines. Our central polling
software works in conjunction with pollable call storage buffers to create a
networked telemanagement system.
Call Accounting Hardware
Our hardware-based call accounting systems, The Prophet Series, 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, processing, and rating are all performed within the device's
firmware. An external keypad is available for simplifying 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 our distribution channels.
An enhancement to the series includes the Prophet Writer(R) for Windows
software. When call records are downloaded to a customer-provided personal
computer, they may be stored to the computer's hard drive. Prophet Writer(R)
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 at a central site.
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Traffic Engineering for Windows Software
The Xiox Traffic Engineering for Windows Software ("XTES") is a Microsoft
Windows-based management tool used to reduce the cost per minute of
telecommunications. This is accomplished by analyzing trunk utilization and
identifying problems with automatic route selection programs (also called "least
call routing") in the PBX.
This product greatly simplifies the traditional traffic engineering function.
The "Alerts and Suggestions" report identifies actions that should be considered
to reduce costs or eliminate blockage.
Our traffic engineering software works in conjunction with our call accounting
software databases or as a separate application to reduce the user's cost per
minute. Implementation of the software's suggestions can materially reduce most
companies' cost per minute.
The Xiox Traffic Operations Measurements product ("TES-OM") is a Microsoft
Windows-based analysis tool used to optimize performance and detect hardware and
configuration problems with Nortel Meridian PBX equipment. This software package
was designed specifically for Nortel Meridian-1 and SL-1 equipment to record
hourly traffic statistics reported by the PBX, properly interpret the data, and
provide a comprehensive set of illustrated color reports and historical
information.
This product annotates reports with information identifying abnormal conditions
reported on the PBX that fall outside the recommendations provided by Nortel for
their customers. Customers may use this information to significantly reduce
their monthly service costs and/or greatly improve the service performance on a
PBX.
Facilities Management Software
The Xiox Windows Facilities Management ("XFMS") is a Microsoft Windows-based
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 LAN-based, multi-user configuration 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 provide a
consolidated extension report of all telephony-related expenses incurred by a
user or tenant over a specific time period.
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Xiox Hospitality Industry Product Applications
Call Accounting Software
Xiox Lodging Software is specifically designed for resale applications 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 posts to the hotel's property
management system or provides easy-to-use guest billback capability for
properties without a property management system. 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(R) 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 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 operate without
lengthy training, and it includes features such as one-touch reporting and
credit limit alarm.
The Summa Pro(R) 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 Summa Pro(R) is designed for the limited space in a front
desk environment.
Product Support and Subscription Services
We obtain and resell third-party hardware, primarily external buffers. In
addition, we provide an option for our customers and dealers for system
installation, training, and travel costs associated with familiarizing customers
with systems.
We renew product support subscriptions for customers on an annual basis. Renewal
entitles a client to unlimited access to our Product Support Center and receipt
of any product enhancements or "bug fixes" throughout the year.
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We provide 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. We offer several rate table options, based on the
complexity of the customer's telecommunications environment. We also offer
enhancements to and support of systems after the first year of use.
C. Sales, Marketing, and Distribution Methods
We market our systems to end users primarily through our network of authorized
dealers. We sell to over 400 dealers, including regional bell operating
companies (i.e., USWest Information Systems and BellSouth Communications
Systems) and several independent business telephone dealers. Most of our 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. Our ability to effectively distribute our products depends in
part upon the financial and business condition of our distribution network. One
customer accounted for 12 percent of our revenue during 1999, versus two
customers that each accounted for 11 percent of our revenue in 1998. During each
of the years ended December 31, 1999 and 1998, our export sales were less than
two percent of total sales.
Our marketing approach varies depending upon the type of system. A description
of each of these approaches is set forth below.
Xiox GBS for Windows, Xiox Traffic Engineering for Windows Software, and Xiox
Facilities Management Software: These systems are typically marketed to large
corporations primarily through our sales force, regional bell operating
companies, or business telephone dealers. In order for dealers to effectively
establish and support their customer base, we must commit technical and sales
personnel to training dealers in installation and application support.
Xiox Lodging Software, Summa Prophet H, and Summa Pro(R): The Summa Suite family
of products is targeted to independent and chain-affiliated properties in the
lodging industry. Marketing of Xiox Lodging Software is through the direct sales
force and value-added dealers specializing in lodging specific systems.
Xiox Prophet Call Accounting Systems: These hardware devices are marketed
exclusively through our distributors and original equipment manufacturers.
D. Revenue Patterns
Our operating history indicates a sales pattern reflective of both the
telecommunication and computer industries, with sales generally weaker in the
first quarter of each calendar year in comparison to the last quarter of the
previous year.
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E. Industry and Competition
The telecommunications systems industry has been characterized by intense
competition and rapid technological and market changes. The principal
competitive factors in the telephone management and call accounting software
systems market are customer service, dealer coverage, name recognition, product
performance, price, and flexibility of product design.
Most of our competitors have substantially greater financial, marketing, and
technology resources than we do, and that may harm our ability to compete
effectively with them. Based on industry sources, we believe that both Telco
Research and ISI-Infortext, which are privately held, have revenues that are at
least twice as large as our revenues. Nortel Networks Corporation, a public
company, reported 1999 revenues of approximately $21 billion . In each case, we
believe our competitors have marketing and technological resources commensurate
with their revenues. We cannot be certain that we will be able to compete
successfully against either current or potential competitors or that competition
will not have a material adverse effect on our business, consolidated results of
operations, and financial condition.
If we do not keep pace with rapid technological change, we may not be able to
produce new products and remain competitive. The software industry is
characterized by rapid technological change, as well as changes in customer
requirements and preferences. In order to remain competitive in this industry,
we must quickly respond to such changes, including the enhancement and upgrading
of existing products and the introduction of new products. We believe that our
future results will depend largely upon our ability to offer products that
compete favorably with respect to price, reliability, performance, range of
useful features, continuing product enhancements, reputation, and training.
Original Equipment Manufacturers. Currently, our products compete with systems
offered by manufacturers of computerized telephone systems. We compete on the
basis that our products operate on standard personal computers and are typically
offered at lower prices; many of our competitors' products require a significant
hardware investment.
Independent Hardware and Software Developers. Directly and through dealers, we
also compete with numerous independent hardware and software developers.
We believe that we effectively compete with other companies on the basis of
price, performance, and more sophisticated features. However, because the market
in which we compete is intensely competitive, we cannot be sure that we will
remain competitive in respect to some or all of these factors.
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F. Research and Development Expenses
We are committed to the development of new products and the continued
enhancement of our existing products. In 1999 we continued a large development
effort on a new product line addressing the combined telephony and data markets.
During 1999 we expended $7,843,563 on research and development versus $4,194,254
in 1998. We expect the spending during 2000 to exceed 1999 spending. We plan to
announce the product in the first half of 2000.
G. Patents, Copyrights, Trademarks, and Licenses
We have filed for copyrights for our computer programs and algorithms.
We have secured trademark protection for our service marks under our Fort
Knox(R) Family of products, including Fort Knox(R), Hacker Tracker(R), Xiox
Hacker Tracker(R), Hacker Preventer(R), and Hacker Deadbolt(R). We also have
trademark protection for Prophet Writer(R), Summa Pro(R), Summa Suite(R), Summa
Voice(R), and our window and curtain graphic logo. Xiox(TM) is also our
trademark. We have pending and in good order before the United States Patent and
Trademark Office applications for registration for the following marks: Paix,
Intelligent Buffer, Appliance, Appliance One, Appliance I, Appliance II,
Appliance III, Town Square, Town Square and design, @Comm and design. We have
pending and in good order regional applications for trademark registration in
Belgium, Netherlands, and Luxembourg for the following marks: Town Square, Town
Square + device, @Comm, and ATCOMM. We have pending and in good order
application for European registration of the following marks: @Comm and Town
Square + device.
We have received patents on: (1) an innovative answer detection technology; and
(2) an intelligent software application installation and configuration
methodology that includes a remote rate table delivery system. In addition, we
presently have filed for seven additional patents.
H. Production and Backlog
We produce our 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 us shortly after receipt of an order. As a result, we do not have a
substantial backlog, and our backlog at any particular time is generally not
indicative of our future level of sales. Our hardware products are manufactured
to our specifications by outside suppliers. These products are also available
from alternate domestic suppliers. We defer substantial revenue from annual
subscriptions for our annual rate table and maintenance and support agreement
subscriptions. This deferred revenue is amortized over the life of the
subscription.
I. Employees
We had 111 full-time employees as of December 31, 1999, and 114 total employees.
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Item 2. Description of Property
We lease approximately 13,168 square feet of office space at 577 Airport
Boulevard, Suite 700, Burlingame, California. The lease expires July 31, 2000,
and we are currently in negotiations to renew the lease. In addition, we lease
29,607 square feet of multi-use space at 150 Dow Court, Manchester, New
Hampshire, under a seven-year lease that expires January 31, 2005. We also lease
a 692 square-foot facility at 8010 East McDowell Road, Scottsdale, Arizona, on a
month-to-month basis.
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 27 of our 1999 Annual Report to stockholders 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 8
of the Annual Report and is hereby incorporated by reference.
Item 7. Financial Statements
The following Xiox financial statements and the independent auditors' report
appearing on pages 9 through 26 of the Annual Report are hereby incorporated
herein by reference.
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998
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.
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Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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 Xiox is incorporated by reference to the information
contained in the sections captioned "Nominees," "Business Experience of
Directors," "Executive Officers," and "Section 16(A) Beneficial Ownership
Reporting Compliance" in our definitive proxy statement for the 2000 annual
meeting of stockholders to be filed with the Securities and Exchange Commission.
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 our definitive proxy statement for the 2000 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
section captioned "Security Ownership of Certain Beneficial Owners and
Management" in our definitive proxy statement for the 2000 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 our definitive proxy
statement for the 2000 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 parts of this report.
1. Financial Statements: The following Consolidated Financial
Statements of Xiox Corporation and Report of KPMG LLP, independent
auditors, are incorporated by reference to pages 9 through 26 of the
registrant's Annual Report to stockholders.
Page(s) in 1999
Annual Report
Consolidated Balance Sheets as of 9
December 31, 1999 and 1998
Consolidated Statements of Operations 10
for the years ended December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity for 11
the years ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows 12-13
for the years ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements 14-25
Independent Auditors' Report 26
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.
Number Description
- ------ -----------
2.1(1) Proposed Agreement and Plan of Merger between Xiox Corporation, a
California corporation, and Xiox Corporation, a Delaware
corporation.
3.l(2) Certificate of Incorporation as filed with the Secretary of State of
the State of Delaware.
3.2(2) Bylaws.
3.3(14) Certificate of Amendment dated May 26, 1998.
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3.4(14) Certificate of Designations, Preferences, and Other Rights of the
Series A Preferred.
3.5(20) Certificate of Amendment of Certificate of Incorporation dated May
26, 1999.
3.6(18) Certificate of Designation, Preferences and Other Rights of the
Series B Preferred.
4.1(2) Certificate of Incorporation as filed with the Secretary of State of
the State of Delaware and Bylaws.
4.2(3) Common Stock Purchase Agreement dated June 30, 1997, between Xiox
and Flanders Language Valley C.V.A.
4.3(3) Investor Rights Agreement dated June 30, 1997, between registrant
and Flanders Language Valley C.V.A.
4.4(15) Form of Common Stock Certificate.
4.5(14) Stock Purchase and Investor Rights Agreement dated September 21,
1998.
4.6(14) Right of First Refusal and Co-Sale Agreement dated September 21,
1998.
4.8(19) Stock Purchase and Investor Rights Agreement, as amended, dated
February 7, 2000.
10.02(4) Dealer Sales Agreement dated April 25, 1985, between registrant and
PacTel InfoSystems.
10.04(5) Xiox Corporation Restated 1984 Stock Option Plan.
10.05(13) Form of Notice of Grant and Stock Option Agreement to Restated 1984
Stock Option Plan.
10.06(5) Form of Stock Purchase Agreement.
10.07(5) Form of Automatic Option Agreement.
10.08(5) Form of Stock Purchase Agreement.
10.09(2) Lease Agreement between Xiox and Bay Park Plaza, dated March 20,
1987.
10.10(6) Amended Lease Agreement between Xiox and Bay Park Plaza, dated July
28, 1994.
17
<PAGE>
10.12(12) Sublease and Lease Agreement between Xiox and C. E. Heath
Compensation and Liability Company, dated April 1, 1996.
10.13(2) Form of Director Indemnity Agreement.
10.14(7) Xiox Corporation 1994 Stock Plan.
10.15(7) Form Stock Option Agreement to 1994 Stock Plan.
10.16(11) Xiox Corporation 1994 Stock Plan, as amended.
10.17(16) Xiox Corporation 1994 Stock Plan, as amended.
10.18(21) Xiox Corporation 1994 Stock Plan, as amended
10.25(8) Agreement for the Purchase and Sale of Stock of SFX, Inc. (formerly
Summa Four Business Products, Inc.), dated March 27, 1991.
10.26(9) 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.
10.27(10) Asset Purchase Agreement of Instor Systems Corporation, dated
October 12, 1994.
10.28(17) Lease Agreement between Xiox and One Dow Court, Inc., dated November
18, 1997.
10.29* Amendment to November 18, 1997 Lease Agreement between Xiox and One
Dow Court, Inc., dated November 10, 1999.
13.1* 1999 Annual Report to stockholders.
21.1** Subsidiaries of Xiox.
23.1* Consent of KPMG LLP, Independent Auditors.
18
<PAGE>
24.1 Power of Attorney (see page 21).
27.1* Financial Data Schedule.
* Filed herewith.
** Listed under the caption "Principles of Consolidation" in Xiox's
1999 Annual Report to stockholders, attached as Exhibit 13.1.
(1) Incorporated by reference to Xiox's report on Form 10-K for the year
ended December 31, 1986.
(2) Incorporated by reference to Xiox's report on Form 10-K for the year
ended December 31, 1987.
(3) Incorporated by reference to Xiox's report on Form 8-K, as filed by
Xiox on July 22, 1997 and October 8, 1997.
(4) Incorporated by reference to Xiox's Registration Statement on Form
S-1.
(5) Incorporated by reference to Xiox's Registration Statement on Form
S-8 (File No. 33-42433).
(6) Incorporated by reference to Xiox's report on Form 10-KSB for the
year ended December 31, 1995.
(7) Incorporated by reference to Xiox's Registration Statement on Form
S-8 (File No. 33-88996) filed on February 1, 1995.
(8) Incorporated by reference to Xiox's Form 8-K filed on March 27,
1991, as amended on June 7, 1991.
(9) Incorporated by reference to Xiox's Form 8-K filed on August 29,
1994, as amended on October 28, 1994.
(10) Incorporated by reference to Xiox's Form 8-K filed on December 15,
1994.
(11) Incorporated by reference to Xiox's Registration Statement on Form
S-8, filed on June 20, 1997 (File No. 333-29703).
(12) Incorporated by reference to Xiox's report on Form 10-K for the year
ended December 31, 1996.
19
<PAGE>
(13) Incorporated by reference to Xiox's Registration Statement on Form
S-8 (File No. 33-37686).
(14) Incorporated by reference to Xiox's Form 8-K filed September 24,
1998.
(15) Incorporated by reference to Xiox's Registration Statement on Form
S-3/A, filed on February 24, 1999 (File No. 333-68435).
(16) Incorporated by reference to Xiox's Registration Statement on Form
S-8, filed on June 18, 1998 (File No. 333-57149).
(17) Incorporated by reference to Xiox's Report on Form 10-K for the year
ended December 31, 1997.
(18) Incorporated by reference to Xiox's Report on Form 8-K filed January
10, 2000.
(19) Incorporated by reference to Xiox's Report on Form 8-KA filed March
7, 2000.
(20) Incorporated by reference to Xiox's Report on Form 10-QSB/A filed
November 30, 1999.
(21) Incorporated by reference to Xiox's Registration Statement on Form
S-8, filed on June 25, 1999 (File No. 333-81537).
B. Reports on Form 8-K:
The following reports on Form 8K or 8K/A were filed subsequent to
December 31, 1999 which included a transaction that occurred in
1999:
Stock Purchase and Investor Rights Agreement with Flanders Language
Valley CVA, Edmund Shea and Mary Shea Real Property Trust, and other
private investors for the private placement of $7.5 million of
Series B Preferred Stock dated December 30, 1999 and filed on
January 10, 2000.
Stock Purchase and Investor Rights Agreement with Flanders Language
Valley CVA, and other private investors for the private placement of
an additional $12.9 million of Series B Preferred Stock dated
February 7, 2000 and filed on March 7, 2000. A total of $20.4
million of Series B Preferred Stock was sold. The second closing was
completed on the same terms as the first closing following an
amendment to the Stock Purchase and Investor Rights Agreement dated
December 30, 1999.
20
<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:
March 29, 2000 /s/ William H. Welling
---------------------------------------------
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. Johnson 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 and the authority contained in the 10-KSB
dated March 31, 2000, 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, 2000 /s/ William H. Welling
---------------------------------------------
William H. Welling
Chairman and Chief Executive Officer
(Principal Executive Officer) and Director
March 29, 2000 /s/ Melanie D. Johnson
---------------------------------------------
Melanie D. Johnson
Vice President of Finance/Chief Financial
Officer/Corporate Secretary
21
<PAGE>
March 29, 2000 /s/ Mark A. Parrish, Jr.
---------------------------------------------
Mark A. Parrish, Jr.
Director
March 29, 2000 /s/ Atam Lalchandani
---------------------------------------------
Atam Lalchandani
Director and Assistant Corporate Secretary
March 29, 2000 /s/ Bernard T. Marren
---------------------------------------------
Bernard T. Marren
Director
March 29, 2000 /s/ Robert K. McAfee
---------------------------------------------
Robert K. McAfee
Director
March 29, 2000 /s/ Philip Vermeulen
---------------------------------------------
Philip Vermeulen
Director
22
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------
2.1(1) Proposed Agreement and Plan of Merger between Xiox Corporation, a
California corporation, and Xiox Corporation, a Delaware
corporation.
3.l(2) Certificate of Incorporation as filed with the Secretary of State of
the State of Delaware.
3.2(2) Bylaws.
3.3(14) Certificate of Amendment dated May 26, 1998.
3.4(14) Certificate of Designations, Preferences, and Other Rights of the
Series A Preferred.
3.5(20) Certificate of Amendment of Certificate of Incorporation dated May
26, 1999.
3.6(18) Certificate of Designation, Preferences and Other Rights of the
Series B Preferred.
4.1(2) Certificate of Incorporation as filed with the Secretary of State of
the State of Delaware and Bylaws.
4.2(3) Common Stock Purchase Agreement dated June 30, 1997, between Xiox
and Flanders Language Valley C.V.A.
4.3(3) Investor Rights Agreement dated June 30, 1997, between registrant
and Flanders Language Valley C.V.A.
4.4(15) Form of Common Stock Certificate.
4.5(14) Stock Purchase and Investor Rights Agreement dated September 21,
1998.
4.6(14) Right of First Refusal and Co-Sale Agreement dated September 21,
1998.
4.8(19) Stock Purchase and Investor Rights Agreement, as amended, dated
February 7, 2000.
23
<PAGE>
10.02(4) Dealer Sales Agreement dated April 25, 1985, between registrant and
PacTel InfoSystems.
10.04(5) Xiox Corporation Restated 1984 Stock Option Plan.
10.05(13) Form of Notice of Grant and Stock Option Agreement to Restated 1984
Stock Option Plan.
10.06(5) Form of Stock Purchase Agreement.
10.07(5) Form of Automatic Option Agreement.
10.08(5) Form of Stock Purchase Agreement.
10.09(2) Lease Agreement between Xiox and Bay Park Plaza, dated March 20,
1987.
10.10(6) Amended Lease Agreement between Xiox and Bay Park Plaza, dated July
28, 1994.
10.12(12) Sublease and Lease Agreement between Xiox and C. E. Heath
Compensation and Liability Company, dated April 1, 1996.
10.13(2) Form of Director Indemnity Agreement.
10.14(7) Xiox Corporation 1994 Stock Plan.
10.15(7) Form Stock Option Agreement to 1994 Stock Plan.
10.16(11) Xiox Corporation 1994 Stock Plan, as amended.
10.17(16) Xiox Corporation 1994 Stock Plan, as amended.
10.18(21) Xiox Corporation 1994 Stock Plan, as amended
10.25(8) Agreement for the Purchase and Sale of Stock of SFX, Inc. (formerly
Summa Four Business Products, Inc.), dated March 27, 1991.
10.26(9) 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.
10.27(10) Asset Purchase Agreement of Instor Systems Corporation, dated
October 12, 1994.
24
<PAGE>
10.28(17) Lease Agreement between Xiox and One Dow Court, Inc., dated November
18, 1997.
10.29* Amendment to November 18, 1997 Lease Agreement between Xiox and One
Dow Court, Inc., dated November 10, 1999.
13.1* 1999 Annual Report to stockholders.
21.1** Subsidiaries of Xiox.
23.1* Consent of KPMG LLP, Independent Auditors.
24.1 Power of Attorney (see page 21).
27.1* Financial Data Schedule.
* Filed herewith.
** Listed under the caption "Principles of Consolidation" in Xiox's
1999 Annual Report to stockholders, attached as Exhibit 13.1.
(1) Incorporated by reference to Xiox's report on Form 10-K for the year
ended December 31, 1986.
(2) Incorporated by reference to Xiox's report on Form 10-K for the year
ended December 31, 1987.
(3) Incorporated by reference to Xiox's report on Form 8-K, as filed by
Xiox on July 22, 1997 and October 8, 1997.
(4) Incorporated by reference to Xiox's Registration Statement on Form
S-1.
(5) Incorporated by reference to Xiox's Registration Statement on Form
S-8 (File No. 33-42433).
(6) Incorporated by reference to Xiox's report on Form 10-KSB for the
year ended December 31, 1995.
(7) Incorporated by reference to Xiox's Registration Statement on Form
S-8 (File No. 33-88996) filed on February 1, 1995.
(8) Incorporated by reference to Xiox's Form 8-K filed on March 27,
1991, as amended on June 7, 1991.
25
<PAGE>
(9) Incorporated by reference to Xiox's Form 8-K filed on August 29,
1994, as amended on October 28, 1994.
(10) Incorporated by reference to Xiox's Form 8-K filed on December 15,
1994.
(11) Incorporated by reference to Xiox's Registration Statement on Form
S-8, filed on June 20, 1997 (File No. 333-29703).
(12) Incorporated by reference to Xiox's report on Form 10-K for the year
ended December 31, 1996.
(13) Incorporated by reference to Xiox's Registration Statement on Form
S-8 (File No. 33-37686).
(14) Incorporated by reference to Xiox's Form 8-K filed September 24,
1998.
(15) Incorporated by reference to Xiox's Registration Statement on Form
S-3/A filed February 24, 1999 (File No. 333-68435).
(16) Incorporated by reference to Xiox's Registration Statement on Form
S-8, filed on June 18, 1998 (File No. 333-57149).
(17) Incorporated by reference to Xiox's Report on Form 10-K for the year
ended December 31, 1997.
(18) Incorporated by reference to Xiox's Report on Form 8-K filed January
10, 2000.
(19) Incorporated by reference to Xiox's Report on Form 8-KA filed March
7, 2000.
(20) Incorporated by reference to Xiox's Report on Form 10-QSB/A filed
November 30, 1999.
(21) Incorporated by reference to Xiox's Registration Statement on Form
S-8, filed on June 25, 1999 (File No. 333-81537).
26
Exhibit 10.29
10 November 1999
Mr. Robert Boyd, Vice President
Xiox Corporation
150 Dow Street
Manchester, New Hampshire 03101
Dear Mr. Boyd,
This letter is intended to lay out the various aspects of our discussions
regarding the leasing of Space #302B by Xiox Corporation (hereinafter referred
to as Xiox or Lessee) from One Dow Court, Inc. (hereinafter referred to as ODC
or Lessor.) Space #302B is the same space that was formerly occupied by Xiox on
the 3rd floor of ODC's building at 150 Dow Street in Manchester, New Hampshire.
The space contains approximately 10,538 square feet of space.
Fit-up
In order for the space to be usable by Xiox, certain items of fit-up are
required, as follows:
a) Demolition and removal of the pre-fabricated offices, with the
walls left standing refinished as needed.
b) Repair of the floor tiles generally, and especially near the air
conditioning unit located near column line #12.
c) Replacement of the existing carpeting with new carpeting.
d) Closing in all three HVAC units completely, and providing ducted
returns to reduce the noise from these units. Where the
pre-fabricated offices are removed, diffusers will be installed
to the existing ductwork.
e) Upgrading the lighting.
f) Constructing a lunchroom in the northwest corner of the space.
g) General clean-up and painting, as needed.
h) Installing voice and data cabling to tie into space 521A.
Working with Roger Blais Construction, LaFlamme Electric and New England
Mechanical Associates, we jointly arrived at an estimated cost for these items
of $34,000 (excluding item (h.)). Based on a guaranteed minimum lease term of
two (2) years, as further discussed below,
27
<PAGE>
ODC will contribute one third of the fit-up expense, up to $10,000, toward this
total. Xiox, no later than 10 January 2000, is to pay one half the estimated
remainder to ODC, namely $12,000, and is to pay for the balance when invoiced by
ODC or directly by the contractors.
Based on maintaining occupancy for greater than two (2) years, this Lessee
fit-up contribution will be credited as follows. In months 30, 36, 42, 48, 54 &
60, credits in the amount of one sixth of the Lessee contribution for the agreed
upon work (estimated at $4,000 per credit, which is the maximum that will be
allowed) will be applied towards the monthly rent invoice.
Term and Termination
The terms and conditions of the lease will be the same as those contained in the
lease dated 18 November 1997 (11/18/97), as amended on 16 December 1997
(12/16/97), between Xiox and ODC, except for the following specific terms and
conditions:
The formal date of occupancy for this space will be 1 January 2000 (1/01/00).
This lease will terminate on 31 January 2005 (1/31/05) in accordance with the
lease on space 521A unless terminated earlier based on the following provisions.
A twelve (12) month written notice will be deemed acceptable by ODC if
received from 12/31/00 to 5/31/02. Notice submitted by Xiox prior to
12/31/00 shall be received by ODC as of 12/31/00.
A six (6) month written notice will be deemed acceptable by ODC if
received from 6/30/02 onwards.
Based on approval from the contractors, Xiox will be permitted to occupy a
portion of the space prior to the completion of the fit-up. Xiox agrees that it
will not interfere with the work in progress, and acknowledges that it will
accept the normal noise, dust, paint smells, traffic, etc. of construction while
the work is in progress.
Parking
As part of the consideration for this lease, ODC agrees to provide to Xiox up to
one hundred ten parking spaces located as follows:
forty (40) leased from the City of Manchester in the Myrna Lot at the
north end of 155 Dow Street, twenty (20) leased from the City of
Manchester at metered parking spaces in the Millyard (where available,)
and fifty (50)spaces in the new lot planned to be constructed by ODC in
the strip of land immediately east of and adjacent to the railroad
tracks between Brook Street and Kidder Street.
28
<PAGE>
The rent will be adjusted downward if the actual mix of parking leased from the
City includes more metered parking and fewer Myrna lot spaces. To the extent
that Xiox initially requires less than one hundred ten (110) spaces, ODC will
only lease the amount required and will adjust the rent equitably. Additional
spaces will be added, as required by Xiox, in increments of ten spaces, with the
rent increased equitably.
Until 1 July 2000 (7/1/00) or the date of availability of the fifty spaces in
the lot adjacent to the railroad tracks, ODC will lease spaces from the City of
Manchester in the Bedford Street lot, as required by Xiox, up to the fifty space
requirement. In the event that the parking area adjacent to the railroad tracks
is not available as of 1 July 2000 (7/01/00), when the Bedford lot will become
no longer available, ODC (a.) will pursue additional adjacent street or lot
space for the interim period at similar cost or (b.) will lease space in the
Wall Street Tower parking garage, as required by Xiox up to the maximum of fifty
(50) parking spaces, and the incremental additional cost for those spaces,
currently estimated at $22.50 per space per month over the $22.50 per month
planned cost of the railroad parking, will be split between ODC and Xiox.
The current rate for leasing parking spaces from the City of Manchester is
$25.00 per space per month for the Myrna lot and $22.50 per space per month for
metered spaces. In the event that these charges are increased, ODC and Xiox will
share equally in the increase up to a total of $2.50 per space per month each.
All additional charges in excess of $5 per month for these spaces will be the
responsibility of Xiox. Should ODC arrange to lease additional spaces, at the
request of Xiox, all charges for those spaces will be the responsibility of
Xiox.
In addition, ODC agrees to assign three (3) additional spaces in front of 150
Dow Street and five (5) spaces in the rear of 150 Dow Street for the exclusive
use of Xiox during the term of this lease. At such time as Xiox is no longer
occupying and/or paying rent on Space #302B, these additional eight (8) spaces
shall no longer be assigned to Xiox.
Parking spaces assigned based on the lease for Space # 521A shall be unaffected
by the provisions of this agreement. These include the ten (10) assigned spots
adjacent to the building and the unlimited use of the lot between Dow Street and
Langdon Street above Gold's Gym.
Rent
Rent for Space #302B will be $68,497 per year (or $5,708.08 per month) for the
term of the lease through 31 January 2005 (1/31/05). This amount will be
adjusted equitably, in accordance with the terms of the above, and in accordance
with increases or decreases in the amount of parking required by Xiox. In no
circumstance shall the annual rent decrease below $42,152 (or $3,512.67 per
month.)
If Xiox shall have maintained its lease of Space #302B for the full term
contemplated through 31 January 2005 (1/31/05), Xiox shall have the option, by
giving six months' advance notice, no later than 31 July 2004 (7/31/04), to
renew this lease for a seven year term through 31 January 2012 (1/31/12). The
rent for the renewal term will be based on an annual rent of $73,766 plus a
cost-of-living adjustment calculated as is provided in the lease dated 18
November 1997 (11/18/97). If the number of parking spaces is adjusted from those
contemplated above, the base rent for the renewal term of the lease will be
equitably adjusted accordingly.
29
<PAGE>
While this additional lease remains in effect, Xiox will be responsible for 9.1%
of the increases in property taxes, heat and insurance costs, as provided in the
lease dated 18 November 1997. Should Xiox terminate this additional lease prior
to the expiration of the underlying lease on space 521A, the percentage
responsibility shall revert to the 5.9% figure in the underlying lease.
During the term of this agreement, ODC shall provide Xiox with information on
additional space becoming available within the building through non-renewal of
existing leases, early terminations, or current tenant sublet desires. Without
restricting the limitations, terms and conditions of any such offer, ODC agrees
to offer to Xiox the entire space becoming available prior to actively marketing
the space.
By signing below, Xiox acknowledges and agrees to the terms and conditions of
this letter and agrees that it is to be treated as an amendment to the lease
dated 18 November 1997 (11/18/97).
Thank you very much.
Sincerely yours,
/s/ RALPH P. SIDORE
----------------------------
Ralph P. Sidore
Property Manager
Xiox Corporation
Acknowledged and Agreed:
/s/ ROBERT BOYD 11/12/99
- ------------------------------------------------
Signature Date
ROBERT BOYD VP OPERATIONS
-----------------------------------------------
Printed Name Title
30
XIOX CORPORATION
1999 ANNUAL REPORT
Exhibit 13.1 of 10-KSB for December 31, 1999
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Annual Report to Stockholders contains forward-looking
information that is based upon our current expectations.
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 5.
The following discussion and analysis should be read in
conjunction with our audited financial statements and
accompanying notes.
Results of
Operations
Revenues for the fiscal year ended December 31, 1999
increased by 6% or $315,511 to $5,577,181, in contrast to
revenues for fiscal year ended December 31, 1998 of
$5,261,670. The increase is attributable to increased demand
for call accounting products and related support renewals.
Product costs and operating expenses increased 55% or
$5,103,198 to $14,398,407 in 1999, from $9,295,209 in 1998.
Loss form operations increased 119% or $4,787,687 to
$8,821,226 from $4,033,539 during the same period.
Comparisons of product costs and operating expenses as a
percentage of revenues are summarized as follows:
1999 1998
---- ----
Revenues 100% 100%
Product costs 44% 45%
Research and development 141% 80%
Marketing and SG&A 73% 52%
Loss from operations (158%) (77%)
Product costs increased by 5% or $121,565 to $2,473,687 in
1999, versus product costs for 1998 of $2,352,122. As a
percentage of revenues, product costs decreased in 1999 to
44% from 45% in 1998, primarily as a result of product mix
partially offset by increases in labor costs.
Research and development expenses increased to 141% of
revenues in 1999 from 80% in 1998. This increase of
$3,649,309 or 87%, from $4,194,254 in 1998 to $7,843,563 in
1999, is due to a planned increase in spending associated
with new product development.
Marketing and sales, general and administrative expenses
increased from 52% of revenues in 1998 to 73% of revenues in
1999. This increase of $1,332,324 or 48%, from $2,748,833 in
1998 to $4,081,157 in 1999, is primarily due to increased
labor-related costs associated with new product planning,
business development, and administrative support.
We lost $8,821,226 from operations in 1999. These losses
were anticipated as we intentionally increased expenditures
related to new product planning and development.
Other income, net, increased by $172,122 in 1999, primarily
due to foreign currency translation gains in 1999 of
$121,687 and an increase in investment income recognized in
1999 to $219,565 from $166,781 in 1998, due to a higher
available balance of undeployed cash.
2
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity
And Capital
As of December 31, 1999, we had cash and cash equivalents of
$7,844,328 and net working capital of $6,390,853, compared
to cash and cash equivalents of $8,272,251 and net working
capital of $7,775,335 as of December 31, 1998. During 1999
and 1998 we expended $902,873 and $1,270,596, respectively,
for property, equipment, and software.
Our bank line of credit was renewed in May of 1999 at
$1,000,000, and management expects it to provide adequate
capital resources to conduct operations at the level
currently anticipated through May of 2000, when the bank
line expires. If needs require, we will seek additional
capital funding.
During 1999, we raised approximately $7,5000,000 through the
issuance of the Company's Series B Preferred Stock to
support development of our new product line addressing the
combined telecom and datacom markets. The Series B Preferred
Stock is convertible into Common Stock on a 1:1 basis,
subject to certain antidilution provisions, on the date of
issuance. The purchase price of the Series B Preferred Stock
was less than the prevailing market price of the Company's
common stock resulting in a beneficial conversion feature of
$2,132,812, which has been reflected in the accompanying
statement of operations for the year ending December 31,
1999 as an increase in net loss applicable to common
shareholders.
A second closing occurred on February 7, 2000 in which an
additional $12,900,000 of Series B preferred stock was sold
to Flanders Language Valley and other private investors. A
total of 645,000 shares of Series B preferred stock were
sold at a purchase price of $20.00 per share. This was the
second and final closing of a $20,400,000 sale of 1,020,000
shares of Series B preferred stock. The second closing was
completed on the same terms as the first closing following
an amendment to the Stock Purchase and Investor Rights
Agreement dated December 30, 1999. The purchase price of the
second closing of the Series B Preferred Stock was less than
the prevailing market price of the Company's common stock
resulting in a beneficial conversion feature of $5,482,500,
which will be reflected in the statement of operations for
the quarter ending March 31, 2000 as a loss applicable to
common shareholders.
In connection with this new product line, we have committed
to fund Xiox Flanders N.V., our 94.9% owned subsidiary, with
approximately $1,500,000 in 2000.
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.
3
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of 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 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 was
conducted in four phases: (a) identification, (b)
assessment, (c) remediation, and (d) testing, which was
completed as of December 31, 1999.
We currently believe our information systems are Year 2000
compliant. To date, we have not encountered any material
issues related to our Year 2000 upgrades. However, we cannot
be certain that our internal systems are Year 2000 compliant
and that all problems related to Year 2000 have been
identified and corrected . 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 our
business or consolidated financial statements.
External Suppliers.
We have been advised that the most critical systems,
services, and products supplied to us by external sources
are Year 2000 ready. We have developed contingency plans for
systems and services provided by vendors in the event of any
disruption in these services. To date, we have not
encountered any material disruptions or delays. However, we
cannot be certain that our external suppliers will be Year
2000 compliant. 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 completed the
implementation of 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.
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
4
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
improve our primary business systems. We do not anticipate
any significant costs related to remediation efforts because
planned systems improvements included 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 additional costs to obtain Year 2000 compliance
may be incurred in the future, these costs are not expected
to have a material effect on our financial position, results
of operations, or cash flows.
The cost to obtain Year 2000 compliance did not have a
material effect on our financial position, results of
operations, or cash flows for the year ending December
31,1999.
Contingency Plans. We have developed contingency plans,
intended to enable us to continue operations with respect to
certain key technology used in our mission critical systems.
Our 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.
We believe 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 has not experienced any
disruptions and is not currently aware of any evidence that
such a failure is likely to occur in any of its service
areas.
Certain Risk
Factors Which May
Impact Future
Operating Results
and Market Price
of Stock
We operate in a rapidly changing environment that involves a
number of risks, some of which are beyond our control. The
following discussion highlights some of these risks and the
possible impact of these factors on future consolidated
results of operations and the market price of our stock.
The forward-looking statements included in Management's
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, we may from time to time make oral forward-looking
statements. Our 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 we
provide should be evaluated in the context of these factors.
5
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Differing sales cycles may cause our operating revenues to
fluctuate, which may lower our stock price. Our quarterly
revenues are likely to fluctuate significantly in the future
due to a number of factors that affect telecommunications
companies, many of which are outside our control. Factors
that could affect our revenue include:
o variations in the timing of orders and shipments of our
products;
o variations in the size of the orders for our products;
o new product introductions by our competitors;
o delays in introducing new products.
Our stock price may be volatile, and you may not be able to
sell the shares at or above the price you paid to purchase
them. The trading price of our common stock may be highly
volatile and could fluctuate in response to a variety of
factors that affect telecommunications companies, including
the following:
o actual or anticipated variations in quarterly operating
results;
o announcements of technological innovations;
o new products or services offered by us or by our
competitors;
o additions or departures of key personnel;
o changes in financial estimates by securities analysts;
o conditions or trends in the telecommunications industry;
o changes in the economic performance and/or market
valuations of the telecommunications industry;
o changes in the economic performance and/or market
valuations of other companies in the telecommunications
industry;
o volatility generally associated with technology stocks;
and
o other broader market trends unrelated to our operating
performance.
In addition, our stock is commonly described as "thinly
traded stock" because our average daily trading volume
(approximately 2,000 shares) is very low in comparison to
other publicly traded companies. The price of a thinly
traded stock like ours may fluctuate sharply whenever the
volume of trades exceeds the average volume. The dollar
amount of the trades that would trigger those fluctuations
is low in comparison to the dollar amount that would trigger
similar fluctuations in the stock price of companies with a
higher average trading volume.
If we do not keep pace with rapid technological change, we
may not be able to produce new products and remain
competitive. The software industry is characterized by rapid
technological change, as well as changes in customer
requirements and preferences. In order to remain competitive
in this industry, we must quickly respond to such changes,
including the enhancement and upgrading of existing products
and the introduction of new products. We believe that our
future results will depend largely upon our ability to offer
products that compete favorably with respect to price,
reliability, performance, range of useful features,
continuing product enhancements, reputation, and training.
6
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Most of our competitors have substantially greater
financial, marketing, and technology resources than we do,
and that may harm our ability to compete effectively with
them. Based on industry sources, we believe that both Telco
Research and ISI-Infortext, which are privately held, have
revenues that are at least twice as large as our revenues.
Nortel Networks Corporation, a public company, reported 1999
revenues of approximately $21 billion. In each case, we
believe our competitors have marketing and technological
resources commensurate with their revenues. We cannot be
certain that we will be able to compete successfully against
either current or potential competitors or that competition
will not have a material adverse effect on our business,
consolidated results of operations, and financial condition.
If we lose the business of either of our largest customers,
our revenues may decrease and our business may suffer. Two
of our customers accounted for 18% of our revenue during
1999 and 22% of revenue in 1998. The loss or serious
reduction in business from either customer could have a
material adverse effect on our business, consolidated
results of operations, and financial condition.
If we lose our ability to sell our products through our
network of dealers, our revenues may decrease and our
business may suffer. We sell our products primarily through
our network of authorized dealers. Like other companies that
sell products through a network of authorized dealers, our
ability to effectively distribute our products depends in
part upon the financial and business condition of our
distribution network, which is outside of our control. The
loss of or a significant reduction in business with any one
of our major dealers could have a material adverse effect on
our business, consolidated results of operations, and
financial condition.
If we do not increase our sales, our revenues may decrease
and our business may suffer. Our future success, like the
success of other telecommunications companies, will depend
on deriving a substantial portion of our revenues from sales
of call accounting products to new customers as well as
updates and rate table renewals to existing customers. As a
result, any factor adversely affecting these sales,
including market acceptance, product performance and
reliability, reputation, price competition and competing
products, as well as general economic and market conditions,
could have a material adverse effect on our business,
consolidated results of operations, and financial condition.
If our software products contain errors or defects, our
revenues may decrease and our business may suffer. The
software products we offer, like many software products, are
internally complex and, despite extensive testing and
quality control, may contain errors or defects ("bugs"),
especially when first introduced. Defects or errors could
result in corrective releases to our software products,
damage to our reputation, loss of revenues, an increase in
product returns, claims for damages, or lack of market
acceptance of our products, any of which could have a
material and adverse effect on our business, consolidated
results of operations, and financial condition.
7
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
If we encounter delays or difficulties in developing our
products, our revenue may decrease and our business may
suffer. Delays or difficulties in the execution of product
development may occur within any telecommunications company,
including Xiox. These delays or difficulties may result in
the cancellation of planned development projects and could
have a material and adverse effect on our business,
consolidated results of operations, and financial condition.
If we do not receive additional funding for our new product
line, our business may be adversely affected. In 1997, we
began a significant development effort in a new product line
addressing the combined telephony and data markets. Although
we received approximately $32.9 million in funding for this
development effort to date, we may require additional
funding before the new product line returns a profit. We
cannot be certain that we will be able to obtain the
additional required funding, or that the new product line
will become profitable. Moreover, the introduction of the
new product line may result in a new group of competitors.
8
<PAGE>
<TABLE>
XIOX CORPORATION and SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Current Assets
Cash & cash equivalents $ 7,844,328 8,272,251
Accounts receivable, net of allowance for
Doubtful accounts of $ 123,433 in 1999
and $ 142,669 in 1998 892,816 714,200
Other receivables 6,041 9,585
Inventories 384,370 433,149
Prepaid expenses and other assets 140,157 96,413
------------ ------------
Total current assets: 9,267,712 9,525,598
Property, equipment and software, net 1,828,108 1,445,977
Notes receivable 100,000 100,000
Deposits & other assets 342,060 336,645
------------ ------------
Total Assets $ 11,537,880 11,408,220
============ ============
Liabilities and Stockholders' Equity:
Current liabilities
Accounts payable $ 297,959 325,198
Accrued expenses 594,341 312,248
Accrued compensation 395,289 158,870
Purchase deposits 34,330 42,382
Deferred revenue 1,536,161 872,536
Notes payable 3,444 39,029
Capital lease 15,335 --
------------ ------------
Total current liabilities: $ 2,876,859 1,750,263
Notes payable - net of current portion -- 3,444
Capital lease - net of current portion 22,990 --
Commitments -- --
------------ ------------
Total Liabilities 2,899,849 1,753,707
Minority interest 105,913 117,883
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares
Authorized; 2,102,989 and 1,877,989 shares issued and
outstanding as of December 31, 1999 and 1998 respectively 21,030 18,780
Common stock, $.01 par, 50,000,000 shares authorized,
3,403,914 and 3,177,387 shares issued and outstanding
as of December 31, 1999 and 1998 respectively 34,039 31,774
Additional paid-in capital 25,238,941 17,597,829
Deferred compensation (5,066) (8,265)
Accumulated other comprehensive loss (165,703) (17,644)
Accumulated deficit (16,591,123) (8,085,844)
------------ ------------
Total stockholders' equity 8,532,118 9,536,630
------------ ------------
Total liabilities and stockholders' equity $ 11,537,880 11,408,220
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
9
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999 and 1998
1999 1998
------------ ------------
Revenues: $ 5,577,181 5,261,670
------------ ------------
Product costs 2,473,687 2,352,122
Research and development 7,843,563 4,194,254
Marketing, sales, general and administrative 4,081,157 2,748,833
------------ ------------
14,398,407 9,295,209
------------ ------------
Loss from operations (8,821,226) (4,033,539)
Interest income, net 219,565 166,781
Foreign exchange gain 121,687 --
Other, net (7,653) (5,304)
------------ ------------
Loss before income taxes (8,487,627) (3,872,062)
Income tax provision 17,652 9,084
------------ ------------
Net loss (8,505,279) (3,881,146)
Preferred stock beneficial conversion
Rights 2,132,812 2,683,587
------------ ------------
Net loss applicable to common stockholders $(10,638,091) (6,564,733)
============ ============
Per share Information:
Basic net loss per share $ (3.22) (2.12)
============ ============
Number of shares used in basic per share
Computation 3,308,864 3,099,813
============ ============
Diluted net loss per share $ (3.22) (2.12)
============ ============
Number of shares used in diluted per share
Computation 3,308,864 3,099,813
============ ============
See accompanying notes to consolidated financial statements.
10
<PAGE>
<TABLE>
XIOX CORPORATION and SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, and 1998
<CAPTION>
Note
Receivable
Preferred Stock Common Stock Paid-in From Deferred Comprehensive
Shares Amount Shares Amount Capital Shareholder Compensation Loss
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31,1997 - $ - 2,932,934 $ 29,329 8,266,576 (15,938) - -
Comprehensive loss
Net loss - - - - - - - (3,881,146)
Other comprehensive
loss, net of tax
Foreign currency
translation adjustments - - - - - - - (4,469)
=============
Comprehensive loss (3,885,615)
=============
Common shares issued - - 211,297 2,113 (2,113) - - -
Series A Preferred shares
and warrants issued,
net of issuance costs 1,907,989 19,080 - - 9,315,228 - - -
Stock options issued - - - - 12,798 - (10,665)
Amortization of deferred
compensation - - - - - - 2,400 -
Stock options exercised - - 3,156 32 5,340 - - -
Note receivable payment - - - - - 15,938 - -
Conversion of Series A
Preferred Stock to Common
Stock (30,000) (300) 30,000 300 - - - -
------------------------------------------------------------------------------------------------------
December 31,1998 1,877,989 18,780 3,177,387 31,774 17,597,829 - (8,265) -
Comprehensive loss
Net loss - - - - - - - (8,505,279)
Other comprehensive
loss, net of tax
Foreign currency
translation adjustments - - - - - - - (148,059)
=============
Comprehensive loss (8,653,338)
=============
Series B Preferred shares
issued,
net of issuance costs 375,000 3,750 - - 7,461,750 - - -
Amortization of deferred
compensation - - - - - - 3,199 -
Stock options exercised - - 72,884 729 212,204 - - -
Common shares exchanged on
Exercise of stock
option - - (1,888) (19) (32,785) - - -
Conversion of Series A
Preferred Stock to
Common Stock (150,000) (1,500) 150,000 1,500 - - - -
Conversion of Warrants
To Common Stock - - 5,531 55 (57) - - -
------------------------------------------------------------------------------------------------------
December 31,1999 2,102,989 $ 21,030 3,403,914 $ 34,039 25,238,941 - (5,066) -
------------------------------------------------------------------------------------------------------
</TABLE>
Accumulated
Other
Comprehensive Accumulated
Losses Deficit Total
-------------------------------------
December 31,1997 (13,175) (4,204,698) 4,062,094
Comprehensive loss
Net loss - (3,881,146) (3,881,146)
Other comprehensive
loss, net of tax
Foreign currency
translation adjustments (4,469) - (4,469)
Comprehensive loss
Common shares issued - - -
Series A Preferred shares
and warrants issued,
net of issuance costs - - 9,334,308
Stock options issued 2,133
Amortization of deferred
compensation - - 2,400
Stock options exercised - - 5,372
Note receivable payment - - 15,938
Conversion of Series A
Preferred Stock to Common
Stock - - -
-------------------------------------
December 31,1998 (17,644) (8,085,844) 9,536,630
Comprehensive loss
Net loss - (8,505,279) (8,505,279)
Other comprehensive
loss, net of tax
Foreign currency
translation adjustments (148,059) - (148,059)
Comprehensive loss
Series B Preferred shares
issued,
net of issuance costs - - 7,465,500
Amortization of deferred
compensation - - 3,199
Stock options exercised - - 212,933
- -
Common shares exchanged on
Exercise of stock
option - - (32,804)
Conversion of Series A
Preferred Stock to
Common Stock - - -
Conversion of Warrants
To Common Stock - - (2)
-------------------------------------
December 31,1999 (165,703) (16,591,123) 8,532,118
-------------------------------------
See accompanying notes to consolidated financial statements.
11
<PAGE>
<TABLE>
XIOX CORPORATION and SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,505,279) (3,881,146)
Adjustments to reconcile net loss to net
Cash used in operations
Depreciation and amortization 566,959 305,169
Minority interest in net loss (14,286) (19,114)
Foreign exchange gain (121,687) --
Other 10,168 --
Changes in operating assets and liabilities:
Accounts receivable, net (178,616) 170,411
Other receivables 16,515 395,626
Inventories 48,780 41,716
Prepaid expenses, deposits and other assets (92,298) 240,393
Accounts payable and accrued expenses 495,589 295,236
Purchase deposits (8,051) (8,850)
Deferred revenue 663,625 (43,701)
----------- -----------
Net cash used in operations: (7,118,581) (2,504,260)
----------- -----------
Cash flows from investing activities:
Acquisition of property, equipment and software (902,873) (1,270,596)
Cash from financing activities:
Repayment of capital lease obligation (8,111) --
(Repayment) Proceeds from borrowings (40,585) 42,473
Proceeds from sale of common stock 180,129 5,372
Proceeds from sale of preferred stock and warrants for
common stock 7,465,498 9,334,308
Proceeds from repayment of stockholder note -- 15,938
----------- -----------
Net cash provided by financing activities 7,596,931 9,398,091
----------- -----------
Effect of exchange rate changes on cash (3,400) 15,156
----------- -----------
Net (decrease) increase in cash & cash equivalents (427,923) 5,638,391
Beginning cash and cash equivalents 8,272,251 2,633,860
----------- -----------
Ending cash and cash equivalents $ 7,844,328 8,272,251
=========== ===========
<FN>
(continued)
</FN>
</TABLE>
12
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Years ended December 31, 1999 and 1998
1999 1998
-------- --------
Supplemental cash flow information:
Interest paid $ 5,289 5,542
Income taxes 17,652 3,601
Noncash investing and financing activities:
Assets acquired under capital leases 47,993 --
========== =========
Additional shares issued in connection with
the Flanders Language Valley stock
purchase agreement -- 2,113
========== =========
Shares issued on stock options exercised in
exchange for surrender of common stock 32,804 --
========== =========
Shares issued in exchange for warrants 21,655 --
========== =========
Conversion of preferred stock to common stock 1,500 300
========== =========
Beneficial conversion rights in connection
with issuance of preferred stock $2,132,812 2,683,587
========== =========
See accompanying notes to consolidated financial statements.
13
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Summary of
Significant
Accounting
Policies
Xiox Corporation ("Xiox" or "the Company") is a Delaware
corporation engaged in developing, producing, and marketing
telephone management and call accounting systems. The
Company manufactures and sells products primarily through
distributors located in the United States.
Principles of Consolidation
The consolidated financial statements of Xiox Corporation
include the accounts of its subsidiaries. All significant
intercompany balances and transactions have been eliminated
in consolidation.
Revenue Recognition and Deferred Revenue
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.
Revenue related to customer support and rate tariff table
subscriptions is deferred and recognized 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.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand or held in
banks, and short-term investments with remaining maturities
of less than three months at date of purchase. Cash
equivalents consist primarily of high-quality money market
instruments, commercial paper, and certificates of deposit
in the amounts of $7,844,328 and $8,272,251 as of December
31, 1999 and 1998, respectively.
Business and Credit Concentrations
Financial instruments that potentially subject us to
concentrations of credit risk consist of cash, cash
equivalents, short-term investments and trade accounts
receivable. Cash, cash equivalents and short-term
investments are managed by recognized financial institutions
which follow the Company's investment policy. The Company
generally does not require collateral for sales on credit.
The Company closely monitors extensions of credit and has
not experienced significant credit losses in the past.
Inventories
Inventories are stated at the lower of first-in, first-out
cost or market.
Property, Equipment and Software
Property, equipment, and software 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. Leasehold improvements are amortized using the
straight line method over the shorter of the term of the
lease or economic useful life of the improvement. Purchased
software with a benefit extending beyond one year is
capitalized. Purchased software is stated at cost and
amortized using the straight line method over the period of
benefit, generally three years.
14
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Fair Value of Financial Instruments
The fair value of the Company's cash equivalents, accounts
receivable, notes receivable, accounts payable, and notes
payable approximate their respective carrying amounts due to
the relative short term maturity of these instruments.
Software Capitalization
The Company capitalizes its internal software development
costs after technological feasibility has been established.
Technological feasibility, in the Company's circumstances,
occurs when a working model is completed. The Company
believes its process for developing software is essentially
completed concurrent with the establishment of technological
feasibility, and, accordingly, no research and development
costs have been capitalized.
Income taxes
Income taxes are accounted for using 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.
Stock-Based Compensation
The Company accounts for stock-based awards to employees
using the intrinsic value method in accordance with
Accounting Principles Board (APB) No. 25, "Accounting for
Stock Issued to Employees."
Net Income (Loss) Per Share
Basic net income (loss) per common share is computed using
the weighted average number of shares of common stock
outstanding. Diluted net income (loss) per common share is
computed using the weighted-average number of shares of
common stock outstanding and, when dilutive, common share
equivalents using the treasury stock method.
Net loss applicable to common shareholders used to calculate
basic net loss per common share was identical to net loss
applicable to common shareholders used to calculate diluted
net loss per share for both years presented. Excluded from
the computation of diluted loss per common share for 1999
are warrants to acquire 40,000 shares of common stock,
2,102,989 shares of preferred stock which are generally
convertible to common stock on a one-to-one basis, and
870,127 shares attributed to stock options outstanding,
because their effect would be anti-dilutive. Excluded from
the computation of diluted loss per common share for 1998
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, 540,579
shares attributed to stock options outstanding, and 211,297
contingent shares outstanding January 1, 1998, through March
24, 1998, because their effect would be anti-dilutive.
15
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary
is the local currency of the country in which it is located.
Assets and liabilities are translated at the current
exchange rate at the balance sheet date. Revenues and
expenses are translated using the average exchange rate
during the period.
Use of Estimates
The preparation of the consolidated 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 consolidated 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
The Company reviews property, equipment and purchased
software for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of property,
equipment and purchased software is measured by comparison
of its carrying amount to future net cash flows the
property, equipment and purchase software is expected to
generate. 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 property, equipment and
purchase software exceeds its fair market value. To date, no
adjustments to the carrying value of the Company's
long-lived assets have been required.
New Financial Pronouncements
In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No.. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133
establishes methods of accounting for derivative financial
instruments and hedging activities related to those
instruments as well as other hedging activities. The Company
anticipates that the adoption of SFAS No. 133 will not have
a material impact on its financial position, results of
operations or cash flows. Implementation of this standard
has recently been delayed by the FASB for a 12-month period.
The Company will now adopt SFAS No. 133 in the first quarter
of fiscal 2001.
16
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Inventories Inventories consist primarily of purchased hardware products
(finished goods). Major classes of inventories as of
December 31 consisted of the following:
1999 1998
--------- -------
Purchased parts and components $ 172,677 103,102
Work in process 74,745 45,315
Finished goods 136,948 284,732
--------- -------
$ 384,370 433,149
========= =======
Property, Property, equipment and purchased software as of December 31
Equipment and consisted of the following:
Purchased
Software
1999 1998
---------- ----------
Office equipment $2,583,828 2,001,233
Furniture and fixtures 443,018 381,978
Leasehold improvements 336,501 292,569
Purchased software 552,691 414,867
---------- ----------
3,916,038 3,090,647
Less accumulated depreciation and
amortization (2,087,930) (1,644,670)
---------- ----------
$1,828,108 1,445,977
========== ==========
Deposits and Deposits and other assets as of December 31 consisted of the
Other Assets following:
1999 1998
--------- ----------
Prepaid royalty payments $ 273,572 317,009
Other 68,488 19,636
---------- ----------
$ 342,060 336,645
========== ==========
The Company amortizes prepaid royalty payments based on the
number of units sold.
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 1.00% (8.75% as of December 31,
1999) and expires in May 2000. No amounts were outstanding
under the line as of December 31, 1999 and 1998.
17
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Lease Future minimum lease payments in excess of one year are as
Commitments follows:
Year ended December 31: Rental Payments
--------------------------------- ----------------------
2000 $ 331,692
2001 177,757
2002 158,859
2003 151,075
2004 151,075
2005 12,530
----------------------
$ 982,988
======================
Total rent expense incurred on the Company's operating
leases was approximately $378,000, net of sublease income
of $29,587, for the year ended December 31, 1999, and
$255,738, net of sublease income of $110,145 for the year
ended December 31, 1998. Future lease obligations are
subject to cost-of-living adjustments beginning February
1, 2000. The Company is currently negotiating a lease
extension for the Burlingame office location.
18
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
Taxes
The provision for income taxes in 1999 and 1998 consisted
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 before income taxes as a result of the
following:
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Tax provision benefit $(2,885,793) (1,316,501)
Net operating losses, tax credits
and temporary differences for
which no benefit was realized 3,482,283 1,683,769
State income taxes, net of
Federal income tax benefit (329,084) (105,774)
Research and development tax credits (345,770) (169,759)
Other, net 96,016 (82,651)
----------- ----------
Provision for income taxes $ 17,652 9,084
=========== ==========
</TABLE>
<TABLE>
The tax effect of temporary differences that give rise to
significant portions of the deferred tax assets and
liabilities as of December 31, 1999 and 1998, are as
follows:
<CAPTION>
Deferred tax assets: 1999 1998
---------- ----------
<S> <C> <C>
Reserves and accruals $ 767,463 492,935
Capitalized research and development costs 518,842 215,514
Net operating loss carry-forwards 4,904,276 2,356,630
Research tax credits and other 741,539 384,753
---------- ----------
Total gross deferred tax asset 6,932,120 3,449,832
Less valuation allowance (6,932,120) (3,449,832)
---------- ----------
Net deferred tax asset $ -- $ --
---------- ----------
</TABLE>
At December 31, 1999, management has established a valuation
allowance for the portion of deferred tax assets for which
realization is uncertain.
Federal and California tax laws impose substantial
restrictions on the utilization of net operating loss
carryforwards in the event of an "ownership change" for tax
purposes, as defined in Section 382 on the Internal Revenue
Code. The Company has not yet determined if an ownership
change has occurred. If such ownership change has occurred,
utilization of the net operating losses will be subject to
annual limitation in future years.
19
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998, the Company
has a federal net operating loss carryforward of $13,500,000
and $6,000,000, respectively, which will expire during the
years 2000 through 2019. For the years ended December 31,
1999 and 1998, the Company has a California net operating
loss carryforward of $600,000 and $200,000, respectively,
which will expire through years 2003 and 2004. The Company
also has available federal research tax credit carryforwards
of $690,000 and $340,000 as of December 31, 1999 and 1998.
If not utilized the federal credits will expire from the
years 2005 through 2019. The Company also has available
California research tax credit carryovers of $110,000 and
$90,000 as of December 31, 1999 and 1998, respectively. The
California research credit carryforward indefinitely until
utilized.
Stockholders'
Equity
During September, 1998, the Company entered into a Stock
Purchase and Investor Rights Agreement (the "Agreement")
with Intel Corporation ("Intel"), Flanders Language Valley
CVA, Zero Stage Capital and other private investors for the
private placement of 1,907,989 shares of the Company's
convertible Series A Preferred Stock (the "Series A
Preferred") at a purchase price of $5.00 per share. Pursuant
to this agreement, the Company received a total of
$9,334,308, net of issuance costs of $224,717, as of
December 31, 1998. In connection with this financing, the
Company issued warrants for 50,000 shares of common stock at
an exercise price of $6.31, which are exercisable at any
time during the five year term.
The Series A Preferred bears non-cumulative dividends at an
annual rate of 6% payable if and when declared by the
Company. The Series A Preferred Stock is convertible into
Common Stock on a 1:1 basis, subject to certain antidilution
provisions, on the date of issuance. The purchase price of
the Series A Preferred Stock was less than the prevailing
market price of the Company's common stock resulting in a
beneficial conversion feature of $2,683,587, which has been
reflected in the accompanying statement of operations for
the year ending December 31, 1998 as an increase in net loss
applicable to common shareholders.
In the event of a liquidation, dissolution or winding up of
the Company, the holders of the Series A Preferred will
receive, prior to any distribution to the holders of the
common stock, a liquidation preference entitling them to
receive an amount equal to the purchase price of the Series
A Preferred plus any declared but unpaid dividends.
Each share of the Series A Preferred has the number of votes
equal to the number of shares of common stock then issuable
upon its conversion into common stock. Although the holders
of the Series A Preferred will generally vote together with
the common stock and not as a separate series, the consent
of the holders of two thirds of the outstanding shares of
Series A Preferred is required to: (1) alter or change any
of the powers, preferences, privileges, or rights of the
Series A Preferred Stock; (2) create any new class or series
of shares having preferences prior to the Series A Preferred
Stock in any manner, including, without limitation, as to
dividends or liquidation; (3) take any action that
reclassifies any outstanding shares into shares having
preferences prior to the Series A Preferred Stock in any
manner, including, without limitation, as to dividends or
liquidation; or (4) alter or change the Company's
Certificate of Incorporation in a manner that adversely
affected the rights of the Series A Preferred Stock.
20
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has certain rights, beginning one year after the
first closing, to redeem shares of the Series A Preferred
upon a registered public offering with gross proceeds in
excess of $15 million or when the closing common stock price
exceeds $15 per share for 15 consecutive business days.
The holders of the Series A Preferred have been granted
certain registration rights and information rights,
including the right to be notified in advance of certain
corporate events. In addition, Intel and Zero Stage Capital
each have the right to appoint an observer to attend
meetings of the Board of Directors of the Company, and
committees thereof, subject to certain conditions.
Each holder of Series A Preferred has certain rights to
maintain its percentage ownership interest of the Company's
outstanding voting securities (on an as-converted basis).
During the first year following the closing, the Company
will not, without the prior written consent of the holders
of 66-2/3% of the outstanding shares of Series A Preferred
Stock, enter into any acquisitions in which the aggregate
consideration paid is more than 20% of the Company's voting
securities. In addition, Intel has certain additional rights
during the first two years following the closing.
On March 25, 1998, the Company issued to Flanders Language
Valley 211,297 shares of the Company's common stock as an
adjustment to a June 30, 1997 common stock purchase
agreement with Flanders Language Valley, in which Flanders
Language Valley invested $2,872,000 for the purchase of
574,400 shares of the Company's common stock. No further
adjustments will be made under this agreement.
Xiox Flanders N.V. ("Xiox Flanders") was incorporated in
Belgium pursuant to the agreement and is owned 94.9% by Xiox
and 5.1% by Flanders. The Company has committed to fund Xiox
Flanders with approximately $1,500,000 in 2000. The actual
amount of funding the Company will provide in 2000 will
depend on the business needs of Xiox Flanders and can be
modified by a vote of the Board of Directors.
During December, 1999, the Company entered into an agreement
in which $7,500,000 of Series B Preferred Stock was sold to
the investors. A total of 375,000 shares of Series B
Preferred were sold under the agreement at a purchase price
of $20.00 per share. The Series B Preferred Stock will be
convertible into Common Stock on a 1:1 basis subject to
certain anti-dilution provisions. The purchase price of the
Series B Preferred Stock was less than the prevailing market
price of the Company's common stock resulting in a
beneficial conversion feature of $2,132,812. This is
reflected in the accompanying statement of operations for
the year ending December 31, 1999 as an increase in net loss
applicable to common shareholders. The holders of the Series
B Preferred Stock have similar registration, liquidation,
conversion, voting and dividend rights as the holders of the
Series A Preferred Stock.
A second closing occurred on February 7, 2000 in which an
additional $12,900,000 of Series B preferred stock was sold
to Flanders Language Valley and other private investors. A
total of 645,000 shares of Series B preferred stock were
sold at a purchase price of $20.00 per share. This was the
second and final closing of a $20,400,000 sale of 1,020,000
shares of Series B preferred stock. As a result of the
21
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
second closing, a beneficial conversion right of $5,482,500
will be reflected in the Company's 10-QSB for the quarter
ending March 31, 2000 as a loss applicable to common
shareholders. The second closing was completed on the same
terms as the first closing following an amendment to the
Stock Purchase and Investor Rights Agreement dated December
30, 1999.
<TABLE>
Employee
Stock
Options
The Company has adopted the 1994 and 1984 incentive stock
option plans that provide for granting of stock options with
exercise prices equal to the fair value of the underlying
common stock options at the date of grant. There were
900,000 shares of common stock reserved for issuance at
December 31, 1999 under the 1994 plan, of which options for
841,527 shares have been granted and are outstanding as of
December 31, 1999. 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:
<CAPTION>
Shares Options Weighted Average
Available Outstanding Exercise Price
----------------------
<S> <C> <C> <C>
Outstanding
as of December 31, 1997 74,950 337,200 $ 3.45
Additional shares reserved 275,000 --
Options granted (240,900) 240,900 6.43
Options exercised -- (3,156) 1.70
Options canceled 34,365 (34,365) 5.29
-------- -------
Outstanding
as of December 31, 1998 143,415 540,579 4.67
Additional shares reserved 275,000 --
Options granted (489,000) 489,000 18.30
Options exercised -- (72,884) 2.92
Options canceled 86,568 (86,568) 14.70
-------- -------
Outstanding
as of December 31, 1999 15,983 870,127 11.48
======== =======
Exercisable at
December 31, 1999 263,427 4.25
Weighted-average fair value
of options granted during
the period at exercise
price equal to market
price at grant date $ 8.75
</TABLE>
22
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Certain options may be exercised immediately upon grant but
are subject to the Xiox Corporation Stock Purchase
Agreement, which restricts 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
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. As of December
31, 1999 and 1998, no outstanding stock was subject to the
Stock Purchase Agreement.
<TABLE>
Pursuant to SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company is required to disclose the
effects on the net loss and loss per common share data as if
the Company has elected to use the fair value approach to
account for the Company's employee stock-based compensation
plans. Had compensation cost for the Company's plans been
determined consistent with the fair value approach, the
Company's net income and income per common share for the
years ended December 31, 1999 and 1998, would have been as
follows:
<CAPTION>
Year ended Year ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net loss applicable to common shareholders:
As reported $ (10,638,091) $ (6,564,733)
Pro forma (11,304,233) (6,784,671)
Basic net loss per common share:
As reported (3.22) (2.12)
Pro forma (3.50) (2.19)
Diluted net loss per common share:
As reported (3.22) (2.12)
Pro forma (3.50) (2.19)
</TABLE>
The effect of applying SFAS No. 123 for disclosing
compensation costs may not be representative of the effects
on reported results for future years because pro forma
results reflect compensation costs only for stock options
granted in 1995 through 1999. SFAS No. 123 does not consider
compensation costs for stock options granted prior to
January 1, 1995.
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 1999 and 1998:
1999 1998
---- ----
Risk-free interest rate 5.5% 5.1%
Expected life 5 Years 5 Years
Expected volatility 46% 47%
Dividends None None
23
<PAGE>
<TABLE>
The following table summarizes information about stock
options outstanding as of December 31, 1999:
<CAPTION>
Weighted-average remaining Weighted-average
Range of Exercise Prices: contractual life exercise price
---------------------------------- ---------------------------------- --------------------------
<S> <C> <C>
$ 1.44 - 2.27 1.5 years $ 1.55
2.27 - 4.54 6.7 3.39
4.54 - 6.81 6.3 5.95
6.81 - 11.34 8.9 7.88
11.34 - 13.61 9.2 11.40
13.61 - 15.88 9.3 14.73
15.88 - 18.15 9.4 17.28
18.15 - 20.42 4.6 19.03
20.42 - 22.69 9.7 22.11
</TABLE>
Segment and
Geographic
Information
The Company has two reporting segments, telephone management
products and the development of a new product line that
addresses the combined telecom and datacom markets. The new
Segment and Geographic product line did not generate any
revenue in 1999 or 1998. The two segments have been
Information 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 1999 and 1998.
The revenues for Xiox products are as follows:
1999 1998
------------ ----------
Telephone management products $ 3,522,869 3,224,959
Service and support 2,054,312 2,036,711
----------- ----------
Total revenue $ 5,577,181 5,261,670
=========== ==========
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 1999 and 1998.
The Company sells directly to end users, original equipment
manufacturers, and through telephone dealer arrangements. In
1998, two customers accounted for 22% of the revenue and 44%
of accounts receivable as of December 31, 1998. In 1999, the
same two customers accounted for 18% of the revenue and 12%
of accounts receivable as of December 31, 1999.
24
<PAGE>
XIOX CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Transactions
with Related
Party
In 1991, the Company loaned $100,000 to an employee in
return for a promissory note secured by a second deed of
trust. The promissory note bears a stated interest rate of
9% with a due date, as amended, of 2001.
Employee
Benefit
Plans
The Company has adopted the Xiox Corporation Employee Profit
Sharing Plan ("Plan"). The Plan covers all regular,
full-time employees, excluding officers, who have been
employed by Xiox continuously for a period of three months
(six months if hired after June 30, 1997) during the plan
year prior to the period of determination, and who 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
distributions under the Plan during 1999 or 1998.
The Company sponsors a defined contribution plan covering
substantially all of the Company's employees. Under the
plan, employees may elect to contribute up to 20% of their
salaries, not to exceed an annual maximum of $10,000 in
1999. As the Company has no current plans to participate in
a matching contribution program, no Company contributions
were accrued or expensed during 1999 and 1998.
25
<PAGE>
Auditors'
Report
The Board of Directors
Xiox Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets
of Xiox Corporation and subsidiaries as of December 31, 1999
and 1998, 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, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG LLP
Mountain View, California
February 11, 2000
26
<PAGE>
Stock
Trading
Information
The Company's common stock is traded on the over-the-counter
market on NASDAQ under the symbol XIOX. The Company
completed its 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 1999
-----------
Fourth Quarter 27.00 21.88
Third Quarter 23.00 18.75
Second Quarter 18.75 13.50
First Quarter 14.88 8.25
Fiscal 1998
-----------
Fourth Quarter 8.62 6.25
Third Quarter 7.75 5.25
Second Quarter 6.00 5.25
First Quarter 5.50 4.25
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, 1999, there were approximately 56
stockholders of record and 325 beneficial stockholders of
common stock of Xiox. The Company has never paid dividends
and has no present plans to do so. On March 24, 2000, the
closing bid price was $28.75 per share.
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
DIRECTORS AND OFFICERS CORPORATE OFFICES
Atam Lalchandani, Director and 577 Airport Boulevard, Suite 700
Assistant Corporate Secretary Burlingame, CA 94010
Consultant
Xiox - New Hampshire Office
Robert K. McAfee, Director 150 Dow Street
Consultant Manchester, NH 03101
Bernard T. Marren, Director Xiox - Arizona Office
Private Investor 8010 East McDowell Road
Suite 118
Mark A. Parrish, Jr., Director Scottsdale, AZ 85257
Consultant
Xiox Flanders N.V.
Philip Vermeulen, Director Patteelstraat 24
CEO Flanders Language Valley Management N.V. 8900 Ieper
Belgium
William H. Welling, Director
Chairman and Chief Executive Officer LEGAL COUNSEL
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 TRANSFER AGENT
M. Sam Changizi Chase Mellon Shareholder Services
Vice President of E Commerce Los Angeles, CA
Anthony DiIulio Wilson, Sonsini, Goodrich & Rosati
Vice President of Sales 650 Page Mill Road
Palo Alto, CA 94304
Melanie D. Johnson
Vice President of Finance, Chief Financial INDEPENDENT ACCOUNTANTS
Officer, and Corporate Secretary KPMG LLP
500 E. Middlefield Rd.
Joseph Massey Mountain View, CA 94043
Vice President of Engineering
FORM 10-KSB
Angelo A. Sallese Jr. Stockholders will be provided, without
Vice President of Manufacturing charge, a copy of Xiox's Form
10-KSB Annual Report for 1999 upon
written request to:
David Y. Schlossman
Vice President of Product Marketing Xiox Corporation
577 Airport Boulevard, Suite 700
Allan W. White Burlingame, CA 94010
Vice President of Marketing
Visit our Web Site at:
Http://www.xiox.com
</TABLE>
28
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, 33-37686, 33-42433, 33-88996, 333-29703, 333-57149,
333-81537) on Form S-8, and No. 333-68435 on Form S-3 of Xiox Corporation of our
report dated February 11, 2000, relating to the consolidated balance sheets of
Xiox Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1999,
which report is incorporated by reference in the December 31, 1999, annual
report on Form 10-KSB of Xiox Corporation.
Mountain View, California
March 29, 2000
31
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,844,328
<SECURITIES> 0
<RECEIVABLES> 1,016,249
<ALLOWANCES> 123,433
<INVENTORY> 384,370
<CURRENT-ASSETS> 9,267,712
<PP&E> 3,916,038
<DEPRECIATION> 2,087,930
<TOTAL-ASSETS> 11,537,880
<CURRENT-LIABILITIES> 2,876,859
<BONDS> 0
0
21,030
<COMMON> 34,039
<OTHER-SE> 8,477,049
<TOTAL-LIABILITY-AND-EQUITY> 11,537,880
<SALES> 5,577,181
<TOTAL-REVENUES> 5,577,181
<CGS> 2,473,687
<TOTAL-COSTS> 14,398,407
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,289
<INCOME-PRETAX> (8,487,627)
<INCOME-TAX> 17,652
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,505,279)
<EPS-BASIC> (3.22)
<EPS-DILUTED> (3.22)
</TABLE>
