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, 2000
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
(952) 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 - 2,977,346 shares outstanding as of July 27,
2000.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
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PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
XOX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited Audited
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,221,121 $ 1,390,415
Accounts receivable 247,738 191,175
Prepaid expenses 86,546 --
Other 9,711 16,735
------------ ------------
Total current assets 1,565,116 1,598,325
PROPERTY AND EQUIPMENT
Furniture and fixtures 74,022 74,022
Computer equipment 103,314 98,311
------------ ------------
177,336 172,333
Less accumulated depreciation 124,281 113,506
------------ ------------
53,055 58,827
------------ ------------
Total assets $ 1,618,171 $ 1,657,152
============ ============
CURRENT LIABILITIES
Accounts payable $ -- $ 10,155
Accrued payroll and vacation 29,526 48,782
Other accrued expenses 3,335 26,385
Deferred revenue -- 96,399
------------ ------------
Total current liabilities 32,861 181,721
STOCKHOLDERS' EQUITY
Common stock 74,432 77,408
Additional paid-in capital 12,627,784 12,770,098
Accumulated deficit (11,116,906) (11,372,075)
------------ ------------
Total stockholders' equity 1,585,310 1,475,431
------------ ------------
Total liabilities and stockholders' equity $ 1,618,171 $ 1,657,152
============ ============
</TABLE>
See notes to consolidated financial statements
2
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PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
XOX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
For the three months ended June 30, For the six months ended June 30,
----------------------------------- ---------------------------------
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues
License and product sales $ 375,000 $ 375,000 $ 797,300 $ 750,000
Customer support and consulting 185,261 206,946 404,191 390,791
Royalties 31,125 13,750 73,725 13,750
------------ ------------ ------------ ------------
591,386 595,696 1,275,216 1,154,541
Operating expenses
Research and development 301,746 282,555 569,255 504,851
Selling, general and administrative 257,042 240,695 484,921 430,058
------------ ------------ ------------ ------------
558,788 523,250 1,054,176 934,909
Income from operations 32,598 72,446 221,040 219,632
Interest income 16,987 14,130 31,769 27,366
Interest expense (458) (5,020) (458) (12,810)
Miscellaneous 4,314 48,771 2,818 46,751
------------ ------------ ------------ ------------
Net income $ 54,357 $ 130,327 $ 255,169 $ 280,939
============ ============ ============ ============
Net income per share
Basic $ .02 $ .04 $ .09 $ .09
Diluted .02 .04 .08 .09
------------ ------------ ------------ ------------
Weighted average shares outstanding
Basic 2,977,346 3,072,901 2,992,982 3,072,901
Diluted 3,279,028 3,072,901 3,268,996 3,072,901
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
XOX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Operating activities
Net income $ 255,169 $ 280,939
Adjustments to reconcile net Income to net cash
provided by (used in) operating activities
Depreciation 10,774 11,875
Changes in other operating assets and liabilities
Accounts receivable (56,563) 165,062
Prepaid expenses and other (79,522) (59,272)
Accounts payable (10,155) 52,685
Accrued liabilities (42,306) (97,316)
Deferred revenue (96,399) 75,605
------------ ------------
Net cash provided by (used in) operating
activities (19,002) 429,578
Investing Activities
Purchase of property and equipment (5,002) --
------------ ------------
Net cash used in investing activities (5,002) --
Financing activities
Net proceeds from issuance of common stock 6,000 --
Common stock repurchase (151,290) --
Payments on notes payable -- (373,923)
------------ ------------
Net cash used in financing activities (145,290) (373,923)
------------ ------------
Net increase (decrease) in cash and cash
equivalents (169,294) 55,655
Cash and cash equivalents at beginning of period 1,390,415 1,194,397
------------ ------------
Cash and cash equivalents at end of period $ 1,221,121 $ 1,250,052
============ ============
</TABLE>
See notes to consolidated financial statements
4
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
XOX CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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
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 the Company, pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished in the financial statements
includes normal recurring adjustments and reflects 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 accounting
principles generally accepted in the United States of America 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. The consolidated balance sheet as of December 31,
1999 is summarized from audited consolidated financial statements, but does
not include all the disclosures contained therein. 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, 1999.
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.
5
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NOTE 2 - NET INCOME PER SHARE
The Company's basic net income per share amounts have been computed by
dividing net income by the weighted average number of outstanding common
shares. The Company's diluted net income per share is computed by dividing
net income by the weighted average number of outstanding common shares and
common share equivalents relating to stock options and warrants when
dilutive. Options to purchase 127,789 shares of common stock with a weighted
average exercise purchase price of $5.75 and warrants to purchase 116,222
shares of common stock with a weighted average purchase price of $9.77 were
outstanding during the second quarter of 2000 but were excluded from the
computation of common share equivalents because they were antidilutive.
During the quarter ending June 30, 1999 the effect of all outstanding options
and warrants were antidilutive.
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 the Company
and its industry and other factors that could affect the Company's financial
results are included in the Company's Securities and Exchange Commission
filings.
RESULTS OF OPERATIONS
FISCAL YEAR 2000 QUARTER ENDING JUNE 30, 2000 COMPARED TO QUARTER ENDING JUNE
30, 1999
Net revenues for the quarter ended June 30, 2000 decreased less than 1% to
$591,386, from $595,696 reported for the same quarter ending June 30, 1999.
The company believes that the primary reason for the decrease in revenues for
the three months period of 2000 in comparison to the same period in 1999, is
attributable to key personnel changes in our sales and marketing area.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS - CONTINUED
To increase the Company's revenues in 2000, the Board and management have
continued to broaden the scope of business opportunities beyond the sales of
software licenses, maintenance and support agreements and royalties relating
to those licenses. This is being accomplished primarily through the
development and introduction of the Company's first end user product
ShapesProspector(TM). ShapesProspector(TM) is a PC Windows Compatible 3D
modeling tool that performs high-speed calculations and enables the end 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.
Version 2.0 of ShapesProspector was released in May 2000. During second
quarter, the Company added multiple Z value modeling capabilities to
ShapesProspector(TM), which allowed for for construction and manipulation of
complex models such as salt diapirs, overturned folds and reverse faults.
Research and development expenses increased approximately 7% to $301,746 for
the quarter ended June 30, 2000, from $282,555 reported for same quarter of
1999. The research and development expenses for the quarter ended June 30,
2000 represented approximately 54% of the Company's total operating expenses.
This was primarily due to the increased development effort going into the
creation of Version 2.0 of ShapesProspector(TM), which was released in May
2000.
Selling, general and administrative expenses for the quarter ended June 30,
2000 increased approximately 7% to $257,042 from $240,695 reported for the
same quarter in 1999 and represented approximately 46% of the Company's total
operating expenses. These increased operating expenses are due to the
addition of our Houston sales and marketing office as well as key personnel
changes in the sales and marketing areas.
The revenues outpaced the operating expenses and resulted in a net income of
$54,357 for the quarter ended June 30, 2000. This compares to a net income of
$130,327 for the same period in 1999. Thus, the Company's basic income per
share for the quarter ended June 30, 2000 was $0.02 compared to basic income
per share of $0.04 for the quarter ended June 30, 1999.
Interest income in the quarter ended June 30, 2000 of $16,987 resulted from
the investment of the surplus cash in money market accounts and short-term
certificates.
During 2000, 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 and its end user products.
7
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,221,121 at June 30, 2000, compared to
$1,390,415 at December 31, 1999. The difference primarily reflects a similar
amount expensed to re-purchase shares of the Company's common stock since
December 31, 1999. The Company's working capital was $1,532,255 at June 30,
2000 compared to working capital of $1,416,605 at December 31, 1999. The
Company's accounts receivables were $247,738 on June 30, 2000 compared to
accounts receivables of $191,175 at December 31, 1999.
The Company currently estimates that it will make capital expenditures in
2000 of approximately $34,000 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 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 products, market acceptance of the Company and
its products, demand for the Company's products, reviews in the press
concerning the products of the Company and 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.
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
or "continue" or the negative or other variation thereof or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and
actual results may differ materially depending on a variety of factors, not
limited to, but including the risk factors set forth in the "Risk Factors"
section of the Company's Registration Statement on Form SB-2 (File No.
333-05112-C).
8
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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
The Annual Meeting of Stockholders of the Company was held on May 2,
2000. At such meeting, the stockholders approved (i) the election of two (2)
directors nominated for class three (3) (Bernard Reeck and Craig Gagnon)
(2,311,101 for, 1,600 withheld) and (ii) the appointment of Grant Thornton LLP
as the Company's independent auditors for the fiscal year ending December 31,
2000 (2,232,153 for, 3,300 against, 84,148 abstain). For further information
respecting all such matters reference is made to the Company's proxy statement
on Schedule 14 A as filed with the Securities and Exchange Commission on April
13, 2000. Also, a description of each matter voted upon; state the # votes cast
for, against or withheld, as well as the number of abstentions and broker
non-votes, as to each such matter, including a separate tabulation with respect
to each nominee for office.
Item 5. Other Information
Effective June 1, 2000, Mr. Jack Steen replaced Mr. Tim Ryan in
Houston as V.P. of Sales and Marketing.
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
(i) None
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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 __, 2000
By /s/ Mark O. Senn
Mark O. Senn
President and COO
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