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, 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
(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 - 2,977,346 shares outstanding as of October 31,
2000.
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
XOX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,267,425 $ 1,390,415
Accounts receivable 276,563 191,175
Prepaid insurance 61,296 --
Other 9,711 16,735
------------ ------------
Total current assets 1,614,995 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 129,668 113,506
------------ ------------
47,668 58,827
------------ ------------
Total assets $ 1,662,663 $ 1,657,152
============ ============
CURRENT LIABILITIES
Accounts payable $ 4,703 $ 10,155
Accrued expenses 39,022 48,782
Other accrued expenses 3,335 26,385
Deferred revenue -- 96,399
------------ ------------
Total current liabilities 47,060 181,721
STOCKHOLDERS' EQUITY
Common stock 74,432 77,408
Additional paid-in capital 12,627,784 12,770,098
Accumulated deficit (11,086,613) (11,372,075)
------------ ------------
Total stockholders' equity 1,615,603 1,475,431
------------ ------------
Total liabilities and stockholders' equity $ 1,662,663 $ 1,657,152
============ ============
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
XOX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues
Licensee and product sales $ 375,000 $ 387,500 $ 1,172,300 $ 1,151,250
Customer support and consulting 62,500 251,511 466,691 628,552
Royalties 70,375 14,950 144,100 28,700
----------- ----------- ----------- -----------
507,875 653,961 1,783,091 1,808,502
Operating expenses
Research and development 274,772 230,882 844,027 753,733
Selling, general and administrative 234,064 196,677 718,986 614,654
----------- ----------- ----------- -----------
508,836 427,559 1,563,013 1,350,387
Income (loss) from operations (961) 226,402 220,078 458,115
Interest income 31,218 25,742 62,988 53,146
Interest expense -- -- (458) (12,848)
Miscellaneous 36 -- 2,854 46,751
----------- ----------- ----------- -----------
Income before extraordinary item 30,293 252,144 285,462 545,164
Extraordinary item -- -- -- 110,245
----------- ----------- ----------- -----------
Net income $ 30,293 $ 252,144 $ 285,462 $ 655,409
=========== =========== =========== ===========
Basic income per share:
Income before extraordinary item $ .01 $ .08 $ .10 $ .17
Extraordinary item -- -- -- .04
Net income $ .01 $ .08 $ .10 $ .21
Diluted income per share:
Income before extraordinary item $ .01 $ .08 $ .09 $ .17
Extraordinary item -- -- -- .04
Net income $ .01 $ .08 $ .09 $ .21
Weighted average shares outstanding
Basic 2,987,732 3,075,484 2,987,732 3,073,762
Diluted 3,064,754 3,219,833 3,197,416 3,121,878
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
XOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Operating activities
Net income $ 285,462 $ 655,409
Adjustments to reconcile net income to net cash used in
operating activities
Depreciation 16,162 17,225
Gain on extinguishment of debt -- (110,245)
Changes in other operating assets and liabilities
Accounts receivable (85,388) 118,542
Prepaid expenses and other (54,272) (30,955)
Accounts payable (5,452) (61,822)
Accrued liabilities (32,810) (97,569)
Deferred revenue (96,399) 5,114
------------ ------------
Net cash provided by operating activities 27,303 495,699
Investing activities
Purchase of property and equipment (5,003) (18,466)
------------ ------------
Net cash used in investing activities (5,003) (18,466)
Financing activities
Net proceeds from issuance of common stock 6,000 6,251
Common stock repurchase (151,290) --
Payments on notes payable -- (386,004)
------------ ------------
Net cash used in financing activities (145,290) (379,753)
------------ ------------
Net increase (decrease) in cash and cash
equivalents (122,990) 97,480
Cash and cash equivalents at beginning of period 1,390,415 1,194,397
------------ ------------
Cash and cash equivalents at end of period $ 1,267,425 $ 1,291,877
============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
XOX CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 & 2 FINANCIAL STATEMENTS (CONTINUED)
XOX CORPORATION
NOTES TO CONDENSED CONDOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2000
UNAUDITED
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 505,403 shares of common stock with a weighted
average exercise purchase price of $3.43 and warrants to purchase 115,822
shares of common stock with a weighted average purchase price of $9.75 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 September 30, 2000 the effect of all outstanding
options and warrants were antidilutive.
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.
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.
6
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 2 FINANCIAL STATEMENTS (CONTINUED)
XOX CORPORATION
NOTES TO CONDENSED CONDOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2000
UNAUDITED
RESULTS OF OPERATIONS
FISCAL YEAR 2000 QUARTER ENDING SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDING
SEPTEMBER 30, 1999
Net revenues for the quarter ended September 30, 2000 decreased 22% to
$507,875, from $653,961 reported for the same quarter ending September 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 as well as a scheduled and anticipated reduction in support under the
company's contract with Schlumberger.
To increase the Company's revenues in 2000, the Board and management have
continued to attempt to broaden the scope of business opportunities beyond
the sales of software licenses, maintenance and support agreements and
royalties relating to such licenses. To that end, the company initially
embarked on the development and introduction of the Company's first end user
product ShapesProspector(TM), 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. While Version 3.0 of ShapesProspector(TM) as well
as a Well Planning Tool Add On are anticipated to be released in November
2000, sales have aged significantly.
In order to address future growth of the company, the Board has appointed a
new Chief Executive Officer, John Sutton, and an Executive Vice President of
Business Development, Bill Fuller. Their focus will be to 1) negotiate a
continuing relationship with Schlumberger, 2) seek out strategic growth
opportunities through merger and/or acquisition, and 3) evaluate the
positioning, sales, and marketing of ShapesProspector(TM).
Research and development expenses increased approximately 19% to $274,772 for
the quarter ended September 30, 2000, from $230,882 reported for same quarter
of 1999. The research and development expenses for the quarter ended
September 30, 2000 represented approximately 54% of the Company's total
operating expenses. For the nine-month period ending September 30, 2000, the
Company's total research and development expenses increased 12% to $844,027
from $753,733. This was primarily due to the increased development effort
going into the creation of Version 3.0 of ShapesProspector(TM), and the new
Well Planning Tool.
7
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 2 FINANCIAL STATEMENTS (CONTINUED)
XOX CORPORATION
NOTES TO CONDENSED CONDOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2000
UNAUDITED
Selling, general and administrative expenses for the quarter ended September
30, 2000 increased approximately 19% to $234,064 from $196,677 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 two new key individuals, a Chief Executive Officer and Executive
Vice President Business Development as well as ongoing merger and acquisition
activities.
The companies revenues and other income for the quarter ended September 30,
2000 exceeded the operating expenses for the same period and resulted in a
net income of $30,293 for the quarter ended September 30, 2000. This compares
to a net income of $252,144 for the same period in 1999. Thus, the Company's
basic income per share for the quarter ended September 30, 2000 was $.01
compared to basic income per share of $0.08 for the quarter ended September
30, 1999.
Interest income in the quarter ended September 30, 2000 of $31,218 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.
8
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 2 FINANCIAL STATEMENTS (CONTINUED)
XOX CORPORATION
NOTES TO CONDENSED CONDOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2000
UNAUDITED
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,267,425 at September 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 $1,567,953 at September
30, 2000 compared to working capital of $1,416,605 at December 31, 1999. The
Company's accounts receivables were $276,563 on September 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).
9
<PAGE>
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
None
Item 5. Other Information
During the third quarter, the Board of Directors appointed John Sutton
as the Company's Chief Executive Officer, and Bill Fuller as the
Company's Executive Vice President Business Development.
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
None
10
<PAGE>
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
November 14, 2000
By /s/ Mark O. Senn
Mark O. Senn
President & COO
11
