UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Commission file number 333-05112-C
XOX CORPORATION
(Name of small business issuer as specified in its charter)
Delaware 93-0898539
(State or jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1450 Energy Park Drive, Suite 120, Saint Paul, Minnesota 55108
(612) 645-9000
(Address and telephone number of principal executive offices and
principal place of business)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods 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____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $.025 Par Value - 2,908,756 shares outstanding as of
October 24, 1996.
Transitional Small Business Disclosure Format (check one): Yes ____ No __X__
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
XOX CORPORATION
Balance Sheets
U.S. Dollars September 30, 1996 December 31,1995
Unaudited
----------------- ----------------
Current assets:
Cash 3,470,071 29,918
Accounts receivable 105,802 38,108
Prepaid expenses 78,071 1,405
---------- ----------
Total current assets 3,653,944 69,431
Property and equipment:
Furniture and fixtures 45,990 46,890
Computer equipment 300,478 289,760
Leasehold improvements 64,300 64,300
---------- ----------
410,768 400,950
Less accumulated depreciation 332,953 311,514
Net property and equipment 77,815 89,436
---------- ----------
Total assets 3,731,759 158,867
========== ==========
Current liabilities:
Accounts payable 72,858 81,714
Accrued expenses 7,098 14,733
Bridge financing 100,000 56,000
Notes payable 0 60,116
Accrued interest 0 126,079
Convertible debenture 0 1,482,880
---------- ----------
Total current liabilities 179,956 1,821,522
Deferred revenue 244,205 90,001
Long-term liabilities:
Long-term debt - related parties 737,251 1,086,755
Accrued interest - related parties 0 132,345
Accrued payroll taxes 34,016 34,163
Other accrued liabilities 94,938 58,765
Stockholders' equity (-deficit):
Series A convertible preferred stock 0 4,000
Common stock 72,719 33,141
Additional paid-in capital 12,142,164 5,437,484
Accumulated deficit -9,773,490 -8,539,309
Total stockholders' equity (-deficit) 2,441,393 -3,064,684
Total liabilities and stockholders'
equity (-deficit) ---------- ----------
3,731,759 158,867
========== ==========
See Note to Financial Statements
<TABLE>
<CAPTION>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
For the Three Months Ended For the Nine Months Ended
XOX CORPORATION September 30, September 30,
Statements of Operations 1996 1995 1996 1995
U.S. Dollars Unaudited Unaudited Unaudited Unaudited
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net Revenue:
Customer support and consulting 105,892 72,490 275,416 199,971
Product revenue 27,297 14,235 105,952 87,673
Royalties 7,565 8,265 24,341 15,313
--------- --------- --------- ---------
140,754 94,990 405,709 302,957
Operating expenses:
Research and development 156,199 163,444 502,335 421,328
Selling, general and administrative 413,120 207,439 962,873 894,129
--------- --------- --------- ---------
569,319 370,883 1,465,208 1,315,457
Net loss from operations -428,565 -275,893 -1,059,499 -1,012,500
Interest income 7,057 3,934 7,606 8,697
Interest expense 40,771 99,389 182,288 188,004
Net loss -462,279 -371,348 -1,234,181 -1,191,807
========= ========= ========= =========
Net loss per share -0.18 -0.19 -0.53 -0.59
Weighted average number of shares
outstanding 2,511,894 2,004,633 2,337,503 2,004,633
See Note to Financial Statements
</TABLE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
For The Nine Months Ended
XOX CORPORATION September 30,
Statement of Cash Flows 1996 1995
U.S. Dollars Unaudited Unaudited
----------------------------
OPERATING ACTIVITIES
Net loss -1,234,181 -1,191,807
adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 21,439 26,772
Recognition of deferred revenue -23,016 -9,250
Noncash interest expense related to
warrants 32,745 37,740
Changes in other operating assets and
liabilities:
Accounts receivable -67,694 -82,185
Prepaid expenses -76,666 6,771
Accounts payable -8,856 62,360
Accrued interest -80,801 156,928
Accrued liabilities 36,026 21,453
Deferred revenue 177,220 7,640
---------- ---------
Net cash used in operating activities -1,223,784 -963,578
INVESTING ACTIVITIES
Purchase of property and equipment -9,818 -81,408
---------- ---------
Net cash used in investing activities -9,818 -81,408
FINANCING ACTIVITIES
Net proceeds from issuance of common
stock 5,016,441 0
Proceeds from bridge loans 475,000 0
Payments of bridge loans -431,000 -359,000
Proceeds from convertible debentures 0 1,358,262
Payments on long-term debt -326,570 0
Payments on notes payable -60,116 -6,536
---------- ---------
Net cash provided by financing activities 4,673,755 992,726
---------- ---------
Net (-decrease) increase in cash 3,440,153 -52,260
Cash at beginning of period 29,918 59,358
---------- ---------
Cash at end of period 3,470,071 7,098
========== =========
See Note to Financial Statements
PART 1
FINANCIAL INFORMATION
ITEM 1. Financial Statements (continued)
XOX Corporation
Note to Financial Statements
September 30, 1996
The financial statements have been prepared by XOX Corporation, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The information furnished in the financial statements include normal recurring
adjustments and reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of such financial statements. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and the
accompanying notes included in the Company's final prospectus, dated September
11, 1996, for its recently completed initial public offering.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
LIQUIDITY AND CAPITAL RESOURCES
During September 1996, the Company completed an initial public offering of
850,000 units priced at $7.00 per unit, each unit consisting of one share of
company stock and one redeemable warrant to purchase a share of common stock at
$8.00 per share. The net proceeds to the Company were approximately $4,913,000,
after deduction of the underwriting discount, the underwriter's nonaccountable
expense allowance and estimated expenses of the offering payable by the Company.
The Company's liquidity and health of its balance sheet were significantly
improved as a result of this cash infusion. The net proceeds does not include
the exercise of the Underwriter's over-allotment option, which could still take
place in the next few weeks. If the Underwriter exercises the over-allotment
option in full, the Company will realize additional net proceeds of
approximately $776,000.
The Company believes the net proceeds from this offering, together with cash
generated from operations, will be sufficient to meet the Company's capital
needs for at least 24 months.
Shortly after the receipt of proceeds from the offering the Company paid off
some debt and accrued interest in the amount of $986,000, got current with its
accounts payable, and paid accrued salaries in the amount of $50,625 to some
employees. The Company also paid $80,000 for an annual insurance premium for
Directors and Officers liability insurance.
A schedule of the debt repayments and accrued interest includes the following:
1994 Bridge Loans $ 56,000
April & May 1996 Bridge Loans $250,000
July 1996 Working Capital Loan $100,000
August 1996 Bridge Loan $ 25,000
Sub-Total Bridge Loans $431,000
Long-Term Debt - Variable Repayment Debentures $326,570
July 1995 Leasehold Improvement Loans $ 54,560
Accrued Interest Expense Through Sept. 30, 1996 $174,000
Total Debt & Interest Payments - September, 1996 $986,130
RESULTS OF OPERATIONS
During the quarter ended September 30, 1996, the Company's sales and product
development activities placed special emphasis in the Geosciences and Computer
Aided Engineering (CAE) industries. The company believes that these market areas
offer the best opportunity for customer revenues in the next several quarters.
Net revenues for the quarter ended September 30, 1996 were $140,754, an increase
of 48% over the comparable quarter of 1995. Custom consulting work with ANSYS
represented $50,000 of the revenue for the quarter ended September 30, 1996.
ANSYS is a leader in the Finite Element Analysis industry and represents one of
the earliest adopters of the Company's SHAPES(R) software product.
Selling, general and administrative expenses were $413,000 for the quarter ended
September 30, 1996, almost double the expenses of $207,000 for the comparable
quarter in 1995. The hiring of a full-time Chief Financial Officer in July 1996,
the hiring of a Director of North American Sales in January 1996, the hiring of
one additional customer support employee, and membership fees for joining the
GoCad consortium based at the University of Nancy in France were the major
factors accounting for the expense increase. The Company paid $42,500 in
membership dues and fees to GoCad in the month of September 1996, $30,000 of
which was a one-time, new member fee.
Several software engineers are expected to be hired during the fourth quarter of
1996 both at XOX's Saint Paul operation and the joint venture in India. If the
appropriate talent can be located, the Company could hire six to eight new
employees during the fourth quarter of 1996.
During September 1996, the Company's joint venture effort in India was
finalized. IIS-XOX Asia Pacific Pvt. Ltd., located in New Delhi, India,
completed incorporation under Indian law and obtained the appropriate banking
and export licenses.
In May 1996, the convertible debentures, with a carrying value of $1,508,000 and
accrued interest of $184,258 were converted into 564,086 shares of common stock.
This reduced the interest expense for the quarter ended September 30, 1996 by
approximately $38,000 when comparing to the comparable quarter of 1995.
For the next several quarters, the Company believes that it will be difficult to
accurately estimate future revenues, and as a result, operating results may vary
substantially from quarter to quarter. At its current stage of operations, The
Company's quarterly revenues and results of operations my be materially affected
by the timing of the development, introduction and market acceptance of the
Company's and its licensees' products.
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not involved in any pending or, to its knowledge, threatened
litigation.
ITEM 6. Exhibits and Reports on Form 8-K
(A) Exhibits
27 Financial Data Schedule (submitted only in electronic format).
(B) No report on Form 8-K has been filed during the last quarter of
the period covered by this report.
In accordance with the requirements of the Exchange Act, the Company caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
XOX Corporation
By
-------------------------------------
Lawrence W. McGraw
President and Chief Executive Officer
October 24, 1996 By
-------------------------------------
William J. Birmingham
Chief Financial Officer
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,470,071
<SECURITIES> 0
<RECEIVABLES> 105,802
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<PP&E> 410,768
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0
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<OTHER-SE> 12,142,164
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<SALES> 0
<TOTAL-REVENUES> 405,709
<CGS> 0
<TOTAL-COSTS> 1,465,208
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