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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended May 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period From ____ to ____
Commission file number 0-27928
XBOX TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 41-1528120
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2665 S. Bayshore Dr., PH 2B
Miami, Florida 33133
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(Address of principal executive offices)
(305) 913-3300
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(Issuer's telephone number)
Check 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 past 12
months (or for such shorter period 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 [ ]
The number of shares of common stock, $.10 par value, outstanding as of July 19,
2000 was 27,596,755.
Transitional Small Business Disclosure Format (Check One): YES [ ] NO [X]
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
XBOX TECHNOLOGIES, INC.
F/k/a Nicollet Process Engineering, Inc.
Balance Sheets
May 31, 2000 (Unaudited) and August 31, 1999
<TABLE>
<CAPTION>
May 31, August 31,
2000 1999
----------- --------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current Assets:
Cash ............................................................. $ 175,593 $ 200,048
Net receivables...................................................... 422,233 88,923
Notes receivable - related party..................................... 4,162,826 651,709
Inventories.......................................................... 52,439 93,674
Prepaid expenses and other assets.................................... 75,108 19,354
---------- ----------
Total current assets............................................ 4,888,199 1,053,708
---------- ----------
Property and equipment:
Computer equipment................................................... 837,706 620,528
Furnishings and equipment............................................ 374,737 172,856
Leasehold improvements............................................... 83,678 70,211
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1,296,121 863,595
Less: accumulated depreciation...................................... (756,597) (626,681)
---------- ----------
Total property and equipment 539,524 236,914
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Other assets:
Software development costs - net of amortization..................... 327,849 19,096
Other assets......................................................... 205,234 9,798
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Total other assets............................................. 533,083 28,894
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Total assets............................................................ $ 5,960,806 $ 1,319,516
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................................... 342,229 $288,217
Accounts payable - related party..................................... 0 59,450
Accrued payroll liabilities.......................................... 168,277 272,086
Other current liabilities............................................ 78,667 69,857
Customer deposits.................................................... 16,666 12,615
Current portion of capitalized lease obligation...................... 15,930 6,204
Accrued consulting fees - related party.............................. 525,000 550,000
Accrued interest..................................................... 616,766 266,721
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Total current liabilities............................................... 1,763,535 1,525,150
Notes payable........................................................... 9,397,300 1,559,900
Capital lease obligation................................................ 24,025 11,821
Other non-current liabilities........................................... 50,874 0
Total liabilities....................................................... 11,235,734 3,096,871
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Stockholders' deficit:
Common stock, no par value:
Authorized shares -- 50,000,000; issued and outstanding shares
27,596,755 at May 31, 2000 and 26,412,861 at August 31, 1999...... 12,633,221 12,102,883
Accumulated deficit.................................................. (17,908,149) (13,880,238)
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Total stockholders' deficit............................................. (5,274,928) (1,777,355)
---------- ----------
Total liabilities and stockholders' deficit............................. $ 5,960,806 $ 1,319,516
========== ==========
</TABLE>
Note: The balance sheet as of August 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles.
See accompanying notes to financial statements.
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XBOX TECHNOLOGIES, INC.
F/k/a Nicollet Process Engineering, Inc.
Statements of Operations
For the Three Months and Nine Months Ended May 31, 2000 and May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
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MAY 31, 2000 MAY 31, 1999 MAY 31, 2000 MAY 31, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ...................... $ 248,848 $ 508,960 $ 595,822 $ 1,286,197
Cost of sales .................. 73,138 331,016 228,962 991,203
------------ ------------ ------------ ------------
Gross margin ................... 175,710 177,944 366,860 294,994
Operating expenses:
Selling expenses ......... 791,502 363,178 1,573,046 926,870
Research and development
expenses ................ 27,249 98,894 150,285 316,689
General and administrative
expenses ................ 949,147 240,150 2,483,996 804,338
------------ ------------ ------------ ------------
Total operating expenses 1,767,898 702,222 4,207,327 2,047,897
------------ ------------ ------------ ------------
Operating loss ................. (1,592,188) (524,278) (3,840,467) (1,752,903)
Other income/(expenses)
Interest expense ......... (143,392) (73,554) (198,223) (179,163)
Interest income .......... 7,745 0 10,781 5,744
------------ ------------ ------------ ------------
Total other
income/(expenses) ..... (135,647) (73,554) (187,442) (173,419)
------------ ------------ ------------ ------------
Net loss ....................... $ (1,727,835) $ (597,832) $ (4,027,909) $ (1,926,322)
------------ ------------ ------------ ------------
Net loss per share ............. $ (0.06) $ (0.13) $ (0.15) $ (0.43)
------------ ------------ ------------ ------------
Weighted average number of
shares outstanding ....... 27,413,234 4,456,816 27,093,582 4,456,816
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
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XBOX TECHNOLOGIES, INC.
F/k/a Nicollet Process Engineering, Inc.
Statements of Cash Flows
For the Six Months Ended May 31, 2000 and May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
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MAY 31, 2000 MAY 31, 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................................. $(4,027,910) $(1,926,322)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation/amortization ...................................... 129,916 226,467
Accounts receivable ............................................ (333,310) (26,317)
Inventories .................................................... 41,235 171,754
Prepaid expenses ............................................... (55,754) (178,413)
Accounts payable ............................................... 54,012 28,781
Customer deposits .............................................. 4,051 0
Other current liabilities ...................................... 8,810 (124,964)
Accrued liabilities ............................................ 221,236 203,894
Other non-accrued liabilities .................................. 50,874 0
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Net cash used in operating activities ................................ (3,906,840) (1,625,120)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures ................................................. (317,376) (81,371)
Other assets ......................................................... (195,436) 0
Loans to related party ............................................... (3,511,117) 0
Cash acquired from acquisitions ...................................... 15,383 0
----------- -----------
Net cash used in investing activities ................................ (4,008,546) (81,371)
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES
Proceeds from:
Common stock ...................................................... 60,832 16,625
Notes payable ..................................................... 7,837,400 1,478,679
Payments on notes payable ......................................... 0 (3,839)
Capitalized lease obligation ...................................... (7,301) 0
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Net cash (used in)/from financing activities ......................... 7,890,931 1,491,465
Net decrease in cash ................................................. (24,455) $ (215,026)
Cash at beginning of period .......................................... 200,048 257,910
Cash at end of period ................................................ $ 175,593 $ 42,884
=========== ===========
SUPPLEMENTARY DISCLOSURE OF INTEREST AND TAXES PAID
Interest paid ........................................................ $ 0
Taxes paid ........................................................... $ 0
SUPPLEMENTARY DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Asset acquired through noncash acquisition ........................... $ 149,020
</TABLE>
See accompanying notes to financial statements.
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XBOX TECHNOLOGIES, INC.
F/k/a Nicollet Process Engineering, Inc.
Form 10-QSB
May 31, 2000
Notes to Financial Statements
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
include the financial statements of XBOX Technologies, Inc. f/k/a
Nicollet Process Engineering, Inc. and its wholly owned subsidiaries,
FullMetrics, Inc. and Knowledgeware Solutions, Inc. All significant
intercompany transactions and accounts have been eliminated. These
financial statements have been prepared by the Company in accordance
with generally accepted accounting principles, pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in
financial statements have been omitted or condensed pursuant to such
rules and regulations. The information furnished reflects, in the
opinion of the management of the Company, all adjustments (of only a
normally recurring nature) necessary to present a fair statement of the
results for the interim periods presented. Operating results for the
nine months period ended May 31, 2000 is not necessarily indicative of
the results that may be expected for the year ended August 31, 2000.
The accompanying unaudited interim financial statements should be read
in conjunction with the financial statements and related notes included
in the Company's Annual Report on Form 10-KSB dated August 31, 1999.
2. NET LOSS PER SHARE
Basic earnings per share is based on the weighted average shares
outstanding and excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share for the Company are
the same as basic earnings per share because the effect of options and
warrants is anti-dilutive.
3. ACQUISITIONS
On November 12, 1999, the Company completed a merger with Knowledgeware
Solutions, Inc. through the exchange of 704,345 shares of common stock
of the Company in exchange for all of the outstanding shares of
Knowledgeware Solutions, Inc. The merger was accounted for using the
purchase method of accounting and, accordingly, the purchase price was
allocated to the acquired assets based on their respective values.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
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,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS 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,
INCLUDING THOSE DESCRIBED UNDER THE CAPTION "IMPORTANT FACTORS TO CONSIDER"
CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB, AS AMENDED, FOR THE
FISCAL YEAR ENDED AUGUST 31, 1999.
RESULTS OF OPERATIONS
GENERAL
The structure of the Company has materially changed since the
completion of its fiscal year on August 31, 1999 due to the acquisition of
Knowledgeware Solutions, Inc. and the transfer of certain of the Company's
operations to FullMetrics, Inc. in connection with the Company's transformation
into a holding company of various software businesses. The Company intends to
continue to pursue this strategy for the forseeable future.
The following discussions with respect to analysis of the specific
items of the Company's results of operations for the nine months ended May 31,
2000 is limited to the operations of the parent Company (XBOX Technologies, Inc.
f/k/a Nicollet Process Engineering) and its two wholly owned subsidiaries
Fullmetrics, Inc. and Knowledgeware Solutions, Inc.
REVENUES
Net revenues decreased 54 % to approximately $595,822 for the nine
months ended May 31, 2000 compared to approximately $1,286,197 for the nine
months ended May 31, 1999. This decrease is primarily the result of change in
sales model and product mix and lower sales volume.
GROSS MARGINS
The gross margin was 62% of revenues for the nine months ended May 31,
2000 compared to approximately 23% of revenues for the nine months ended May 31,
1999. This increase in gross margin as a percent of sales is attributable
primarily to an overall reduction in fixed costs of sales. Gross margin as an
absolute dollar value for the nine months ended May 31, 2000 increased 24% to
approximately $366,800 compared to approximately $295,000 for the prior year.
Its increase as an absolute dollar value is due to the addition of a favorable
gross profit from Knowledgeware Solutions and an improved FullMetrics' gross
profit as compared to the prior year.
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SALES AND MARKETING EXPENSE
Sales and marketing expenses increased 70% to approximately $1,573,046
for the nine months ended May 31, 2000 from approximately $926,870 for the nine
months ended May 31, 1999. The increase is primarily the result of the
additional sales and marketing expenses incurred by the Company's newly acquired
entity, Knowledgeware Solutions, Inc.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased 47% to approximately
$150,285 for the nine months ended May 31, 2000 from $316,689 for the nine
months ended May 31, 1999. The overall decrease as an absolute dollar value is
due to lower research and development payroll costs resulting from staff
reductions and reduced research and development contract services.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 209% to approximately
$2,483,996 in the nine months ended May 31, 2000 compared to approximately
$804,338 for the nine months ended May 31, 1999. The substantial increase in
general and administrative expense is partially due to the Company's overall
strategy to become a technology holding company, which has resulted in the
Company paying TECHinspirations, Inc. ("TECH") $25,000 each month as a
consulting fee for various administrative services. TECHinspirations, Inc. is a
wholly owned subsidiary of TechInspirations, Inc. (Cayman), a Cayman Island
corporation ("TECH Cayman") which beneficially owns approximately 77.2% of the
Company's common stock.
INTEREST EXPENSE
Interest expense increased to approximately $198,223 for the nine
months ended May 31, 2000 compared to approximately $179,163 for the nine months
ended May 31, 1999. The increase is the result of the Company's additional
borrowings from TECH through May 31, 2000.
NET LOSS
The net loss was approximately $4 million or $(.15) per share for the
nine months ended May 31, 2000 compared to a loss of approximately $1.93 million
and $(.43) per share for the nine months ended May 31, 1999. The decrease in Net
Loss on a per share basis for the nine months ended May 31, 2000 was due to the
increase in the number of shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company entered into a letter of intent with TECH to
provide up to $3,000,000 of additional working capital to the company. The terms
of the letter of intent provided that indebtedness of the Company to TECH would
be converted into equity securities of the Company. On July 29, 1999, the
Company entered into a Stock Purchase Agreement with TECH Cayman to convert the
debt to equity. The Company converted $3,000,000 of debt into 20,000,000 shares
of common stock at a conversion price of $.15 per share. In addition, the
Company converted $100 of debt into the common stock warrant to purchase
4,750,000 shares of the Company's common stock at the exercise price of $.15.
The Company also maintained a revolving operating line of credit up to
$4,000,000 with TECH Cayman bearing interest at the rate of 1% in excess of the
prime rate (the "Credit Facilities"). The revolving line of credit is secured by
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a security interest in the Company's assets. The outstanding balance and
interest is due in full in November 2001. The outstanding balance and accrued
interest as of May 31, 2000 was $9,397,300 and $616,766, respectively.
In August 1995, the Company acquired its existing Windows(TM) based die
casting software from a third party. The total purchase price for the software
of $300,000 was payable in varying monthly installments through May 1999.
Because the agreement was non-interest-bearing, the Company estimated a discount
on the debt of approximately $40,000, which was amortized to interest expense
ratably over the period of the agreement.
Net cash used in operating activities was approximately $3.9 million
for the nine months ended May 31, 2000. The cash was used primarily to fund the
Company's operating losses. The Company also used cash of approximately $4.0
million relating to investing activities for the nine month period ended May 31,
2000. The net cash used in investing activities during the current period was
primarily for loans to related parties. Net cash provided by financing
activities for the period ended May 31, 2000 was approximately $7.9 million. The
net cash provided by financing activities for the period ended May 31, 2000 was
primarily the result of the Company utilizing the Credit Facilities.
The Company requires substantial additional financing to cover the cash
needs for fiscal 2000 as a result of the Company's new business strategy and
related ramp up or restructuring periods of its subsidiaries. To date, TECH
Cayman has made advances to the Company in excess of $12 million (including
advances that have been converted into shares of the Company's common stock) to
cover Company operating losses. Management is currently finalizing its fiscal
2000 business strategies at the individual subsidiary levels in order to
determine and subsequently pursue options to finance cash needs. TECH Cayman has
no obligation to continue making advances to the Company, and there can be no
assurance that TECH Cayman will continue to do so. Further, there can be no
assurance that the Company will be able to raise additional debt or equity
capital.
The report of the Company's auditors contains an explanatory paragraph
to the effect that the Company's recurring losses and negative cash flows from
operations raise substantial doubts about its ability to continue as a going
concern. If the Company's operations do not provide sufficient cash or the
Company is unable to raise additional capital through debt or equity financing
case sufficient for the Company to continue operations, the Company may be
forced to cease operations.
IMPACT OF YEAR 2000
Recognizing the impact on all companies using computers of the Year
2000, the Company made extensive efforts to become year 2000 compliant. As of
the date the filing of this report, the Company has not experienced any problems
arising from Year 2000.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal, governmental, administrative or
other proceedings to which the Company is a party or of which any of its
property is the subject.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company is currently in default of the minimum book net worth
covenant under the Credit Facilities and has borrowed funds in excess of the
borrowing base limitations imposed by the Credit Facilities. The Company is
continuously working with TECHINSPIRATIONS to resolve these defaults.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On June 21, 2000 the Company changed its state of incorporation from
Delaware to Minnesota by virtue of a merger between Nicollet Processing
Engineering, Inc. with and into its wholly owned subsidiary, XBOX Technologies,
Inc., with XBOX Technologies, Inc. the surviving corporation. The merger was
previously approved by the Company's shareholders at the Annual Meeting of
Shareholders held on January 28, 2000. As a result of this merger, the official
name of the Company is now "XBOX Technologies, Inc." and the Company is a
Delaware corporation. The Company does not anticipate the merger will have any
affect on its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27.1 Financial Data Schedule.
(b) No Form 8-Ks were filed during the fiscal quarter ended May 31,
2000.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
XBOX TECHNOLGIES, INC.
F/K/A NICOLLET PROCESS ENGINEERING, INC.
Dated: July 20, 2000 By: /s/ RICHARD CASCIO
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Richard Cascio
Interim Chief Executive Officer
(principal executive officer)
By: /s/ FRANK VAN LUTTIKUIZEN
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Frank Van Luttikhuizen
Interim Chief Financial Officer
(principal accounting officer)
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