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 MARCH 31, 1998
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.)
7640 West 78th Street, Bloomington, Minnesota 55439
(612) 946-1191
(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 - 3,072,901 shares outstanding as of May 1, 1998.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XOX Corporation March 31, December 31,
Balance Sheets 1998 1997
U.S. Dollars Unaudited
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 410,134 $ 687,039
Accounts receivable 270,376 279,888
Prepaid insurance 35,266 22,719
------------ ------------
Total current assets 715,776 989,646
Property and equipment
Furniture and fixtures 81,691 81,691
Computer equipment 393,002 393,002
------------ ------------
474,693 474,693
Less accumulated depreciation 379,005 363,889
------------ ------------
Net property and equipment 95,688 110,804
License agreements, net of amortization of $62,292
and $71,875 at March 31, 1998 and December 31, 43,125 52,708
1997, respectively
Investment in joint venture 112,781 80,532
------------ ------------
Total assets 967,370 1,233,690
============ ============
Current liabilities
Accounts payable 170,101 184,005
Accrued expenses 60,835 118,442
------------ ------------
Total current liabilities 230,936 302,447
Deferred revenue 134,937 118,465
Long-term liabilities
Long-term debt related parties 526,360 632,005
Accrued payroll taxes 17,701 25,783
Other accrued liabilities 63,771 78,771
------------ ------------
Total long-term liabilities 607,832 736,559
Stockholders equity:
Common stock 76,821 76,298
Additional paid-in capital 12,696,744 12,677,471
Accumulated deficit (12,779,900) (12,677,550)
------------ ------------
Total stockholders equity (6,335) 76,219
------------ ------------
Total liabilities and stockholders equity $ 967,370 $ 1,233,690
============ ============
</TABLE>
See note to Financial Statements
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
For the Three Months Ended
XOX CORPORATION March 31,
Statement of Operations 1998 1997
U.S. Dollars Unaudited Unaudited
----------- -----------
Net revenues
Customer support and consulting $ 324,989 $ 102,603
Product revenues 229,008
Royalties 1,700 0
----------- -----------
326,689 331,611
Operating expenses
Research and development 256,222 348,263
Selling, general and administrative 220,292 485,580
----------- -----------
476,514 833,843
Loss from operations (149,825) (502,232)
Interest income 7,685 26,854
Interest expense (9,827) (13,266)
Miscellanous 4,392
Gain on Debt Repayment 12,974
Share of joint venture net loss 32,249 (266)
----------- -----------
Net loss ($ 102,352) ($ 488,910)
=========== ===========
Net loss per share (0.03) (0.17)
Weighted average number of shares 3,055,426 2,930,401
outstanding
See note to Financial Statements
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
For the Three Months Ended
XOX CORPORATION March 31,
Statement of Cash Flows 1998 1997
U.S. Dollars Unaudited Unaudited
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss (102,352) (488,910)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 15,116 16,468
Amortization 9,583 14,375
Share of joint venture net (gain)/loss (32,249) 266
Gain on extinguishment of debt (12,974)
Changes in other operating assets and liabilities
Accounts receivable 9,512 (150,472)
Prepaid expenses (12,547) 2,777
Accounts payable (13,904) (42,861)
Accrued interest 9,827 0
Accrued liabilities (67,434) 9,151
Deferred revenue 16,472 89,331
---------- ----------
Net cash used in operating activities (180,950) (549,875)
INVESTING ACTIVITIES
Purchase of property and equipment (65,857)
Working capital advances to IMETRIX Limited (114,000)
---------- ----------
Net cash used in investing activities (179,857)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 1,500
Payments on notes payable (95,955) (53,021)
---------- ----------
Net cash provided (-used) by financing activities (95,955) (51,521)
---------- ----------
Net increase (-decrease) in cash and cash equivalents (276,905) (781,253)
Cash and cash equivalents at beginning of period 687,039 2,720,551
---------- ----------
Cash and cash equivalents at end of period 410,134 1,939,298
========== ==========
</TABLE>
See note to Financial Statements
<PAGE>
Part 1
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
XOX Corporation
Note to Financial Statements
March 31, 1998
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, 1997.
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 was required to be adopted on
December 31, 1997. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options are excluded. There is expected
to be no effect on earnings per share from the adoption due to the Company being
in 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
FISCAL YEAR 1998 QUARTER ENDING MARCH 31,1998 COMPARED TO QUARTER ENDING MARCH
31, 1997
Net revenues for the quarter ending March 31, 1998 were $326,689, a
decrease of approximately 1% from the net revenues of $ $331,611 realized in
quarter ending March 31 1997. The primary difference in revenues for the quarter
ending March 31, 1997 is attributable to a lack of license sales compared with
the same period in 1997 which included a significant license purchase by Shell
International Exploration and Production B.V. (Shell Oil). The Company's primary
source of revenue in the quarter ending March 31, 1998 was a contract completed
for Shell Oil to develop modules designed for shared earth modeling in the
domains of seismic interpretation, reservoir and basin modeling, and reservoir
simulation. This agreement was the subject of a press release in January 1998.
The Company anticipates that geosciences will continue in fiscal year 1998 to
represent the strongest niche market for providing revenues to XOX.
To increase revenues in 1998 the current Board and management intend to
broaden the scope of business opportunities, including, without limitation, the
sale of nonexclusive licenses which may include the ownership of source code,
partnerships and strategic alliances for the purpose of joint development and
marketing of end user products, and continued sale of OEM licenses at increased
prices, which price may include negotiated royalties and development support.
The Company plans to continue its custom development and consulting business.
While the Company is in the process of developing long-term strategic
opportunities to supplement or replace the Company's royalty business model,
there can be no assurance that any of the foregoing business opportunities will
help the Company achieve profitability during or after 1998. However, the Board
and management believe, if successful, the results of the efforts to broaden the
scope of business opportunities will begin to be reflected in the second quarter
of 1998.
<PAGE>
Although revenues received for the quarter ending March 31, 1998 were
nearly the same for the same period of 1997, 1998 operating expenses decreased
by 43% over 1997 to $476,514 compared to $833,843. In an attempt to achieve
profitability in 1998 by improving the ratio of operating expenses to sales, the
Company's current Board of Directors and its management budgeted reduced
expenses and monthly cash expenditures for 1998. These reductions were effective
on January 1, 1998. The results of these efforts, as well as others, are
reflected in the first quarter of 1998 operating expenses averaging about
$119,000 per month less than in the first quarter of 1997.
Research and development expenses decreased approximately 26% from the
first quarter of 1997 to $256,222 representing approximately 54% of operating
expenses as compared to 41% of operating expense in the first quarter of 1997.
This decrease in research and development expenses from the first quarter in
1997 is due primarily to reductions in the Company's work force that occurred in
April 1997 as well as reductions in budgeted monthly expenses effective in
January 1998. The Company does not currently expect any work force reductions of
key technical personnel in 1998.
Selling, general and administrative expenses decreased approximately 55%
from the first quarter of 1997 to $220,292 and represented approximately 46% of
1998 operating expenses. The decrease in sales, general administrative expenses
over the same period in 1997 is primarily due to reduced employment levels and
spending on other administrative expenses.
Reductions in operating expenses to improved the ratio of operating
expenses to revenues resulted in a net loss of $102,352 for the quarter ending
March 31,1998 compared to a net loss of $488,910 for the same period in 1997. As
a result the net loss per share was $.03 for the quarter ending March 31, 1998
compared to the net loss per share of $.17 for the same period in 1997.
Interest income in the quarter ending March 31, 1998 of approximately
$7,685 resulted from the investment of the surplus cash realized from the
Company's initial public offering in September 1996 in money market accounts and
short-term commercial paper.
Debt repayments and conversions in 1996 and in the first quarter of 1998
reduced interest expense to $9,827 from $13,266 for the comparable quarter in
1997. Debt conversion also resulted in $12,974 of income in the first quarter of
1998.
During 1998, the Company believes that operating results could vary
substantially from quarter to quarter. At its current stage of operations, the
Company's quarterly revenues and results of operations may be materially
affected by the timing of the development, introduction and market acceptance of
the Company's and its licensees' products.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The completion of the Company's initial public offering of its Units in
September 1996, and a partial exercise of the underwriter's over-allotment
option in November 1996, provided the Company with net proceeds of approximately
$4,997,000. This financing transaction gave the Company the necessary cash
infusion to pay down some debt and to continue to pursue its business strategy.
Cash and cash equivalents were $410,134 at March 31, 1998, compared to
$687,039 at December 31, 1996 and $1,939,298 at March 31, 1997. The Company's
working capital was $484.830 at March 31,1998 compared to working capital of
$687,199 at December 31, 1997 and working capital of $2,245,589 at March 31,
1997. This reduction in working capital from March 1997 to March 1998 was the
result of operating expenses far exceeding revenues during 1997.
To help remedy this situation, the Company reduced expenses and monthly
cash expenditures for 1998. These reductions were effective on January 1, 1998.
The results of these efforts, as well as others, are reflected in the first
quarter of 1998 operating expenses which averaged about $119,000 per month less
than in the first quarter of 1997.
In December 1996, the Company made an equity investment of $41,020 in
IIS-XOX, in exchange for a 47.5% interest in the joint venture. The Company's
47.5% share of equity in earnings of the joint venture for the period ended
March 31, 1998 amounted to $32,249 resulting in an investment shown on the
balance sheet of $112,781 at March 31, 1998, in accordance with the equity
method of accounting. The majority of the salary of the managing director of
IIS-XOX is paid entirely by the Company; therefore, any earnings from IIS-XOX
are entirely offset by this expenditure. At present the Company is negotiating
to exit from the joint venture.
At a regularly scheduled meeting of the Company's Board of Directors on
November 15, 1996, the Board authorized a repayment schedule for the next three
years on the interest bearing employee debt. Pursuant to such schedule, over
three years beginning in 1997, up to one-third of an employee's interest-bearing
debt is expected to be repaid annually, if the employee agreed to convert an
equal or greater amount of non-interest bearing debt into Common Stock at the
conversion rate of $2.50 per share. Eleven individuals have chose to accept the
Board's proposal. The Company repaid approximately $53,221 of interest-bearing
notes and converted $52,424 amount of non-interest bearing notes into Common
Stock in during the quarter ending March 31,1998.
The Company currently estimates that it will make capital expenditures in
1998 of approximately $20,000 for computer equipment.
<PAGE>
The Company estimates that its current cash balance and the cash to be
generated from customer revenues will be sufficient to fund its operations and
capital needs through at least the second quarter of 1998. 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. Many of these factors are
not within the control of the Company. As a result, there can be no assurance
that the Company will be sufficiently funded through the second quarter of 1998.
In November of 1997 the Company received correspondence from the Nasdaq
Stock Market, Inc. ("Nasdaq") which described the Company's failure to be in
compliance with continued listing requirements based on financial information
contained in the Company's Form 10-QSB for the quarter ending September 30,
1997. Following XOX's filing of a Form 8-K on November 26, 1997, evidencing
compliance with applicable Nasdaq continued total asset and capital surplus
listing criteria, Nasdaq scheduled a hearing on January 23, 1998 relating to the
decision of the Nasdaq to delist the quotation of the Company's securities from
the Nasdaq SmallCap Market. Following this review by the Nasdaq Listing
Qualifications Panel, Nasdaq determined that the XOX's securities would continue
to be "conditionally" listed on the Nasdaq SmallCap Market subject to the
following. On March 2, 1998, XOX was required to provided Nasdaq certain
supplemental information regarding business developments and, on or before March
31,1998, the Company was required to make a public filing with the Securities
and Exchange Commission evidencing a minimum of $3 million in net tangible
assets.
On March 31, 1998 the Board of Directors of XOX Corporation informed the
Nasdaq SmallCap Market that it would not be making a public filing with the
Securities and Exchange Commission evidencing a minimum of $3 million in net
tangible assets as of March 31,1998. The Board of Directors made this decision
because it believed the Company, in order to make the necessary filing, would
have had to raise an amount of capital that would have unnecessarily diluted the
equity of existing shareholders, given pending business developments. However,
there can be no assurances that the Company will be able to achieve such pending
business developments, nor can there be any assurances that the Company will not
need to raise additional equity capital causing dilution to existing
shareholders in the future. On April 2, 1998, the Company's units, shares, and
warrants were delisted from trading on the Nasdaq SmallCap Market and now trade
on the OTC-Bulletin Board. Such action may limit share-holder liquidity and
subject the trading of the Company's stock to the more stringent "penny stock"
rules, as discussed in the Company's Registration Statement on Form SB-2 (File
No. 333-05112-C).
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
USE OF PROCEEDS FROM REGISTERED SECURITIES
1. The effective date of the registration statement for which this
information is reported was September 11, 1996.
2. The following is a reasonable estimate of, the amount of net offering
proceeds to the issuer used for each of the purposes listed below. An "x"
has been placed to the left of any amount that is an estimate.
DIRECT OR INDIRECT PAYMENTS TO DIRECTORS, OFFICERS, GENERAL
PARTNERS OF THE ISSUER OR THEIR ASSOCIATES; TO PERSONS OWNING TEN
PERCENT OR MORE OF ANY CLASS OF EQUITY SECURITIES OF THE ISSUER;
AND TO AFFILIATES OF THE DIRECT OR INDIRECT ISSUER PAYMENTS TO
OTHERS
(A) (B)
(01) Construction of plant, building
and facilities
(02) Purchase and installation of
Machinery and equipment $115,139
(03) Purchase of real estate
(04) Acquisition of other business(s)
(05) Repayment of indebtedness $652,982 $308,680
- ------------------------------ -------- --------
(06) Working capital x $572,113
- -------------------- - --------
Temporary investment (specify)
(07) Money Market x $382,317
------------ - --------
(08)
<PAGE>
(09)
(10)
Other purposes (specify)
(11) Purchase of software $85,000
-------------------- -------
(12) Sales and marketing $917,448
------------------- --------
(13) Research and development $1,802,507
------------------------ ----------
(14) IMETRIX Loan $161,000
------------ --------
(15)
(16)
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
<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 10 and Exhibit 27, were
furnished in connection with the Company's Registration
Statement on Form SB2, 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 here
in by reference.
(ii) Exhibit 10 - None
(iii) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
(i) None
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
May 14, 1998
By /s/ Steven B. Mercil
Steven B. Mercil
President, Chief Executive Officer &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 410,134
<SECURITIES> 0
<RECEIVABLES> 270,376
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 715,776
<PP&E> 474,693
<DEPRECIATION> 379,005
<TOTAL-ASSETS> 967,370
<CURRENT-LIABILITIES> 230,936
<BONDS> 0
0
0
<COMMON> 76,821
<OTHER-SE> 12,696,744
<TOTAL-LIABILITY-AND-EQUITY> 967,370
<SALES> 0
<TOTAL-REVENUES> 326,689
<CGS> 0
<TOTAL-COSTS> 476,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,827
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (102,352)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
