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 September 30, 1999;
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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
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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 Identification No)
incorporation or organization)
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
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(2) Has been subject to such filing requirements for the past 90 days.
Yes X No
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Issuer's number of common shares
outstanding at October 31, 1999 3,400,464 shares
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PAGE 1 of 18
X I O X C O R P O R A T I O N
INDEX
Page No.
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PART I Financial Information
Item 1.
Condensed Consolidated Balance Sheets (unaudited) September
30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations (unaudited)
Three Months ended September 30, 1999 and September 30,
1998 4
Condensed Consolidated Statements of Operations (unaudited)
Nine months ended September 30, 1999 and September 30,
1998 5
Condensed Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 1999 and September 30,
1998 6-7
Notes to Condensed Consolidated Financial Statements 8-11
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-16
PART II Other Information
Item 6.
Exhibits and Reports on Form 8-K 17
Signatures 18
PAGE 2
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
September 30, 1999 December 31, 1998
------------------ -----------------
Assets:
Current Assets
Cash & cash equivalents $ 2,451,377 8,272,251
Accounts receivable, net 709,528 714,200
Other receivables 4,512 9,585
Inventories 386,230 433,149
Prepaid expenses and other current assets 203,245 96,413
------------ ------------
Total current assets 3,754,892 9,525,598
Property, equipment and software, net 1,873,581 1,445,977
Notes receivable 100,000 100,000
Deposits & other assets 356,356 336,645
------------ ------------
Total Assets $ 6,084,829 11,408,220
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 55,416 325,198
Accrued expenses 492,985 312,248
Accrued compensation 277,036 158,870
Purchase deposits 42,830 42,382
Deferred revenue 1,221,680 872,536
Capital lease 14,733 --
------------ ------------
Total current liabilities $ 2,104,680 1,711,234
Notes payable 13,202 42,473
Capital lease - net of current portion 27,068 --
Minority interest 114,350 117,883
Stockholders' equity
Preferred stock, $.01 par value; 10,000,000 shares authorized; 1,727,989 and
1,877,989 shares issued and outstanding as of September 30,1999 and
December 31, 1998, respectively. 17,280 18,780
Common stock, $.01 par, 50,000,000 shares authorized,
3,399,164 and 3,177,387 shares issued and outstanding as of
September 30, 1999 and December 31,1998 respectively 33,992 31,774
Additional paid-in capital 17,766,926 17,597,829
Deferred compensation (5,866) (8,265)
Accumulated other comprehensive loss (71,876) (17,644)
Accumulated deficit (13,914,927) (8,085,844)
------------ ------------
Total stockholders' equity 3,825,529 9,536,630
------------ ------------
6,084,829 11,408,220
============ ============
<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
September 30, 1999 September 30, 1998
------------------ ------------------
Revenues $ 1,345,593 1,312,083
----------- -----------
Product costs 608,915 536,034
Research and development 2,291,306 972,978
Marketing, sales, general and administrative 989,598 661,839
----------- -----------
3,889,819 2,170,851
----------- -----------
Loss from operations (2,544,226) (858,768)
Other income, net 83,348 9,831
----------- -----------
Loss before income taxes (2,460,878) (848,937)
Income taxes 3,516 3,084
----------- -----------
Net loss $(2,464,394) (852,021)
=========== ===========
Per Share Information:
Basic net loss per share $ (0.73) (0.27)
=========== ===========
Number of shares used in basic per share
computation 3,391,139 3,147,233
=========== ===========
Diluted net loss per share $ (0.73) (0.27)
=========== ===========
Number of shares used in diluted per share
computation 3,391,139 3,147,233
=========== ===========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
PAGE 4
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
------------------ ------------------
Revenues $ 4,034,598 3,867,859
------------ ------------
Product costs 1,773,971 1,757,880
Research and development 5,564,170 2,967,725
Marketing, sales, general and administrative 2,751,051 2,093,602
------------ ------------
10,089,192 6,819,207
------------ ------------
Loss from operations (6,054,594) (2,951,348)
Other income, net 234,438 53,727
------------ ------------
Loss before income taxes (5,820,156) (2,897,621)
Income taxes 8,927 9,586
------------ ------------
Net loss $ (5,829,083) (2,907,207)
============ ============
Per Share Information:
Basic net loss per share $ (1.78) (0.92)
============ ============
Number of shares used in basic per share
computation 3,277,358 3,146,286
============ ============
Diluted net loss per share $ (1.78) (0.92)
============ ============
Number of shares used in diluted per share
computation 3,277,358 3,146,286
============ ============
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
PAGE 5
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
------------------ ------------------
Cash flows from operating activities:
Net loss $(5,829,083) (2,907,207)
Adjustments to reconcile net loss to net
Cash used in operations
Depreciation and amortization 412,315 212,355
Minority interest in net loss (10,601) (16,857)
Other (33,939) 3,733
Change in operating assets and liabilities:
Accounts receivable, net 4,673 286,005
Other receivables 6,107 390,546
Inventories 46,919 31,313
Prepaids, deposits and other assets (154,227) 195,800
Accounts payable and accrued expenses 31,890 385,042
Purchase deposits 449 (16,810)
Deferred revenue 349,144 (109,544)
----------- ----------
Net cash used in operations (5,176,353) (1,545,624)
----------- ----------
Cash flows from investing activities:
Acquisition of property, equipment
and software (793,068) (739,895)
Cash from financing activities:
Repayment of capital lease obligation (6,192) --
(Repayments) proceeds from borrowings (29,271) 51,470
Proceeds from sale of common stock 169,814 3,259
Proceeds from sale of preferred stock and
warrants for common stock -- 2,960,068
Proceeds from repayment of stockholder note -- 15,938
----------- ----------
Net cash provided by financing activities 134,351 3,030,735
----------- ----------
Effect of exchange rate changes on cash 14,196 16,903
----------- ----------
Net (decrease) increase in cash & cash equivalents (5,820,874) 762,119
Beginning cash and cash equivalents 8,272,251 2,633,860
----------- ----------
Ending cash and cash equivalents $ 2,451,377 3,395,979
=========== ==========
(continued)
PAGE 6
XIOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
------------------ ------------------
Supplemental cash flow information:
Interest paid $ 3,469 4,157
Income taxes paid 12,093 3,850
Noncash investing and financing activities:
Assets acquired under capital leases 47,993 --
========== ==========
Additional shares issued in connection with
The Flanders Language Valley stock
purchase agreement -- 2,113
========== ==========
Shares issued on stock option excercise in
exchange for surrender of common stock 32,805 --
========== ==========
Shares issued in exchange for warrants 21,655 --
========== ==========
Conversion of preferred stock to common stock $ 1,500 --
========== ==========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
PAGE 7
X I O X C O R P O R A T I O N
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The consolidated 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 consolidated 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, 1998.
NOTE 2: REVENUE RECOGNITION AND DEFERRED REVENUE
Effective January 1, 1998, the Company adopted Statement of Position (SOP) 97-2,
"Software Revenue Recognition." Under SOP 97-2, revenue from product sales is
recognized when evidence of the arrangement exists, delivery has occurred, the
fee is fixed or determinable, and collection is probable. The Company provides
reserves for estimated returns of product sales and accrues for the estimated
costs of providing customer support when deemed necessary.
Under SOP 97-2, the Company is required to defer revenue related to customer
support and rate tariff table subscriptions and to recognize this revenue
ratably over the period of the agreements. Support and rate tariff table
subscriptions entitle a customer to receive future releases and enhancements of
the related software products and/or to receive the current local and long
distance provider tariff rates for their call accounting systems during the
subscription period.
NOTE 3: INVENTORIES
Inventories 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 1.0% (9.25% as of
September 30, 1999) which the Company intends to renew upon expiration in May
2000. No amounts were outstanding under the line as of September 30, 1999.
PAGE 8
X I O X C O R P O R A T I O N
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: XIOX FLANDERS N.V.
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 $1,700,000 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.
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 preferred
stock were converted to common stock, outstanding warrants were exercised, and
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 and
warrants are considered antidilutive because the options' exercise price is
above the average market price during the period. Antidilutive shares are not
included in the computation of diluted earnings per share.
The shares used in per share computations for the periods ended September 30,
1999 and 1998 are as follows:
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
------------------ ----------------- ------------------ ----------------
Weighted average common
shares outstanding-basic 3,391,139 3,147,233 3,277,358 3,146,286
Dilutive incremental shares -- -- -- --
------------------ ----------------- ------------------ ----------------
Shares used in diluted per
share computations 3,391,139 3,147,233 3,277,358 3,146,286
================== ================= ================== ================
Excluded from the computation of diluted loss per share for the three and nine
months ending September 30, 1999 are warrants to acquire 40,000 shares of common
stock, 1,727,989 shares of preferred stock which are convertible to common
stock, generally on a one-to-one basis and 807,877 shares of outstanding common
stock options. Excluded from the computation of diluted loss per share for the
three and nine months ending September 30, 1998 are warrants to acquire 50,000
shares of common stock, 625,820 shares of preferred stock which are convertible
to common stock, generally on a one-to-one basis and 512,300 shares of
outstanding common stock options outstanding.
PAGE 9
X I O X C O R P O R A T I O N
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: COMPREHENSIVE INCOME
Total comprehensive loss was $2,492,766 and $826,572 for the three months ended
September 30, 1999 and September 30, 1998, respectively. For the nine months
ended September 30, 1999 and September 30, 1998 the total comprehensive loss was
$5,883,315 and $2,886,141. The difference between net loss and comprehensive
loss is the result of translation of the Company's foreign subsidiary, which has
a local functional currency.
NOTE 8: SEGMENT AND GEOGRAPHIC REPORTING
During 1998, the Company adopted the provisions of the Statement of Financial
Accounting Standards (SFAS) No.131, "Disclosure about Segments of an Enterprise
and Related Information." SFAS No. 131 establishes standards for the reporting
by public business enterprises of information about operating segments, products
and services, geographic areas, and major customers. The Company has two
segments, telephone management products and the development of a new product
line that addresses the combined telecom and datacom markets. The two segments
have been aggregated because their long-term economic characteristics will be
similar. The nature of the product, the production process, type of customer,
and methods of distribution will also be similar. The Company did not generate
any revenue for the new product line and there were no unallocated corporate
expenses in the three and nine months ending September 30, 1999 and September
30, 1998.
The revenues for Xiox products are as follows:
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
------------------- ----------------- ------------------ ----------------
Telephone management
Products 508,315 518,423 1,505,960 1,454,030
Service and support 837,278 793,660 2,528,638 2,413,829
------------------- ----------------- ------------------ ----------------
Total revenue 1,345,593 1,312,083 4,034,598 3,867,859
=================== ================= ================== ================
The Company's assets are primarily located in the United States and are not
allocated to any specific segment. The Company does not measure the performance
of its segments based on any asset-based metrics; therefore, segment information
is not provided for assets.
The Company has not separately reported segment information on a geographic
basis, as international sales have not been material for the three and nine
months ending September 30, 1999 and September 30, 1998.
PAGE 10
X I O X C O R P O R A T I O N
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative financial
instruments and hedging activities and requires the Company to recognize all
derivatives as either assets or liabilities on the balance sheet and measure
them at fair value. Gains and losses resulting from changes in fair value would
be accounted for depending on the use of the derivative and whether it is
designated and qualifies for hedge accounting. The Company will be required to
implement SFAS No. 133 for its fiscal year 2001, as amended by SFAS No. 137. The
Company does not expect that the adoption of SFAS No. 133 will have a material
effect on the Company's consolidated financial statements.
In December 1998, the American Institute of Certified Public Accountants (AICPA)
issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with
Respect to Certain Transactions." SOP 98-9 establishes the method of recognizing
revenue for certain multiple element software arrangements. The Company will be
required to adopt SOP 98-9 for transactions entered into beginning January 1,
2001. The Company expects that the adoption of SOP 98-9 will not have a material
impact on the Company's consolidated financial position, results of operations
or cash flows.
PAGE 11
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
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 14. 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
Third Quarter 1999 vs. 1998
Revenue for the three months ended September 30, 1999 was $ 1,345,593, an
increase of 3% or $33,510 versus the $1,312,083 recorded during the three months
ended September 30, 1998.
Total operating expenses for the three months ended September 30, 1999 were
$3,889,819, an increase of 79% or $1,718,968 versus the $2,170,851 of operating
expenses incurred during the three months ended September 30, 1998. Total
product costs as a percentage of revenue increased to 45% in the third quarter
of 1999 from 41% in the third quarter in 1998, primarily due to variations in
product mix.
Research and development expenses increased by 135% or $1,318,328 to $2,291,306
in the third quarter of 1999 compared to $972,978 in the third quarter of 1998
due to an increased investment in new product development. The Company expects
quarterly research and development spending to exceed 1998 levels throughout
1999.
Marketing, sales and general and administrative expenses in the third quarter of
1999 increased by 50% or $327,759 to $989,598 compared to $661,839 in the third
quarter of 1998, primarily due to an increase in marketing expenditures
associated with new product business development.
Other income increased by $73,517 from the third quarter of 1998 primarily due
to income earned on cash equivalent investments of $48,153 in the third quarter
of 1999 versus $11,078 earned in the third quarter of 1998. The increase in cash
equivalent investments is a result of proceeds received from the Company's
Series A financing in the Fall of 1998.
The Company lost $2,544,226 from operations during the third quarter of 1999 and
reported a net loss after taxes of $2,464,394 versus a loss of $858,768 from
operations and a net loss after taxes of $852,021 in the comparable quarter of
1998. 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 12
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nine months 1999 vs. 1998
Revenue for the nine months ended September 30, 1999 was $4,034,598, an increase
of 4% versus the $3,867,859 recorded during the nine months ended September 30,
1998. The $166,739 increase in revenue is attributable to higher demand for
telephone management products in the first nine months of 1999 versus the first
nine months of 1998.
Total operating expenses for the nine months ended September 30, 1999 were
$10,089,192, an increase of 48% or $3,269,985 versus the $6,819,207 of operating
expenses incurred during the nine months ended September 30, 1998. Total product
costs as a percentage of revenue decreased to 44% in the nine months of 1998
from 45% in the first nine months of 1997, primarily due to variations in
product mix.
Research and development expenses increased by 87% or $2,596,445 to $5,564,170
in the first nine months of 1999 compared to $2,967,725 in the first nine months
of 1998 due to increased investment in new product development. The Company
expects quarterly research and development spending to exceed 1998 levels
throughout 1999.
Marketing, sales and general and administrative expenses in the first nine
months of 1999 increased by 31% or $657,449 to $2,751,051 compared to $2,093,602
in the first nine months of 1998, primarily due to an increase in marketing
expenditures associated with new product business development.
Other income increased by $180,711 from the first nine months of 1998 primarily
due to income earned on cash equivalent investments of $200,148 in the first
nine months of 1998 versus $57,745 earned in the first nine months of 1998.
The Company lost $6,054,594 from operations during the first nine months of 1999
and reported a net loss after taxes of $5,829,083 versus a loss of $2,951,348
from operations and a net loss after taxes of $2,907,207 in the comparable
period of 1998. 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.
Liquidity and Capital
At September 30, 1999, Xiox held cash and cash equivalents totaling $2,451,377
and had working capital of $1,650,212 versus cash equivalents of $8,272,251 and
working capital of $7,814,364 at December 31, 1998. The Company anticipates
investing in excess of $1,000,000 in capital equipment during 1999, consisting
primarily of computer hardware and software and testing equipment. Since
December 31, 1998, capital equipment procurements have totaled $793,068.
The Company has committed to fund Xiox Flanders N.V., a 94.9% owned subsidiary,
with approximately $1,700,000 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. In the current quarter, the
Company funded $100,000 to Xiox Flanders.
PAGE 13
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 1.0
(9.25% as of September 30, 1999) which the Company intends to renew upon
expiration. No amounts were outstanding under the line as of September 30, 1999.
The Company is exploring raising additional funds to support the marketing and
development of a new product line addressing the combined telecom and datacom
markets.
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
Definition. The Year 2000 issue is the result of computer programs written using
two digits rather than four to define the applicable year. Computer programs and
embedded systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. If one of our internal systems,
or those of a customer, supplier, or service provider, does not correctly
recognize date information when the year changes to 2000, there could be system
failures or malfunctions that result in an adverse impact on our operations.
We have assessed the capability of our products sold to customers and believe
that for these products we have no exposure to contingencies related to the Year
2000 issue that would have a material adverse effect on our financial position
or results of operations. A list of Year 2000 ready products has been posted on
our web site and has been sent to customers and distributors via Company
newsletters.
PAGE 14
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Products. Our products receive data from other equipment such as PC's and PBX's
and can only properly handle Year 2000 dates if they receive Year 2000 compliant
data. Some systems we sell or have sold 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. If the data received from PBX equipment or PC's that
are not Year 2000 compliant is incorrect, Xiox products could generate erroneous
information. If PC's on which Xiox software operates are not Year 2000
compliant, Xiox products could also generate erroneous information. We believe
that the likelihood of a material adverse impact due to problems with products
sold to customers is low. We expect that any costs to be incurred to assure Year
2000 capability relating to product released or in development will not have a
material adverse effect on our financial position, results of operations, or
cash flow.
Internal Systems. During the third quarter of 1999, we continued our efforts to
assess and remediate our computer systems, telecommunications systems, software
systems, and related equipment to ensure each system will function properly as
the Year 2000 approaches. The Year 2000 program is being conducted in four
phases: (a) identification, (b) assessment, (c) remediation, and (d) testing.
o The identification and assessment phases have been completed. All systems
acquired in the future will be subject to assessment prior to purchase.
o The remediation phase is estimated at 95% complete based on the systems
requiring patches or upgrades. The primary system requiring attention was
our Manufacturing and Financial Management System, Macola. The upgrade to
this system was completed in the first quarter of 1999.
o The testing phase is currently in a preliminary stage. Testing of systems
and interfaces will occur near the end of the remediation phase.
We currently believe our information systems will be Year 2000 compliant by the
end of 1999. However, we cannot be certain that our internal systems will be
Year 2000 compliant in a timely manner. The potential risks include the
inability to process and report financial and other transactions in a timely and
accurate manner. We do not believe that this will have a material adverse effect
on our business or consolidated financial statements.
External Suppliers. We have begun the process of seeking confirmation on the
Year 2000 compliance of our top suppliers. We expect this process to be
completed by the end of 1999.
We have been advised that the most critical systems, services, and products
supplied to us by external sources are Year 2000 ready or are expected to be
Year 2000 ready by the end of 1999.
We will be developing contingency plans for systems and services provided by
vendors that do not respond to our requests or fail in their readiness efforts.
However, we cannot be certain that our external suppliers will be Year 2000
compliant in a timely manner. The potential risks include the production of
inaccurate rate tables and delays in product deliveries. We do not believe that
this will have a material adverse effect on our business or consolidated
financial statements.
State of Readiness. As of this date, we have made significant progress in
identifying systems, completing assessments, and implementing solutions for the
high priority internal systems so
PAGE 15
XIOX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
that our computer systems will function properly with respect to dates in the
year 2000 and thereafter.
We are actively participating with customers and suppliers to ensure progress is
being made and that the dates forecast are reasonable and attainable.
Costs. Other than time spent by our internal information technology and other
personnel, we have not incurred any significant costs in identifying, assessing,
and remediating Year 2000 issues.
Because we are in a growth phase, systems improvement initiatives are underway
to improve our primary business systems. We do not anticipate any significant
costs related to remediation efforts because planned systems improvements will
include Year 2000 readiness as a standard requirement.
This statement assumes that third party suppliers have accurately assessed the
compliance of their products and that they will successfully correct any issues
in non-compliant products. Because of the complexity of correcting the Year 2000
issue, actual costs may vary from estimates.
Although the total cost to obtain Year 2000 compliance is not known at this
time, we currently expect the cost to be less than $150,000. The actual cost,
however, could exceed this estimate. These costs are not expected to have a
material effect on our financial position, results of operations, or cash flows.
Contingency Plans. Based upon the progress of our plan, we expect that we will
not experience a material disruption of our operations as a result of the change
to the new millennium. However, we cannot be certain that the third parties who
have supplied technology used in our mission critical systems will be successful
in taking corrective action in a timely manner.
We are developing contingency plans, intended to enable us to continue
operations, with respect to certain key technology used in our mission critical
systems.
Contingency plans include performing certain processes manually, repairing
systems, and changing suppliers if necessary, although we cannot be certain that
these contingency plans will successfully avoid service disruption in the
operation of business as usual.
The Company believes that the most reasonably likely worst case scenario would
be if telephone, utility or shipping services were disrupted. A disruption to
any of these systems would limit our ability to service customers until such
services are restored. The Company is not currently aware of any evidence that
such a failure is likely to occur in any of its service areas.
PAGE 16
PART II - OTHER INFORMATION
XIOX CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
None.
PAGE 17
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X I O X C O R P O R A T I O N
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: November 12, 1999
/s/ William H. Welling
--------------------------------
William H. Welling, Chairman/CEO
(Duly Authorized Officer)
Date: November 12, 1999
/s/ Melanie D. Johnson
--------------------------------
Melanie D. Johnson,
VP Finance/CFO/Secretary
(Duly Authorized Officer)
PAGE 18
November 12, 1999
Files Desk
Securities & Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
SUBJECT: Xiox Corporation
Commission File Number 0-15797
Dear SEC Representative:
Attached for filing pursuant to the Securities Exchange Act of 1934 (the "ACT" )
is Xiox Corporation's November 12, 1999 Edgar filing of a Financial Report for
the period ending September 30, 1999, under cover of the facing page of Form
10-QSB, prepared pursuant to Securities and Exchange Commission Rule 15d-2.
Please acknowledge receipt of this filing.
Sincerely,
Melanie D. Johnson
Vice-President, Finance/CFO
Xiox Corporation
577 Airport Boulevard, Suite 700
Burlingame, CA 94010
Attachments