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
SEPTEMBER 30, 1999
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 - 3,078,068 shares outstanding as of October 15,
1999.
Transitional Small Business Disclosure Format (check one): Yes __ No X
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PART 1
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
XOX Corporation September 30, December 31,
Condensed Consolidated Balance Sheets 1999 1998
Unaudited
------------ ------------
Current Assets:
Cash and cash equivalents $ 1,291,877 $ 1,194,397
Accounts receivable 53,770 172,312
Prepaid Insurance 27,749 --
Other 3,206 --
------------ ------------
Total current assets 1,376,602 1,366,709
Property and equipment
Furniture and fixtures 74,021 58,519
Computer equipment 98,311 95,348
172,332 153,867
Less accumulated depreciation 107,960 90,736
------------ ------------
64,372 63,131
------------ ------------
1,440,974 1,429,840
============ ============
Current liabilities
Accounts payable 2,390 64,212
Accrued expenses 27,731 35,456
Other accrued expenses 10,000 82,143
Deferred revenue 226,932 221,818
------------ ------------
Total current liabilities 267,053 403,629
Long-term liabilities
Long-term debt-related parties -- 496,249
Accrued payroll taxes -- 17,701
------------ ------------
Total long-term liabilities -- 513,950
Stockholders' equity:
Common stock 76,925 76,821
Additional paid-in capital 12,741,617 12,735,470
Accumulated deficit (11,644,621) (12,300,030)
------------ ------------
Total stockholders equity 1,173,921 512,261
------------ ------------
$ 1,440,974 $ 1,429,840
============ ============
See notes to Consolidated Financial Statements
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PART 1
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
XOX CORPORATION September 30, September 30,
Condensed Consolidated Statements of Operations 1999 1998 1999 1998
Unaudited Unaudited Unaudited Unaudited
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues
Customer support and consulting $ 266,461 $ 252,003 $ 657,252 $ 775,491
Product revenues -- 2,500 -- 33,520
Royalties 387,500 308,611 1,151,250 810,311
----------- ----------- ----------- -----------
653,961 563,114 1,808,502 1,619,322
Operating expenses
Research and development 230,882 189,666 735,733 641,484
Selling, general and administrative 196,677 216,664 614,654 720,172
----------- ----------- ----------- -----------
427,559 406,330 1,350,387 1,361,656
Income from operations 226,402 156,784 458,115 257,666
Interest income 25,742 8,475 53,146 20,773
Interest expense (8,723) (12,848) (28,291)
Miscellanous 184 46,751 11,426
Gain on Debt Repayment -- -- 12,974
Share of joint venture net Income -- -- 32,249
----------- ----------- ----------- -----------
Income before extraordinary item $ 252,144 $ 156,720 $ 545,164 $ 306,797
Extraordinary item -- -- 110,245 --
----------- ----------- ----------- -----------
Net Income 252,144 156,720 655,409 306,797
=========== =========== =========== ===========
Basic and diluted income per share:
Income before extraordinary item $ 0.08 $ 0.05 $ 0.17 $ 0.10
Extraordinary item -- -- 0.04 --
----------- ----------- ----------- -----------
Net income per share $ 0.08 $ 0.05 $ 0.21 $ 0.10
=========== =========== =========== ===========
</TABLE>
See notes to Consolidated Financial Statements
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<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
For the Nine Months Ended
XOX CORPORATION September 30,
Condensed Consolidated Statements of Cash Flows 1999 1998
Unaudited Unaudited
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 655,409 $ 306,797
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation 17,225 45,348
Amortization -- 38,333
Share of joint venture net income -- (32,249)
Gain on extinguishment of debt (110,245) (12,974)
Changes in other operating assets and liabilities
Accounts receivable 118,542 170,952
Prepaid expenses and other (30,955) (10,031)
Accounts payable (61,822) (73,155)
Accrued interest -- 8,710
Accrued liabilities (97,569) (77,765)
Deferred revenue 5,114 101,511
----------- -----------
Net cash provided by operating activities 495,699 465,477
INVESTING ACTIVITIES
Purchase of property and equipment (18,466) --
Working capital advances to IMETRIX Limited -- (15,018)
----------- -----------
Net cash used in investing activities (18,466) (15,018)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 6,251 --
Payments on notes payable (386,004) (126,071)
----------- -----------
Net cash used in financing activities (379,753) (126,071)
----------- -----------
Net increase in cash and cash equivalents 97,480 324,388
Cash and cash equivalents at beginning of period 1,194,397 687,039
----------- -----------
Cash and cash equivalents at end of period $ 1,291,877 $ 1,011,427
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements
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Part 1
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
XOX Corporation
Notes to Condensed Consolidated Financial Statements
September 30, 1999
Note 1 - Basis of Presentation
XOX Corporation (the "Company" or "XOX" {pronounced zocks}) designs, develops
and markets proprietary software for creating virtual mock-ups or models within
the computer that capture the complete geometry of objects or spatial areas of
interest. This model can then be used for visual analysis or to simulate
physical phenomena in a diverse set of disciplines ranging from geosciences to
medical applications.
The accompanying unaudited condensed financial statements have been prepared by
XOX Corporation, 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, 1998.
In preparation of the Company's consolidated financial statements, management is
required to make estimates and assumptions that effect reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from the estimates used by management.
Note 2 - Income per share
A reconciliation of the weighted average outstanding shares used to compute
income per share follows:
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Three months ended Nine months ended
September 30 September 30
1999 1998 1999 1998
Weighted average shares used 3,075,484 3,072,901 3,073,762 3,066,576
to compute basic income per
per share
Effect of dilutive securities 144,349 -- 48,116 --
--------- --------- --------- ---------
Weighted average shares used 3,219,833 3,072,901 3,121,878 3,066,576
to compute dilutive income ========= ========= ========= =========
per share
Note 3 - Income taxes
The Company has utilized net operating loss carry forwards to fully offset
current taxable income. Accordingly, no provision for income taxes has been
recorded.
Note 4 - Reclassifications
Certain 1998 numbers have been reclassified to conform with the 1999
presentation.
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 1999 QUARTER ENDING SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDING
SEPTEMBER 30, 1998.
NET REVENUES FOR THE QUARTER ENDED SEPTEMBER 30, 1999 INCREASED APPROXIMATELY
16% TO $653,961, AS ANTICIPATED, FROM $563,114 REPORTED FOR THE SAME QUARTER
ENDING SEPTEMBER 1998. NET REVENUES FOR THE NINE-MONTH PERIOD ENDING
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<PAGE>
SEPTEMBER 30, 1999 INCREASED APPROXIMATELY 12% TO $1,808,502 FROM $1,619,322
REPORTED IN NINE-MONTH PERIOD ENDING SEPTEMBER 30, 1998. The primary reason for
the increase in both periods is attributable to revenues earned from certain
agreements the Company entered into with Geoquest, a division of Schlumberger
Technology Corporation (The "Schlumberger Agreements"). As disclosed in the
Company's Form 10-QSB-A filed for the quarter ended June 30, 1998, under the
Schlumberger Agreements, XOX assigned a co-ownership interest in SHAPES, subject
to certain limitations in how XOX agreed to provide services to GeoQuest to
maintain, support and enhance SHAPES. The Schlumberger Agreements provide for
payments of approximately $5.75 million to XOX Corporation over three years,
with additional sums possible based upon potential software dispositions. There
is no restriction on the number of years in which XOX will receive royalties
based on the number of such software dispositions made by Schlumberger. The
Schlumberger Agreements were the subject of a press release dated July 23, 1998.
The Company anticipates that geosciences will continue in fiscal year 1999 to
represent the strongest niche market for providing revenues to XOX.
To increase the Company's revenues in 1999, the Board and Management have
continued to broaden the scope of business opportunities beyond the sales of
licenses as well as maintenance and royalties relating to those licenses. THIS
IS BEING DONE PRIMARILY THROUGH THE DEVELOPMENT AND INTRODUCTION OF THE
COMPANY'S FIRST END USER PRODUCT SHAPES PROSPECTOR(TM), THE FIRST VERSION OF
WHICH WAS RELEASED DURING THE QUARTER ENDING SEPTEMBER 30, 1999. SHAPES
PROSPECTOR(TM) is a PC Windows Compatible 3D modeling tool designed for ease of
use and to perform high-speed calculations enabling the end user to input well
data and build complex models. It also allows for integrated 2D and 3D models,
surface models, detailed mapping, fault modeling and solid models.
Research and development expenses increased approximately 22% to $230,882 for
the quarter ended September 30, 1999, from $189,666 reported for the same
quarter of 1998. The research and development expenses for the quarter ended
September 30, 1999 represented approximately 54% of the Company's total
operating expenses. For the nine-month period ending September 30, 1999, the
Company's total research and development expenses increased 15% to $735,733 from
$641,484 reported in the same period in 1998.
Selling, general, and administrative expenses for the quarter ended September
30, 1999 decreased approximately 9% to $196,677 from $216,664 reported for the
same quarter in 1998 and represented approximately 46% of the Company's total
operating expenses. For the nine-month period ending September 30, 1999,
selling, general, and administrative expenses decreased 5 % to $614,654 from
$720,172 reported the same period in 1998.
Increase in revenues and the reductions in the operating expenses improved the
Company's ratio of operating expenses to revenues ratio and resulted in income
before extraordinary item of $252,144 for the quarter ending September 30, 1999
and $545,164 for the nine month period ending September 30, 1999. This compares
to income before extraordinary item of $156,720 and $306,797 for the same time
periods in 1998. THUS,
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THE COMPANY'S INCOME PER SHARE BEFORE EXTRAORDINARY ITEM FOR THE QUARTER ENDING
SEPTEMBER 30, 1999 WAS $.08 AND INCOME PER SHARE BEFORE EXTRAORDINARY ITEM FOR
THE NINE-MONTHS ENDING SEPTEMBER 30, 1999 WAS $.17, COMPARED TO INCOME PER SHARE
BEFORE EXTRAORDINARY ITEM OF $.05 FOR THE QUARTER ENDING SEPTEMBER 30, 1998 AND
$.10 FOR THE NINE-MONTH PERIOD ENDING SEPTEMBER 30, 1998.
Interest income in the quarter ended September 30, 1999 of $25,742 resulted from
the investment of the surplus cash in money market accounts and short-term
certificates. During the second quarter 1999, pursuant to an initiative by the
Company's Board of Directors, all Company long-term debt was repaid resulting in
an extraordinary gain of $110,245 or $.04 per share for the nine months ended
September 30, 1999. These repayments reduced third quarter 1999 interest expense
to $0 from $8,723 for the comparable quarter in 1998.
During 1999, the Company believes that operating results could continue to 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,291,877 at September 30, 1999, compared to
$1,194,397 at December 31, 1998. The Company's working capital was $1,109,549 at
September 30,1999, compared to working capital of $963,080 at December 31, 1998.
The Company's accounts receivables were $53,770 on September 30,1999, compared
to accounts receivables of $172,312 at December 31, 1998.
The Company currently estimates that capital expenditures for fiscal year 1999
will be approximately $40,000 and will be primarily be used for computer
equipment.
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 May 31, 2001. 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 beyond May 31, 2001.
YEAR 2000
The Company is aware of the Year 2000 issue. During the past several months, the
Company has performed an internal analysis on its software products, SHAPES and
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SHAPES PROSPECTOR and has assessed the readiness of the Company's other
products, its internal computer systems and third party equipment and software
for handling such Year 2000 issues. The Company believes that its products are
currently Year 2000 compliant. Over the last several months, the Company, its
software engineers and its technical support staff have performed an extended
analysis on vendor supplied modules. While the Company cannot give any
assurances that these vendor modules will be Year 2000 compliant, the Company
expects to be able to successfully address and implement any necessary changes
to ensure Year 2000 compliance.
The Company has also addressed its administrative dependence on software
packages. Management has corresponded with its outside vendors and third party
suppliers inquiring about the Year 2000 readiness of their respective products
or services. To the extent that such vendors and suppliers can ensure Year 2000
compliance, the Company anticipates the continued use and dependence on such
third parties. However, there can be no assurance that these outside vendors and
third party suppliers will be able to become Year 2000 compliant, which could
have an adverse effect on the Company.
XOX is committed to being Year 2000 compliant and realizes the impact to our
customers if the Company is unable to continue developing, maintaining and
supplying SHAPES software. The Company is currently developing contingency plans
in areas that may be impacted by Year 2000 related computer failure and expects
to have these plans in place by the year end 1999.
To date, the Company has not incurred any significant expenditures associated
with becoming Year 2000 compliant. As management continues the assessment, the
Company may find it necessary to incur additional costs to become Year 2000
compliant. However, the Company cannot give any assurance that it will in fact
be able to be Year 2000 compliant, or that other problems or costs associated
with the Year 2000 issue will not arise.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
page 9
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None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Effective August 30, 1999, Director Steven Mercil, President & CEO of
Minnesota Investment Network, resigned from the Board of Directors.
Effective August 30, 1999, appointed to replace Mr. Mercil, is Mr.
Layton Kinney, as Minnesota Investment Network representative.
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 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 herein by
reference.
(ii) Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
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
October 29, 1999
By /s/ Mark O. Senn
Mark O. Senn
President & COO
page 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,291,877
<SECURITIES> 0
<RECEIVABLES> 53,770
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,376,602
<PP&E> 172,332
<DEPRECIATION> 107,960
<TOTAL-ASSETS> 1,440,974
<CURRENT-LIABILITIES> 267,053
<BONDS> 0
0
0
<COMMON> 76,925
<OTHER-SE> 1,096,995
<TOTAL-LIABILITY-AND-EQUITY> 1,440,974
<SALES> 0
<TOTAL-REVENUES> 653,961
<CGS> 0
<TOTAL-COSTS> 427,559
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252,144
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
