<PAGE>
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 November 30, 1999
[ ] 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
NICOLLET PROCESS ENGINEERING, INC.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1528120
- ---------------------------------------------- --------------------------------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
2665 South Bayshore Drive, Suite PH2B
Coconut Grove, FL 33133
----------------------------------------
(Address of principal executive offices)
(612) 339-7958
---------------------------
(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, no par value, outstanding as of December
16, 1999 was 27,280,206.
Transitional Small Business Disclosure Format (Check One): YES [ ] NO [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NICOLLET PROCESS ENGINEERING, INC.
D/B/A XBOX TECHNOLOGIES, INC.
Balance Sheets
November 30, 1999 (Unaudited) and August 31, 1999
<TABLE>
<CAPTION>
November 30, August 31,
ASSETS 1999 1999
- ------ ------------ ----------
(Unaudited) (Note)
Current Assets:
<S> <C> <C>
Cash ..................................................... $ 431,856 $ 200,048
Net receivables...................................................... 145,659 88,923
Notes receivable - related party..................................... 1,921,044 651,709
Inventories.......................................................... 111,636 93,674
Prepaid expenses and other assets.................................... 27,924 19,354
------------ ------------
Total current assets............................................ 2,638,119 1,053,708
------------ ------------
Property and equipment:
Computer equipment................................................... 789,787 620,528
Furnishings and equipment............................................ 301,725 172,856
Leasehold improvements............................................... 80,825 70,211
------------ ------------
1,172,337 863,595
Less: accumulated depreciation...................................... (689,001) (626,681)
------------ ------------
Total property and equipment 483,336 236,914
------------ ------------
Other assets:
Software development costs - net of amortization..................... 11,584 19,096
Other assets...................................................... 158,818 9,798
------------ ------------
Total other assets............................................. 170,402 28,894
------------ ------------
Total assets............................................................ $ 3,291,857 $ 1,319,516
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................................... 391,066 $288,217
Accounts payable - related party..................................... 9,991 59,450
Accrued payroll liabilities.......................................... 208,119 272,086
Other current liabilities............................................ 74,199 69,857
Customer deposits.................................................... 33,865 12,615
Current portion of capitalized lease obligation...................... 14,943 6,204
Accrued consulting fees - related party.............................. 550,000 550,000
Accrued interest..................................................... 304,883 266,721
------------ ------------
Total current liabilities............................................... 1,587,066 1,525,150
Notes payable........................................................... 4,073,400 1,559,900
Capital lease obligation................................................ 37,963 11,821
Total liabilities....................................................... 5,698,429 3,096,871
------------ ------------
Stockholders' deficit:
Common stock, no par value:
Authorized shares -- 50,000,000; issued and outstanding shares
27,296,206 at November 30, 1999 and
26,412,861 at August 31, 1999............................... 12,539,167 12,102,883
Accumulated deficit.................................................. (14,945,739) (13,880,238)
------------ ------------
Total stockholders' deficit............................................. (2,406,572) (1,777,355)
------------ ------------
Total liabilities and stockholders' deficit............................. $ 3,291,857 $ 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.
2
<PAGE>
NICOLLET PROCESS ENGINEERING, INC.
D/B/A XBOX TECHNOLOGIES, INC.
Statements of Operations
For the Three Months Ended November 30, 1999 and November 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended November 30
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues ................................................ $ 219,585 $ 514,804
Cost of sales.............................................. 135,497 398,072
------------ ----------
Gross profit............................................... 84,088 116,732
Operating expenses:
Selling ............................................. 386,702 263,735
Research and development............................. 87,662 119,871
General and administrative........................... 663,430 303,235
------------ ----------
Total operating expenses........................... 1,137,794 686,841
------------ ----------
Operating loss............................................. (1,053,706) (570,109)
Interest expense........................................... (12,605) (44,749)
Interest and other income.................................. 811 0
------------ ----------
Net loss ................................................ $(1,065,500) $(614,855)
------------ ----------
Net loss per share-basic and diluted....................... $(0.04) $(0.10)
------------ ----------
Weighted average number of
shares outstanding .................................. 26,631,775 6,211,861
------------ ----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
NICOLLET PROCESS ENGINEERING, INC.
D/B/A XBOX TECHNOLOGIES, INC.
Statements of Cash Flows
For the Three Months Ended November 30, 1999 and November 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended November 30
------------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................................ (1,065,500) (614,855)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation/amortization...................................... 64,152 76,572
Compensation expense in connection with options ............... 55,938
Accounts receivable............................................ (41,270) (129,485)
Inventories.................................................... (17,047) 85,029
Prepaid expenses............................................... 9,516 (11,265)
Accounts payable............................................... 73,972 (31,022)
Accounts payable - related party............................... (49,459) 0
Other current liabilities...................................... (17,786) 397,708
Accrued liabilities............................................ 0 34,707
Accrued payroll liabilities.................................... (65,234) 0
Accrued interest............................................... 38,162 0
Customer deposits.............................................. 21,250 0
---------- ---------
Net cash used in operating activities.......................... (993,306) (192,610)
---------- ---------
INVESTING ACTIVITIES
Capital expenditures................................................... (27,215) 0
Loans to related party................................................. (1,269,335) 0
Cash acquired from acquisition ........................................ 15,383
Other assets........................................................... 0 (14,219)
---------- ---------
Net cash used in investing activities.................................. (1,281,167) (14,219)
---------- ---------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock.......................... 0 1,250
Proceeds from notes payable......................................... 2,513,500 0
Payments on notes payable........................................... 0 (1,316)
Deferred lease obligation........................................... 0 (426)
Payments on capitalized lease obligation............................ (7,219) (0)
---------- ---------
Net cash provided (used) by financing activities....................... 2,506,281 (492)
Net decrease in cash................................................... $231,808 $(207,321)
Cash at beginning of period............................................ 200,048 257,909
Cash at end of period.................................................. $431,856 $ 50,588
========== =========
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.
4
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NICOLLET PROCESS ENGINEERING, INC.
D/B/A XBOX TECHNOLOGIES, INC.
Form 10-QSB
November 30, 1999
Notes to Financial Statements
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
include the financial statements of Nicollet Process Engineering, Inc.
d/b/a XBOX Technologies, 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
three month period ended November 30, 1999 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. STOCK OPTIONS
During the three month period ended November 30, 1999, the Company
issued an additional 326,288 stock options at an exercise price of $.85
and an expiration date November 12, 2009. These options vest on a
quarterly basis over a five (5) year period at a rate of approximately
16,314 per quarter.
4. 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.
The operation and financial position of Knowledgeware Solutions, Inc.
were accounted for in the Consolidated Financial Statements of the
Company beginning in September 1999.
5
<PAGE>
5. As discussed in Note 4, in the three month period ended November 30,
1999, the Company acquired 100% of the common stock of Knowledgeware
Solutions, Inc. in exchange for 704,345 shares of common stock of the
Company. This exchange resulted in the acquisition of $346,481 of
assets and $130,538 of liabilities.
6. SUBSEQUENT EVENTS
The Company has signed a letter of intent with TechInspirations, Inc.
(Cayman), a Cayman Island corporation ("TECH Cayman") which
contemplates the purchase by the Company from TECH Cayman of 100% of
the outstanding stock of Amyyon Company. The Company anticipates
consummating this transaction in the near future. TECH Cayman is the
largest shareholder of the Company and beneficially owns approximately
77.2% of the Company's common stock.
7. YEAR 2000
The Year 2000 ("Y2K") problem basically is a programming glitch for
systems that were designed with 2-digits for month, day, and year. The
problem specifically lies in the 2-digit year, whereby "00" would be
recognized as year 1900 instead of year 2000. The result means
significant miscalculations or possibly complete system failure.
During the first two weeks of January 2000, the Company has not
experienced any problems associated with Y2K. However, due to the
uncertainties of how the Y2K may affect the Company's vendors or
customers as the year progresses, we are unable to determine the
effect, if any, on the Company's financial condition, or results
of operations. The impact of the Year 2000 on future NPE revenue is
difficult to discern but is a risk to be considered in evaluating
future growth of the Company.
6
<PAGE>
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 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 consummation of
two separate transactions: the transfer of certain of the Company's
operations to FullMetrics, Inc. and the acquisition of Knowledgeware
Solutions, Inc. In addition, the Company is contemplating the acquisition of
Amyyon Company from TECH Cayman, as discussed above. Management expects the
accounting for the acquisition of Amyyon Company to result in an increase of
approximately $2,800,000 to each of "Total Assets" and "Stockholders'
Equity." Results of operations and cash flows with respect to Amyyon Company
will be accounted for effective as of September 1, 1999.
The following discussions with respect to analysis of the specific
items of the Company's results of operations for the three months ended November
30, 1999 is limited the operations of the parent Company (Nicollet Process
Engineering d/b/a XBOX Technologies, Inc.) and its two wholly owned subsidiaries
Fullmetrics, Inc. and Knowledgeware Solutions, Inc. No analysis is included for
the potential effects of the expected "Amyyon" acquisition because Amyyon is a
new entrant to the market and its expected results are still uncertain.
REVENUES
Net revenues decreased 57 % to approximately $220,000 in three months
ended November 30, 1999 compared to approximately $515,000 the three months
ended November 30, 1998. This decrease is primarily the result of change in
sales model, lower sales volume and product mix.
GROSS MARGINS
The gross margin was 38% of revenues in the three months ended
November 30, 1999 compared to approximately 23% of revenues for three months
ended November 30, 1998. This increase in gross margin as percent of sales is
attributable primarily to an overall reduction in fixed costs of sales as
well as a change in product mix. However, gross margin as an absolute dollar
value for the three months ended November 30, 1999 decreased 28 % to
approximately $84,000 compared to approximately $117,000 for the prior year.
Its decrease as an absolute dollar value is due to the decrease in revenues.
7
<PAGE>
SALES AND MARKETING EXPENSE
Sales and marketing expenses increased 47% to approximately $387,000
for the three months ended November 30, 1999 from approximately $264,000 for the
three months ended November 30, 1998. The increase is primarily the result of an
increase in sales headcount and its related increase in traveling and marketing
expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased 27% from approximately
$120,000 in the three months ended November 30, 1998 to $88,000 for the three
months ended November 30, 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 119% to approximately
$663,000 in the three months ended November 30, 1999 compared to approximately
$303,000 for the three months ended November 30, 1998. The substantial increase
in general and administrative expense is partially due to the Company's overall
strategy to become a technology holding company, which resulted in Fullmetrics'
paying TECH $25,000 in each month as a consulting fee for various administrative
services. The increase is also partially attributable to the termination of
employment of Robert Pitner, which resulted in Fullmetrics paying his salary for
these three months in addition to the salary of the Mr. Psiloyenis, who had
similar duties to those performed by Mr. Pitner.
INTEREST EXPENSE
Interest expense decreased to approximately $12,000 for the three
months ended November 30, 1999 compared to approximately $45,000 for the three
months ended November 30, 1998. This decrease in interest expense is primarily
due to the conversion of FullMetrics' note payable to Techinspirations from
debt to equity on 8/31/99.
NET LOSS
The net loss was approximately $1.1 million or $(.04) per share for the
three months ended November 30, 1999 compared to a loss of approximately
$615,000 and $(.10) per share for the three months ended November 30, 1998.
The decrease in Net Loss on a per share basis for the three months ended
November 30, 1999 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 revolving line of credit is secured by 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 November 30,
1999 was $4,073,400 and $304,814, respectively.
8
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Net cash used in operating activities was approximately $1 million and
$200,000 for the three-month period ended November 30, 1999 and 1998,
respectively. The cash was used primarily to fund the Company's operating
losses. The Company also used cash of approximately $1.3 million and
approximately $14,000 relating to investing activities for the three-month
period ended November 30, 1999 and 1998, respectively. 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
November 30, 1999 was approximately $2.5 million. The net cash provided by
financing activities for the period ended November 30, 1999 was primarily the
result of the Company utilizing its credit facilities.
The Company anticipates capital expenditures of approximately $80,000 for
Full Metrics through fiscal 2000 related to additional equipment for sales
personnel and research and development 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 $7 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, including the intended Amyyon
acquisition, 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. The Company will continue to monitor its
internal systems as well as its significant suppliers and customers as the
year progresses and other critical dates (such as February 29) approach.
9
<PAGE>
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.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27.1 Financial Data Schedule.
(b) The Company filed a form 8-K on November 30, 1999, reporting the
acquisition of Knowledgeware Solutions, Inc.
10
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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.
NICOLLET PROCESS ENGINEERING, INC.
D/B/A XBOX TECHNOLOGIES, INC.
Dated: January 19, 2000 By: /s/ Evros Psiloyenis
--------------------------------
Evros Psiloyenis
President
(principal executive officer)
By: /s/ Frank Van Luttikhuizen
--------------------------------
Frank Van Luttikhuizen
Chief Financial Officer
(principal accounting officer)
11
<PAGE>
NICOLLET PROCESS ENGINEERING, INC.
QUARTERLY REPORT ON FORM 10-QSB
FISCAL QUARTER ENDED November 30, 1999
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- ----------- --------
<S> <C> <C>
27.1 Financial Data Schedule............................................ Filed herewith
electronically
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OPERATIONS &
BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-1-1999
<PERIOD-END> NOV-30-1999
<CASH> 431,856
<SECURITIES> 0
<RECEIVABLES> 201,928
<ALLOWANCES> 56,269
<INVENTORY> 111,636
<CURRENT-ASSETS> 2,638,119
<PP&E> 1,172,337
<DEPRECIATION> 689,001
<TOTAL-ASSETS> 3,291,857
<CURRENT-LIABILITIES> 1,587,066
<BONDS> 0
0
0
<COMMON> 12,539,167
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,291,857
<SALES> 219,585
<TOTAL-REVENUES> 219,585
<CGS> 84,088
<TOTAL-COSTS> 1,137,794
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,605
<INCOME-PRETAX> (1,065,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,065,500)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
