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 March 31, 1998 ;
or
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file #0-15797
XIOX CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 95-3824750
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No)
577 Airport Blvd, Suite 700,
Burlingame, California 94010
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (650) 375-8188
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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 period that the registrant was required to file
such reports). Yes X No__
(2) Has been subject to such filing requirements for the past 90 days.
Yes X No__
Issuer's number of common shares
outstanding at March 31, 1998 3,144,231 shares
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PAGE 1 of 13
XIOX CORPORATION
INDEX
Page No.
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PART I Financial Information
Item 1.
Condensed Consolidated Balance Sheets -
March 31, 1998 (unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Operations
Three Months ended March 31, 1998 (unaudited)
and March 31, 1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 1998 (unaudited)
and March 31, 1997 (unaudited) 5-6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II Other Information
Item 6.
Exhibits and Reports on Form 8-K 12
Exhibit 27.
Financial Data Schedule - March 31, 1998 (unaudited)
(separate electronic document attached)
Signatures 13
PAGE 2
XIOX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, 1998 December 31, 1997
-------------- -----------------
ASSETS:
CURRENT ASSETS
CASH & CASH EQUIVALENTS $ 2,062,394 2,633,860
ACCOUNTS RECEIVABLE, NET 640,856 884,612
OTHER RECEIVABLES 20,993 433,190
INVENTORIES 479,725 474,865
PREPAID EXPENSES AND OTHER ASSETS 187,006 158,311
----------- -----------
TOTAL CURRENT ASSETS 3,390,974 4,584,838
PROPERTY & EQUIPMENT, NET 768,650 432,292
PURCHASED SOFTWARE, NET 82,343 42,673
NOTES RECEIVABLE 100,000 100,000
DEPOSITS & OTHER ASSETS 379,148 494,397
----------- -----------
$ 4,721,115 5,654,200
=========== ===========
LIABILITIES/STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 224,337 202,648
ACCRUED EXPENSES 214,520 175,962
ACCRUED COMPENSATION 153,892 118,252
PURCHASE DEPOSITS 31,931 51,231
DEFERRED REVENUE 873,414 916,237
----------- -----------
TOTAL CURRENT LIABILITIES $ 1,498,094 1,464,330
NOTES PAYABLE 69,464 --
COMMITMENTS & CONTINGENCIES
MINORITY INTEREST 114,533 127,776
STOCKHOLDERS' EQUITY
PREFERRED STOCK, $0.01 par value;
1,000,000 shares authorized;
None issued and outstanding -- --
COMMON STOCK, $.01 Par, 10,000,000 shares Authorized,
3,144,231 and 2,932,934 shares issued and outstanding as of
March 31, 1998 and December 31,1997 respectively 31,442 29,329
PAID-IN CAPITAL 8,277,261 8,266,576
NOTE RECEIVABLE FROM SHAREHOLDER -- (15,938)
DEFERRED COMPENSATION (10,665) --
CUMULATIVE TRANSLATION ADJUSTMENT (27,915) (13,175)
ACCUMULATED DEFICIT (5,231,099) (4,204,698)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,039,024 4,062,094
----------- -----------
4,721,115 5,654,200
=========== ===========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
PAGE 3
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Three months ended
March 31, 1998 March 31, 1997
-------------- --------------
REVENUES $ 1,197,861 1,272,934
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PRODUCT COSTS 583,747 480,737
RESEARCH AND DEVELOPMENT 932,066 201,370
MARKETING, SALES, GENERAL AND ADMINISTRATIVE 735,586 551,007
----------- -----------
2,251,399 1,233,114
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(LOSS) INCOME FROM OPERATIONS (1,053,538) 39,820
OTHER INCOME (LOSS), NET 28,337 (7,742)
----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES (1,025,201) 32,078
INCOME TAXES 1,200 2,825
----------- -----------
NET (LOSS) INCOME $(1,026,401) 29,253
=========== ===========
PER SHARE INFORMATION:
BASIC NET (LOSS) INCOME PER SHARE $ (0.33) 0.01
=========== ===========
NUMBER OF SHARES USED IN BASIC
PER SHARE COMPUTATION 3,144,231 2,372,384
=========== ===========
DILUTED NET (LOSS) INCOME PER SHARE $ (0.33) 0.01
=========== ===========
NUMBER OF SHARES USED IN DILUTED
PER SHARE COMPUTATION 3,144,231 2,402,887
=========== ===========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
PAGE 4
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended Three months ended
March 31, 1998 March 31, 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME $(1,026,401) 29,253
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET CASH (USED IN)
PROVIDED BY OPERATIONS
DEPRECIATION AND AMORTIZATION 63,189 58,403
AMORTIZATION OF DEFERRED COMPENSATION 2,133
MINORITY INTEREST IN NET LOSS (9,674) --
CHANGE IN OPERATING ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE, NET 243,755 208,081
OTHER RECEIVABLES 411,384 58,270
INVENTORIES (4,860) 9,461
PREPAID EXPENSE, DEPOSITS AND OTHER ASSETS 74,687 (9,285)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 96,187 (158,170)
PURCHASE DEPOSITS (19,300) (2,094)
DEFERRED REVENUE (42,823) (56,037)
----------- -----------
NET CASH USED IN PROVIDED BY OPERATIONS (211,723) 137,882
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITION OF PROPERTY AND EQUIPMENT (393,241) (36,878)
ACQUISITION OF SOFTWARE (45,976) (3,000)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (439,217) (39,878)
----------- -----------
CASH FROM FINANCING ACTIVITIES:
PROCEEDS FROM BORROWINGS 69,464 --
REPAYMENT OF STOCKHOLDER NOTE 15,938 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 85,402 --
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,928) --
----------- -----------
NET (DECREASE)/INCREASE IN
CASH & CASH EQUIVALENTS (571,466) 98,004
BEGINNING CASH AND CASH EQUIVALENTS 2,633,860 291,488
----------- -----------
ENDING CASH AND CASH EQUIVALENTS $ 2,062,394 389,492
=========== ===========
(continued)
PAGE 5
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(unaudited)
Three months ended Three months ended
March 31, 1998 March 31, 1997
-------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID $ 485 --
INCOME TAXES 2,250 3,650
NONCASH FINANCING ACTIVITIES
COMMON STOCK ISSUED UPON EXERCISE OF STOCK
OPTIONS IN EXCHANGE FOR NOTE RECEIVABLE
FROM SHAREHOLDER $ -- 27,188
======== ========
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE FLANDERS LANGUAGE VALLEY
STOCK PURCHASE AGREEMENT 211,297 --
======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
PAGE 6
XIOX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 : BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
pursuant to the rules and regulations of the Securities and Exchange commission.
The results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the fiscal year. In the
opinion of management, the information contained herein reflects all adjustments
necessary to make the results of operations for the interim periods a fair
statement of such operations. For further information, refer to the financial
statements and footnotes thereto, included in the Annual Report on Form 10-KSB,
filed with the Securities and Exchange Commission for the year ended December
31, 1997.
NOTE 2 : RECENTLY ADOPTED ACCOUNTING STANDARDS
In October 1997, the AICPA issued SOP 97-2, Software Revenue Recognition, which
supersedes SOP 91-1. The Company adopted SOP 97-2 for software transactions
entered into beginning January 1, 1998. SOP 97-2 generally requires revenue
earned on software arrangements involving multiple elements (i.e., software
products, upgrades/enhancements, post-contract customer support, installation,
training, etc.) to be allocated to each element based on the relative fair
values of the elements. The fair value of an element must be based on evidence
which is specific to the Company. The revenue allocated to software products
(including specified upgrades/enhancements) generally is recognized upon
shipment of the products. The revenue allocated to post-contract customer
support generally is recognized ratably over the term of the support and revenue
allocated to services as they are performed. If the Company does not have
evidence of the fair value for all elements in a multiple-element arrangement,
all revenue from the arrangement is deferred until such evidence exists or until
all elements are delivered. The adoption of SOP 97-2 did not have a material
impact on the Company's consolidated results of operation for the three months
ended March 31, 1998.
NOTE 3 : INVENTORIES
Inventories at March 31, 1998 have been stated at the lower of first-in,
first-out cost or market. Inventories consist solely of purchased hardware and
software products (finished goods).
NOTE 4 : BANK LINE OF CREDIT
The Company maintains a $1,000,000 line of credit collateralized by eligible
accounts receivable. The line bears interest at prime plus 1.25% (9.75% as of
March 31, 1998) which the Company intends to renew upon expiration in May 1998.
No amounts were outstanding under the line as of March 31, 1998.
NOTE 5: XIOX FLANDERS N.V.
In the third quarter of 1997, Xiox Flanders N.V. ("Xiox Flanders") was
incorporated in Belgium pursuant to an agreement between the Company and
Flanders Language Valley (Flanders") and is owned 94.9% by the Company and 5.1%
by Flanders. The Company has committed to fund Xiox Flanders with approximately
$250,000 in 1998 and approximately $1,522,000 in 1999. The actual amount of
funding provided by the Company will depend on the business needs of Xiox
Flanders and can be modified by a vote of the Board of Directors.
PAGE 7
XIOX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income or loss by
weighted average common shares outstanding during the period. Diluted earnings
per share reflects the net incremental shares that would be issued if dilutive
outstanding stock options were exercised, using the treasury stock method.
In the case of a net loss, it is assumed that no incremental shares would be
issued because they would be antidilutive. In addition, certain options are
considered antidilutive because the options' exercise price was above the
average market price during the period. Antidilutive shares are not included in
the computation of diluted earnings per share, in accordance with SFAS No. 128.
The shares used in per share computations for the fiscal quarters ended March
31, 1998 and 1997 are as follows:
March 31,1998 March 31, 1997
------------- --------------
Weighted average common shares
outstanding-basic 3,144,231 2,372,384
Dilutive incremental shares - stock options -- 30,503
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Shares used in diluted per share computations 3,144,231 2,402,887
========= =========
The diluted per share computation for the three months ended March 31, 1998,
excludes 132,934 incremental shares attributable to stock options because the
effect of their inclusion would have been antidilutive.
NOTE 7: COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No, 130 establishes standards of
reporting and display of comprehensive income and its components of net income
and "other comprehensive income" in a full set of general purpose financial
statements. " Other comprehensive income" refers to revenues, expenses, gains
and losses that are not included in net income but rather are recorded directly
in shareholders' equity. SFAS No. 130 is effective for annual and interim
periods beginning after December 15, 1997 and for periods ended before that date
when presented for comparative purposes. The Company has not yet determined the
format it will use to display the information required by SFAS No. 130 in the
financial statements for the year ending December 31, 1998.
Total comprehensive loss was $1,041,141 for the three months ended March 31,
1998. The Company's total comprehensive income for the three months ended March
31, 1997, did not differ from those amounts reported as net income in the 1997
consolidated statements of operations. The primary difference between net loss
and comprehensive loss for the three months ended March 31, 1998 is the result
of translation of the Company's foreign subsidiary which has a local functional
currency.
PAGE 8
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The forward-looking statements included in this Quarterly Report filed on Form
10-QSB, which reflect management's best judgment based on factors known, involve
risks and uncertainties. In addition, the Company may from time to time make
oral forward-looking statements. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of a number of factors, including but not limited to those discussed
under "Certain Risk Factors Which May Impact Future Operating Results and Market
Price of Stock on page 10. Forward-looking information provided by Xiox should
be evaluated in the context of these factors.
The following is management's discussion and analysis of certain significant
factors which have effected Xiox's financial position and operating results
during the periods included in the accompanying condensed consolidated financial
statements.
Results of Operations
Revenue for the three months ended March 31, 1998 was $1,197,861, a decrease of
6% versus the $1,272,934 recorded during the three months ended March 31, 1997.
The $75,073 decrease in revenue is attributable to lower demand for call
accounting products in the first quarter of 1998 versus the first quarter of
1997.
Total operating expenses for the three months ended March 31, 1998 were
$2,251,399, an increase of 83% or $1,018,285 versus the $1,233,114 of operating
expenses incurred during the three months ended March 31, 1997. Total product
costs as a percentage of revenue increased to 49% in the first quarter of 1997
from 38% in the first quarter in 1997, primarily due to variations in product
mix and an increase in fixed labor costs.
Research and development expenses increased by 363% or $730,696 to $932,066 in
the first quarter of 1998 compared to $201,370 in the first quarter of 1997 due
to an increased investment in new product development. The Company expects
quarterly research and development spending to exceed 1997 levels throughout
1998.
Marketing, sales and general and administrative expenses in the first quarter of
1998 increased by 33% or $184,579 to $735,586 compared to $551,007 in the first
quarter of 1997, primarily due to administrative costs associated with formation
of a foreign subsidiary and increased costs associated with new product business
development.
Other income increased by $36,079 from the first quarter of 1997 primarily due
to income earned on cash equivalent investments of $28,388 in the first three
months of 1997 versus $3,142 earned in the first three months of 1997. In
addition, there was no profit sharing distribution in the first quarter of 1998
versus a distribution of $10,884 in the first quarter of 1997.
The Company lost $1,053,538 from operations during the first quarter of 1998 and
reported a net loss after taxes of $1,026,401 versus income of $39,820 earned
from operations and a net profit after taxes of $29,253 in the comparable
quarter of 1997. The Company attributes this to increased research and
development expenses associated with its new product development in addition to
administrative and marketing expenses necessary to support this effort.
PAGE 9
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital
At March 31, 1998, Xiox held cash and cash equivalents totaling $2,062,394 and
had working capital of $1,892,880 versus cash equivalents of $2,633,860 and
working capital of $3,120,508 at December 31, 1997. The Company anticipates
investing in excess of $1,000,000 in capital equipment during 1998, consisting
primarily of computer hardware and software and testing equipment. Since
December 31, 1997, capital equipment procurements have totaled $439,217.
The Company is exploring raising additional funds to support development of a
new product line addressing the combined telecom and datacom markets. In
connection with this new product line, the Company has committed to fund Xiox
Flanders N.V., a 94.9% owned subsidiary, with approximately $250,000 in 1998. In
the current quarter, the Company has not paid any money directly to Xiox
Flanders.
The Company maintains a bank line of credit of $1,000,000. The bank line, when
utilized, is collateralized by certain current assets and property and
equipment. The line carries a variable interest rate based upon prime plus 1.25
(9.75% as of March 31, 1998). No amounts were outstanding under the line as of
March 31, 1998.
Certain Risk Factors Which May Impact Future Operating Results and Market Price
of Stock
Xiox operates in a rapidly changing environment that involves a number of risks
and uncertainties, some of which are beyond the Company's control and any of
which may have an adverse effect on the Company's business, financial condition
and results of operations. These uncertainties include, but are not limited to,
the Company's reliance on the sale of few products; the Company's dependence on
the ability of its distribution channels to market the Company's products; the
fluctuations in the Company's quarterly results and the effect of these results
on the Company's ability to maintain its listed status on the Nasdaq Small Cap
Market; the ability of the Company's product developers to design products and
software that do not contain defects and "bugs" which render the products or
software inoperable or susceptible to breakdown, software viruses or "hacking";
and the outcome of any litigation the Company may be involved in. In addition,
the Company typically experiences weaker sales in the first quarter of each
calendar year compared to sales for the last quarter of the previous year.
Year 2000 Compliance
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. If the Company's internal systems do not correctly
recognize date information when the year changes to 2000, there could be an
adverse impact on the Company's operations. The Company is in the process of
completing an assessment and plans to modify or replace portions of its internal
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The Company has also assessed the
capability of its products sold to customers and believes that it has no
exposure to contingencies related to the Year 2000 Issues for the products it
has sold. The Company's products receive data from other equipment such as PC's
and PBX's and can only properly handle Year 2000 dates if it receives Year 2000
compliant data. Some systems sold by the Company with computer BIOS manufactured
prior to 1996 will need to have the internal clock reset or the BIOS modified in
order to ensure proper performance.
PAGE 10
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Year 2000 Compliance, continued
Management believes that the likelihood of a material adverse impact due to
problems with internal systems or products sold to customers is remote and
expects that any costs to be incurred to assure Year 2000 capability will not
have a material adverse effect on the Company's financial position or results of
operations. However, there may be contingencies related to Year 2000 Issues
which are unknown to Management at this time which may have material adverse
effect on the Company. There can be no assurance that another company's failure
to ensure Year 2000 capability would not have an adverse effect on the Company.
PAGE 11
PART II - OTHER INFORMATION
XIOX CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
The Company filed the following reports on Form 8-K during the quarter ended
March 31, 1998:
Report of resolution of a patent interference proceeding filed January 29, 1998
on Form 8-K.
PAGE 12
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XIOX CORPORATION
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 duly authorized officers of the registrant.
XIOX CORPORATION
Registrant
Date: May 15, 1998
/s/ William H. Welling
---------------------------
(Duly Authorized Officer)
Date: May 15, 1998
/s/ Melanie D. Reid
---------------------------
Melanie D. Reid, VP Finance
/CFO/Secretary
(Duly Authorized Officer)
PAGE 13