UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1997
Commission file number 0-28610
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 - 2,952,931 shares outstanding as of August 12,
1997.
Transitional Small Business Disclosure Format (check one): Yes ____ No __X__
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XOX CORPORATION June 30, December 31,
Balance Sheets 1997 1996
U.S. Dollars Unaudited
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,475,098 $ 2,720,551
Accounts receivable 154,590 193,976
Prepaid expenses 59,809 90,957
Other 126,000 12,000
------------ ------------
Total current assets 1,815,497 3,017,484
Property and equipment:
Furniture and fixtures 67,814 67,613
Computer equipment 409,379 342,448
Leasehold improvements 71,866 68,766
------------ ------------
549,059 478,827
Less accumulated depreciation 377,439 345,190
------------ ------------
Net property and equipment 171,620 133,637
License agreements, net of amortization of $33,544 81,456 110,208
and $4,792 at June 30, 1997 and December 31,
1996, respectively.
Investment in joint venture 60,616 41,020
------------ ------------
Total assets $ 2,129,189 $ 3,302,349
============ ============
Current liabilities:
Accounts payable $ 66,053 $ 209,395
Accrued expenses 56,482 77,355
------------ ------------
Total current liabilities 122,535 286,750
Deferred revenue 96,946 65,667
Long-term liabilities:
Long-term debt - related parties 632,006 734,451
Accrued payroll taxes 33,319 34,163
Other accrued liabilities 78,771 78,624
------------ ------------
Total long-term liabilities 744,096 847,238
Stockholders' equity:
Common stock 73,823 73,260
Additional paid-in capital 12,289,704 12,236,142
Accumulated deficit (11,197,915) (10,206,708)
------------ ------------
Total stockholders' equity 1,165,612 2,102,694
------------ ------------
Total liabilities and stockholders' equity $ 2,129,189 $ 3,302,349
============ ============
</TABLE>
See Note to Financial Statements
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XOX CORPORATION For the Three Months Ended For the Six Months Ended
Statements of Operations June 30, June 30,
U.S. Dollars 1997 1996 1997 1996
Unaudited Unaudited Unaudited Unaudited
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Customer support and consulting $ 81,381 $ 43,267 $ 185,484 $ 169,524
Product revenues 62,400 31,595 289,908 78,655
Royalties 0 10,766 0 16,776
----------- ----------- ----------- -----------
143,781 85,628 475,392 264,955
Operating expenses:
Research and development 303,913 165,805 690,023 346,136
Selling, general and administrative 373,552 293,544 823,463 549,753
----------- ----------- ----------- -----------
677,465 459,349 1,513,486 895,889
Loss from operations (533,684) (373,721) (1,038,094) (630,934)
Interest income 24,667 81 51,521 549
Interest expense (10,664) (78,980) (24,230) (141,517)
Share of joint venture net gain 19,862 0 19,596 0
----------- ----------- ----------- -----------
Net loss $ (499,819) $ (452,620) $ (991,207) $ (771,902)
=========== =========== =========== ===========
Net loss per share $ (0.17) $ (0.20) $ (0.34) $ (0.34)
Weighted average number of shares
outstanding 2,952,931 2,313,000 2,941,666 2,250,308
</TABLE>
See Note to Financial Statements
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XOX CORPORATION For the Six Months Ended
Statements of Cash Flows June 30,
U.S. Dollars 1997 1996
Unaudited Unaudited
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($ 991,207) ($771,902)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 32,247 12,059
Recognition of Deferred Revenue (108,271) (22,016)
Amortization 28,750 0
Share of joint venture net gain (19,596) 0
Noncash interest expense related to warrants 0 30,745
Changes in other operating assets and liabilities:
Accounts receivable 39,386 659
Prepaid expenses 31,148 (53,894)
Accounts payable (143,342) 131,339
Accrued interest 0 64,517
Accrued liabilities (21,569) 16,763
Deferred revenue 139,550 132,501
----------- ---------
Net cash used in operating activites (1,012,904) (459,229)
INVESTING ACTIVITIES
Purchase of property and equipment (70,228) (5,720)
Working capital advances to IMETRIX Limited (114,000) 0
----------- ---------
Net cash used in investing activities (184,228) (5,720)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 3,300 103,500
Net proceeds from bridge loans 0 350,000
Payments on notes payable (51,621) (6,177)
----------- ---------
Net cash provided (used) by financing activities (48,321) 447,323
----------- ---------
Net increase (decrease) in cash and cash equivalents (1,245,453) (17,626)
Cash and cash equivalents at beginning of period 2,720,551 29,918
----------- ---------
Cash and cash equivalents at end of period $ 1,475,098 $ 12,292
=========== =========
</TABLE>
See Note to Financial Statements
<PAGE>
Part 1
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
XOX Corporation
Note to Financial Statements
June 30, 1997
Note 1 - Basis of Presentation
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 includes 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 accompanying
notes included in the Company's annual report to the Securities and Exchange
Commission on Form 10-KSB for the fiscal year ended December 31, 1996.
Note 2 - Net Loss per Share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares from stock
options and warrants are excluded from the computations as their effect is
antidilutive. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. There is expected to be
no effect on earnings per share from the adoption due to the Company being at a
net loss position.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report, other than historical financial information, contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements will likely be impacted by factors outside the
Company's control and may differ materially from actual future events or
results. There are a number of important factors that could cause actual results
to differ materially from those anticipated by any forward-looking information.
A description of risks and uncertainties relating to XOX Corporation and its
industry and other factors which could affect the company's financial results
are included in the Company's Securities and Exchange Commission filings.
RESULTS OF OPERATIONS
Net revenues for the quarter ended June 30, 1997 increased 68% to $143,781 from
$85,628 reported for the same quarter in 1996. Net revenues for the six month
period ended June 30, 1997 increased 79% to $475,392 from $264,955 reported in
the same prior year period. For both periods the increase is attributable to an
increase in license sales, as well as contracts with Shell International
Exploration & Production B.V. of the Netherlands and ANSYS, Inc. which provided
$212,500 and $61,500, respectively, for the quarter ended March 31, 1997.
Although revenues for the quarter ended June 30, 1997 increased 68% over the
comparable quarter of 1996 and there was a favorable improvement of $94,000 in
the interest income/expense component of operations, operating expenses still
increased by 47%. These factors resulted in a net loss of about $500,000 for the
quarter ended June 30, 1997. The net loss for the comparable quarter of 1996 was
$452,620.
Research and development expenses increased 83% to $303,913 for the quarter
ended June 30, 1997, from $165,805 reported for the same quarter of 1996. For
the six month period ended June 30, 1997 research and development expense
increased 99% to $690,023 from $346,136 reported in the same prior year period.
For both periods the increase is attributable to increased staffing, as well as
increased utilization of the Indian joint venture.
Selling, general and administrative expenses increased 27% to $373,552 for the
quarter ended June 30, 1997 from $293,544 reported for the same quarter in 1996.
For the six month period ended June 30, 1997 selling, general and administrative
expenses increased 50% to $823,463 from $549,753 reported in the same prior year
period. For both periods the increase is due to increased employment levels and
spending on other administrative expenses relating to operating as a public
company. Selling, general and administrative expenses decreased during the
quarter ended June 30, 1997 as compared to the quarter ended March 31, 1997 due,
in part, to the termination of the Company's chief financial officer and
termination of its consulting agreement with its sales representative in London,
England.
<PAGE>
During the quarter ended June 30, 1997, the Company continued to keep its
surplus cash invested in money market accounts and short-term commercial paper.
These investments of the surplus cash provided approximately $24,667 of interest
income. During the comparable quarter of 1996, there was no surplus cash, and
the Company's interest income was less than $100. For the six month period ended
June 30, 1997, interest income increased to $51,521 from $549 reported in the
comparable prior year period.
Debt repayments and conversions in 1996 resulted in a lower interest expense for
the quarter ended June 30, 1997 when compared to the comparable quarter in 1996.
For the quarter ended June 30, 1997, interest expense decreased to $10,664 from
$78,980 reported for the comparable quarter of 1996. For the six month period
ended June 30, 1997 interest expense decreased to $24,230 from $141,517 reported
in the comparable prior year period.
In late December 1996, the Company made an equity investment of $41,020 in its
Indian joint venture. The Company is a 47.5% shareholder in the joint venture.
For the three-month period ended June 30, 1997 the joint venture had net income
of $41,815. The Company's 47.5% share of that net income, or $19,862, is
reflected in both the balance sheets and statements of operations as part of the
equity method of accounting for the joint venture investment.
For the next several quarters, the Company expects that operating results could
vary substantially from quarter to quarter due to a number of factors that are
difficult to forecast. The results of one quarter may not be indicative of
operating results in subsequent quarters. At its current stage of business
development, the Company's quarterly revenues and results of operations may be
materially affected by, among other factors, development and introduction of
products, time to market, market acceptance, demand for the Company's products,
reviews in the press concerning the products of the Company or its competitors
and general economic conditions.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,475,098 at June 30, 1997, compared to
$2,720,551 at December 31, 1996 and $12,292 at June 30, 1996. The Company's
working capital was $1,692,962 at June 30, 1997, compared to $2,730,734 at
December 31, 1996. The Company had a working capital deficit of $576,962 at June
30, 1996.
For the six month period ended June 30, 1997, the Company used approximately
$1,012,904 of cash to finance its operating activities. For the comparable six
month period in 1996 approximately $459,229 of cash was used in operating
activities. The Company continued to have operating expenses that far exceeded
revenues, and as a result, large negative cash flows were experienced in the
operating activities for the quarter and the six month period ended June 30,
1997.
<PAGE>
To help remedy this situation, the Company reduced its work force by five
employees effective April 22, 1997. This expense reduction and associated
reduction in monthly cash expenditures is reflected in the Company's operating
results beginning in May 1997. The Company anticipates that the work force
reduction will have a minimal impact on 1997 revenues. The work force reduction
and a sharper marketing focus in the Geosciences industry was the subject of a
press release made by the Company on April 25, 1997.
The Company had capital expenditures of $4,371 for the quarter ended June 30,
1997. During the comparable quarter of 1996 the Company made an expenditure on
equipment purchases of $5,330.
The Board of Directors of the Company has authorized working capital advances to
be made to IMETRIX, an Israeli company, in the form of a convertible bridge loan
up to $200,000. As part of this bridge financing, the Company has made working
capital advances to the Israeli company of $12,000 in October 1996, and $114,000
in the quarter ended March 31, 1997. The total working capital advances of
$126,000 are carried on the Company's balance sheet in the current asset section
under the heading of "other". The Company expects to make a final advance to
IMETRIX of $74,000 during the second half of 1997, assuming the accomplishment
of certain milestones by IMETRIX.
During the quarter ended March 31, 1997, the Company repaid approximately
$53,000 of employee interest-bearing debt to eleven individuals who elected to
participate in the Board approved employee debt reduction program. In April 1997
approximately $52,000 of employee non-interest bearing debt was converted at
$2.50 per share into 20,890 shares of unregistered Common Stock of XOX
Corporation. These transactions were described in more detail in the Company's
annual report for the fiscal year ended December 31, 1996 on Form 10-KSB, which
was filed with the Securities and Exchange Commission on March 24, 1997.
Capital expenditures for the balance of fiscal year 1997 are estimated to be
$70,000.
The Company estimates that its current cash balance and the cash generated from
customer revenues will be sufficient to fund its operations and capital needs
through at least the first quarter of 1998.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of the Company was held on May 20,
1997. At such meeting, the stockholders approved (i) the election of the only
director nominee (Dr. John Swanson, Class III) named in the Company's proxy
statement (2,020,501 votes for, 15,136 votes against, and 6,200 abstained); and
(ii) the appointment of Ernst and Young LLP as independent auditors for the
Company was ratified (2,034,577 votes for, 1,100 votes against and 6,160
abstained). For further information respecting all such matters reference is
made to the Company's proxy statement on Schedule 14A that was filed with the
Securities and Exchange Commission on April 25, 1997.
Item 5. Other Information.
Effective August 6, 1997, Lawrence W. McGraw resigned as president,
chief executive officer and acting chief financial officer of the Company. Mr.
McGraw also resigned as a member of the board of directors.
Dr. Pradeep Sinha, a co-founder of the Company, has been appointed to
serve as president, chief executive officer and chief financial officer until
the board completes its search for a new president.
Concurrent with Mr. McGraw's departure, the board voted to add Steve
Mercil and Dirk McDermott as new members members of the board of directors. They
replace Mr. McGraw and Dr. John Swanson, who voluntarily resigned to maintain an
odd number of board members, as required by the company's bylaws.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(i) Those exhibits required to be furnished in response
to this item, other than Exhibit 27, were furnished
in connection with the Company's Registration
Statement on Form SB-2, File No. 333-05112-C, as
filed with the Securities and Exchange Commission and
as amended, and other reports filed under the
Securities Exchange Act of 1934, all of which are
incorporated herein by reference.
(ii) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
(i) On May 8, 1997 a Form 8-K was filed to report
termination of the Company's chief financial officer
in connection with the work force reduction.
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
August 14, 1997
By /s/ Dr. Pradeep Sinha
-------------------------------------
Dr. Pradeep Sinha
President, Chief Executive Officer &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XOX
CORPORATION'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000798122
<NAME> XOX CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,475,098
<SECURITIES> 0
<RECEIVABLES> 154,590
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,815,497
<PP&E> 549,059
<DEPRECIATION> 377,439
<TOTAL-ASSETS> 2,129,189
<CURRENT-LIABILITIES> 122,535
<BONDS> 0
0
0
<COMMON> 73,823
<OTHER-SE> 12,289,704
<TOTAL-LIABILITY-AND-EQUITY> 2,129,189
<SALES> 0
<TOTAL-REVENUES> 143,781
<CGS> 0
<TOTAL-COSTS> 677,465
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,664
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (499,819)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> 0
</TABLE>
