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, 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 - 3,072,901 shares outstanding as of July 20,
1999.
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 1999 1998
U.S. Dollars Unaudited
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents 1,250,052 1,194,397
Accounts receivable $ 7,250 $ 172,312
Prepaid expenses 55,497 0
Other 3,775 0
Total current assets 1,316,574 1,366,709
Property and equipment
Furniture and fixtures 58,519 58,519
Computer equipment 95,348 95,348
Leasehold improvements
153,867 153,867
Less accumulated depreciation 102,612 90,736
------------ ------------
Net property and equipment 51,255 63,131
License agreements, net of amortization of $115,000
and $115,00 at June 30,1999 and December 31, 0 0
1998, respectively
Investment in joint venture 0 0
------------ ------------
Total assets 1,367,829 1,429,840
============ ============
Current liabilities
Accounts payable 116,897 64,212
Accrued expenses 27,983 35,456
Other accrued expenses 10,000 82,143
------------ ------------
Total current liabilities 154,880 181,811
Deferred revenue 297,423 221,818
Long-term liabilities
Long-term debt related parties 0 496,249
Accrued payroll taxes 0 17,701
Other accrued liabilities 0 0
------------ ------------
Total long-term liabilities 0 513,950
Stockholders equity:
Common stock 76,821 76,821
Additional paid-in capital 12,857,796 12,735,470
Accumulated deficit (12,019,091) (12,300,030)
------------ ------------
Total stockholders equity 915,526 512,261
------------ ------------
Total liabilities and stockholders equity $ 1,367,829 $ 1,429,840
============ ============
</TABLE>
See note to Financial Statements
page 2
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
XOX CORPORATION June 30, June 30,
Statement of Operations 1999 1998 1999 1998
U.S. Dollars Unaudited Unaudited Unaudited Unaudited
----------- ----------- ----------- -----------
Net revenues
<S> <C> <C> <C> <C>
Customer support and consulting $ 206,946 $ 204,656 $ 390,791 $ 225,480
Product revenues $ 329,529
Royalties 388,750 500,000 763,750 501,200
----------- ----------- ----------- -----------
595,696 704,656 1,154,541 1,056,209
Operating expenses
Research and development 282,555 195,596 504,851 451,818
Selling, general and administrative 240,695 283,234 430,058 503,508
----------- ----------- ----------- -----------
523,250 478,830 934,909 955,326
Income (loss) from operations 72,446 225,826 219,632 100,883
Interest income 14,130 4,613 27,366 12,298
Interest expense (5,020) (9,741) (12,810) (19,568)
Miscellanous 48,771 31,586 46,751 11,242
Gain on Debt Repayment 12,974
Share of joint venture net Income (loss) -- 32,249
----------- ----------- ----------- -----------
Net Income (loss) $ 130,327 $ 252,283 $ 280,939 $ 150,078
=========== =========== =========== ===========
Net income (loss) per share 0.04 0.08 0.09 0.05
=========== =========== =========== ===========
Weighted average number of shares
outstanding 3,072,901 3,072,901 3,072,901 3,064,029
=========== =========== =========== ===========
</TABLE>
See note to Financial Statements
page 3
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
For the Six Months Ended
XOX CORPORATION June 30,
Statement of Cash Flows 1999 1998
U.S. Dollars Unaudited Unaudited
--------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income (loss) 280,939 150,078
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 11,875 30,232
Amortization 23,958
Loss on disposal of property and equipment --
Share of joint venture net (gain)/loss (32,249)
Fair value of options granted for service --
Write-off note receivable due to impairment --
Gain on extinguishment of debt (12,974)
Changes in other operating assets and liabilities
Accounts receivable 165,062 (399,187)
Prepaid expenses (59,272) (29,255)
Accounts payable 52,685 25,380
Accrued interest 9,271
Accrued liabilities (97,316) (71,028)
Deferred revenue 75,605 30,403
--------- --------
Net cash used in operating activities 429,578 (275,371)
INVESTING ACTIVITIES
Purchase of property and equipment 0 --
Working capital advances to XOX-Asia 0 0
Working capital advances to IMETRIX Limited 0 (9,018)
Advance under note receivable 0 --
--------- --------
Net cash used in investing activities 0 (9,018)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock --
Net proceeds from bridge loans
Payments on notes payable (373,923) (95,955)
--------- --------
Net cash provided (used) by financing activities (373,923) (95,955)
--------- --------
Net increase (decrease) in cash and cash equivalents 55,655 (380,344)
Cash and cash equivalents at beginning of period 1,194,397 687,039
--------- --------
Cash and cash equivalents at end of period 1,250,052 306,695
========= ========
</TABLE>
See note to Financial Statements
page 4
<PAGE>
Part 1
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
XOX Corporation
Note to Financial Statements
June 30, 1999
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, 1998.
Note 2 - Net Earnings (Loss) per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June
1999 1998 1999 1998
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $130,327 $252,284 $280,939 $150,078
Denominator for earnings
(loss) per share:
Weighted average shares 3,072,901 3,072,901 3,072,901 3,072,901
Effect of dilutive securities
options and warrants - - - -
-------------------------------------------------------------
3,072,901 3,072,901 3,072,901 3,072,901
=============================================================
Basic earnings (loss) per share $.04 $.08 $ 0.09 $.05
Diluted earnings (loss) per share
</TABLE>
<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 1999 QUARTER ENDING JUNE 30, 1999 COMPARED TO QUARTER ENDING JUNE
30, 1998
Net revenues for the six-month period ending June 30, 1999 increased
approximately 9% to $1,154,541, as anticipated from $1,056,209 reported in
six-month period ending June 30, 1998. The primary reason for the increase in
revenues for the first six (6) months period of 1999 in comparison to the same
period in 1998 is attributed to revenues earned from certain agreements the
Company entered into with GeoQuest, a division of Schlumberger Technology
Corporation (The "Schlumberger Agreements"). The Schlumberger Agreements were
the Company's primary source of revenue for the first six- (6) months of 1999.
Under the Schlumberger Agreements, XOX assigned a co-ownership in SHAPES,
subject to certain limitations, and XOX has 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 on the number of software
dispositions. Payments to XOX based on software dispositions extend beyond the
three-year period. The Schlumberger Agreements were the subject of a press
release dated July 23, 1998 and have been previously filed in connection with
the Company's Exchange Act filings.
Net revenues for the quarter ended June 30, 1999 decreased as anticipated,
approximately 15% to $595,696, from $704,656 reported for the same quarter in
1998. The decrease in second quarter revenues in 1999 as compared to the same
period in 1998 result from a larger up front payment on the Schlumberger
Agreements in June 1998. The up front payment was a one time payment and did not
repeat in 1999.
To increase 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), which the first version is anticipated to be
released prior to the fourth quarter of 1999.
<PAGE>
The PC Windows Compatible 3D modeling tool is being designed for ease of use and
to perform high-speed calculations enabling the user to input well data and
build complex models. It allows for integrated 2D and 3D models, surface models,
detailed mapping, fault modeling and solid models.
In the second quarter of 1999 operating expenses increased by 9% from 1998 to
$523,250 compared to $478,830. For the six-month period ending June 30, 1999,
total operating expenses decreased by 2% to $934,909 compared to $955,326
reported for same period in 1998.
Research and development expenses increased approximately 44% to $282,555 for
the quarter ended June 30, 1999, from $195,596 reported for the same quarter of
1998. The research and development expenses for the quarter ended June 30, 1999
represented approximately 54% of the Company's total operating expenses. For the
six-month period ending June 30, 1999 the Company's total research and
development expenses increased 12% to $504,851 from $451,818 reported in the
same period in 1998 representing 54% of the Company's total operating expenses.
The increase is in large part attributable to the Company's development efforts
relating to SHAPES PROSPECTOR.
Selling, general, and administrative expenses decreased approximately 15% to
$240,695 for the quarter ended June 30, 1999 from $283,234 reported for the same
quarter in 1998 and represented approximately 46 % of the Company's total
operating expenses as compared to 59% of operating expense in the second quarter
of 1998. For the six month period ending June 30, 1999 selling, general, and
administrative expenses decreased 15 % to $430,058 from $503,508 reported in the
same prior year period and represented 45% of operating expenses as compared to
52% of the Company's total operating expenses for 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 net
income of $130,327 for the quarter ending June 30, 1999 and net income of
$280,939 for the six month period ending June 30,1999. This compares to a net
income of $252,284 and $150,078 for the same time periods in 1998. Thus, the
Company net income per share for the quarter ending June 30,1999 was $.04 and
net income per share for the six months ending June 30,1999 was $.09, compared
to a net income per share of $.08 for the quarter ending June 30, 1998 and $.05
for the six month period ending June 30,1998.
Interest income in the quarter ending June 30, 1999 of approximately $14,130
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. Debt repayments in the
second quarter of 1999 reduced interest expense to $0 from $12,794 for the
comparable quarter in 1998.
<PAGE>
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 $1,250,052 at June 30, 1999, compared to
$1,194,397 at December 31, 1998 and $306,695 at June 30, 1998. The Company's
working capital was $1,161694 at June 30,1999, compared to working capital of
$1,184,898 at December 31, 1998 and working capital of $771,674 at June 30,
1998. The Company's accounts receivable were $7,250 on June 30,1999 compared to
accounts receivable of $679,075 at June 30, 1998.
The Company currently estimates that it will make capital expenditures in 1999
of approximately $40,000 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 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 2001.
YEAR 2000
The Company is aware of the Year 2000 issue. During 1998, the Company performed
an internal analysis of its primary software product (SHAPES) and 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 the SHAPES product is currently Year 2000 compliant. The
Company, its software engineers and its technical support staff have performed
an extended analysis on vendor supplied modules and a schedule has been put in
place to obtain and install Year 2000 updates (where available). The Company
anticipates these updates to be installed by September 30, 1999. 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 addressed
is administrative dependence on software packages. Management has sent
correspondence to its outside vendors and third party suppliers to inquire about
the Year 2000 readiness of their respective products or services. The Company
has received return correspondence from the outside vendors and third party
<PAGE>
suppliers, and 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 its
customers if the Company is unable to continue developing, maintaining and
supplying SHAPES software. In 1999, the Company continues to develop contingency
plans in areas that may be impacted by Year 2000 related computer failure and
expects to have these plans in place by year-end.
To date, the Company has not incurred any significant expenditures associated
with becoming Year 2000 compliant. The Company anticipates it may incur up to
$20,000 of expenditures in association with becoming Year 2000 compliant.
However, as management continues the assessment, the Company may find it
necessary to incur additional costs to become Year 2000 complaint. 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
None
Item 4. Submission of Matters to a Vote of Security Holders
Shareholder Meeting
The Annual Meeting of Stockholders of the Company was held on June 15, 1999. At
such meeting, the stockholders approved (i) the election of one (1) director
nominee for Class II, (Peter Dahl) (2,130,595 for, 25,300 withheld) and (ii) the
appointment of Grant Thornton, LLP as the Company's independent Auditors for the
fiscal year ending December 31, 1999, (2,128,985 for, 25,710 against, 1,200
abstain). For
<PAGE>
further information respecting all such matters reference is made to the
Company's proxy statement on Schedule 14A as filed with the Securities and
Exchange Commission on May 19, 1999.
Item 5. Other Information
None
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 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
XOX Corporation on May 18, 1999, dismissed Ernst & Young LLP
as its independent accountant. For further information
respecting all such matters reference is made to the
Company's Form 8-K that was filed with the Securities and
Exchange Commission on May 25, 1999.
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
July 22, 1999
By /s/ Mark O. Senn
Mark O. Senn
President & COO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,250,052
<SECURITIES> 0
<RECEIVABLES> 7,250
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,316,574
<PP&E> 153,867
<DEPRECIATION> 102,612
<TOTAL-ASSETS> 1,367,829
<CURRENT-LIABILITIES> 154,880
<BONDS> 0
0
0
<COMMON> 76,821
<OTHER-SE> 12,857,796
<TOTAL-LIABILITY-AND-EQUITY> 1,367,829
<SALES> 0
<TOTAL-REVENUES> 595,696
<CGS> 0
<TOTAL-COSTS> 523,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,020
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 130,327
<EPS-BASIC> 0.04
<EPS-DILUTED> 0
</TABLE>
