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, 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 May 1, 1999.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
1
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XOX CORPORATION March 31, December 31,
Balance Sheets 1999 1998
U.S. Dollars Unaudited Unaudited
-------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,368,967 $ 1,194,397
Accounts receivable 82,187 172,312
Prepaid expenses 83,246 0
Other 3,775 0
Total current assets 1,538,175 1,366,709
============== ==============
Property and equipment
Furniture and fixtures 74,191 58,519
Computer equipment 393,002 95,348
467,193 153,867
-------------- --------------
Less accumulated depreciation 410,000 90,736
Net property and equipment 57,193 63,131
-------------- --------------
License agreements, net of amortization of $115,000
and $115,000 at March 31, 1999 and December 31, 0 0
1998, respectively
Investment in joint venture 0 0
Total assets 1,595,368 1,429,840
============== ==============
Current liabilities
Accounts payable 48,771 64,212
Accrued payroll expenses 36,760 35,456
Accrued expenses 17,790 82,143
Total current liabilities 103,321 181,811
============== ==============
Deferred revenue 315,223 221,818
Long-term liabilities
Long-term debt related parties 496,249 496,249
Accrued payroll taxes 17,701 17,701
Other accrued liabilities 0 0
Total long-term liabilities 513,951 513,950
-------------- --------------
Stockholders equity:
Common stock 76,821 76,821
Additional paid-in capital 12,735,470 12,735,470
Accumulated deficit (12,149,417.93) (12,300,030.00)
Total stockholders equity 662,873 512,261
-------------- --------------
Total liabilities and stockholders equity $ 1,595,368 $ 1,429,840
============== ==============
</TABLE>
See note to Financial Statements
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
For the Three Months Ended
XOX CORPORATION March 31,
Statement of Cash Flows 1999 1998
U.S. Dollars Unaudited Unaudited
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss 150,612 (102,352)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 5,938 15,116
Amortization 0 9,583
Share of joint venture net (gain)/loss 0 (32,249)
Gain on extinguishment of debt 0 (12,974)
Changes in other operating assets and liabilities
Accounts receivable 90,125 9,512
Prepaid expenses (87,021) (12,547)
Accounts payable (15,441) (13,904)
Accrued interest 7,790 9,827
Accrued liabilities (70,838) (67,434)
Deferred revenue 93,405 16,472
------------ ------------
Net cash used in operating activities 174,570 (180,950)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 0 0
Payments on notes payable 0 (95,555)
------------ ------------
Net cash provided (-used) by financing activities 0 (95,555)
------------ ------------
Net increase (-decrease) in cash and cash equivalents 174,570 (276,905)
Cash and cash equivalents at beginning of period 1,194,397 687,039
------------ ------------
Cash and cash equivalents at end of period 1,368,967 410,134
============ ============
</TABLE>
See note to Financial Statements
3
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
For the Three Months Ended
XOX CORPORATION March 31,
Statement of Operations 1999 1998
U.S. Dollars Unaudited Unaudited
------------ ------------
<S> <C> <C>
Net revenues
Customer support and consulting $ 183,845 $ 324,989
Product revenues 0 0
Royalties 375,000 1,700
------------ ------------
558,845 326,689
Operating expenses
Research and development 222,296 256,222
Selling, general and administrative 189,363 220,292
------------ ------------
411,659 476,514
Loss from operations 147,186 (149,825)
Interest income 13,236 7,685
Interest expense (7,790) (9,827)
Miscellanous (2,020) 4,392
Gain on Debt Repayment 0 12,974
Share of joint venture net (loss)/gain 0 32,249
------------ ------------
Net income (loss) $ 150,612 $ (102,352)
============ ============
Net loss per share 0.05 (0.03)
Weighted average number of shares 3,072,901 3,055,426
outstanding
</TABLE>
See note to Financial Statements
4
<PAGE>
Part I
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
XOX Corporation
Note to Financial Statements
March 31, 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 - Earnings (Loss) per Share
The following table sets forth the computation of basic and diluted earnings per
share:
Three months ended
March 31
1999 1998
-----------------------------
Net income (loss) $ 150,612 $ (102,352)
Denominator for earnings
(loss) per share:
Weighted average shares 3,072,901 3,058,921
Effect of dilutive securities
options and warrants -- --
-----------------------------
3,072,901 3,058,921
=============================
Basic earnings (loss) per share $ 0.05 ($0.03)
Diluted earnings (loss) per share $ 0.05 ($0.03)
5
<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 MARCH 31,1999 COMPARED TO QUARTER ENDING MARCH
31, 1998
Net revenues for the quarter ending March 31, 1999 were $558,845, an
increase of approximately 71% from the net revenues of $ 326,689 realized in the
quarter ending March 31 1998. The primary reason for the increase in revenues
for the quarter ending March 31, 1999 compared to the quarter ending March 31,
1998 is attributed to revenues earned from certain agreements the Company
entered into with GeoQuest, a division of Schlumberger Technology Corporation.
The Schlumberger agreements were the subject of a press release dated July 23,
1998 and were filed as Exhibit 10.31# to Quarter Ended June 30, 1998 filed on
August 13, 1998.
To increase revenues in 1999, the Board and Management intend to broaden
the scope of business opportunities beyond the sales of licenses as well as
maintenance and royalties relating to those licenses. The Board has adopted
three primary goals for 1999; First, to service and support our major contracts
with companies such as GeoQuest and Shell; Second, to wrap up ongoing work
relating to product development for customers such as Seismic Micro Technology
and Interpretive Imaging; and third, to develop and bring to market the
Company's first end user product currently anticipated to be released by fall of
1999.
In first quarter 1999, operating expenses decreased by 14% from 1998 to
$411,659 compared to $476,514. In an effort to maintain and/or increase
profitability in 1999, the Company's Board and Management remain very conscious
of the ratio of operating expenses to sales. With the release of the Company's
new end user product in the fall 1999, increased sales are not anticipated until
at least third and/or fourth quarter of 1999. Once achieved, armed with its
specific domain knowledge, as well as its own line of products, the Company
hopes to attain greater control of its own destiny thereby creating greater
opportunities for growth.
Research and development expenses decreased approximately 13% from the
first quarter of 1998 to $222,296 representing approximately 54% of operating
expenses as
6
<PAGE>
compared to 54% of operating expense in the first quarter of 1998. The shift in
strategy and work effort did not result in higher research and development costs
in the first quarter of 1999. Instead, the strategy and work effort have become
more focused.
Selling, general and administrative expenses decreased approximately
14% from the first quarter of 1998 to $189,363 and represented approximately 46%
of 1999 operating expenses. The Company is working to open a sales office in
Houston, Texas during the second quarter of 1999. In part, the Board and
Management's new strategy, in addition to the development of the Company's new
end user product, is to move its sales effort in closer proximity to its
customer base and to provide easily accessible support after the point of sale.
To this extent, Mr. Tim Ryan has been hired as Vice President of Sales and is
located in Houston, Texas.
Increased revenues and reductions in operating expenses to improve the
ratio of operating expenses to revenues resulted in a net gain of $150,612 for
the quarter ending March 31,1999 compared to a net loss of $102,352 for the same
period in 1998. As a result the net income per share was $.05 for the quarter
ending March 31, 1999 compared to the net loss per share of $.03 for the same
period in 1998.
Interest income in the quarter ending March 31, 1999 of approximately
$13,236 resulted from the investment of the surplus cash in money market
accounts and short-term commercial paper.
Debt repayments and conversions in 1998 and in the first quarter of
1999 reduced interest expense to $7,790 from $9,827 for the comparable quarter
in 1998. In addition, the Board has indicated a desire to decrease the
outstanding long-term debt of the Company and has directed Management to pursue
such degree.
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 $1,368,967 at March 31, 1999, compared
to $1,194,397 at December 31, 1998 and $410,134 at March 31, 1998. The Company's
working capital was $1,434,854 at March 31,1999 compared to working capital of
$1,184,898 at December 31, 1998 and working capital of $484,830 at March 31,
1998. This increase in working capital from March 1998 to March 1999 was the
result of new contracts and revenues exceeding operating expenses during 1998.
7
<PAGE>
The Company's Board of Directors, on November 15, 1996, 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
is currently investigating the prospect of early repayment of all interest
bearing debt.
The Company currently estimates that it will make capital expenditures
in 1998 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 1999. 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 1999.
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) 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 continue to
perform 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 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 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.
8
<PAGE>
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
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Effective April 30, 1999, Paul A. Johnson resigned as a member of the
XOX Corporation Board of Directors due to his inability to have the
time required for travel to board meetings and to contribute
accordingly. Mr. Johnson had been the representative of ANSYS, Inc. on
the Company's Board of Directors since September of 1998 and he has not
been replaced at this time.
9
<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 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
(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, 1999
By /s/ Mark O. Senn
Mark O. Senn
President and COO
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,368,967
<SECURITIES> 0
<RECEIVABLES> 82,167
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,538,175
<PP&E> 467,193
<DEPRECIATION> 410,000
<TOTAL-ASSETS> 1,595,368
<CURRENT-LIABILITIES> 103,321
<BONDS> 0
0
0
<COMMON> 76,821
<OTHER-SE> 12,735,470
<TOTAL-LIABILITY-AND-EQUITY> 1,595,368
<SALES> 0
<TOTAL-REVENUES> 558,845
<CGS> 0
<TOTAL-COSTS> 411,659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,790
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,612
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
