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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 November, 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
- -------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2665 SOUTH BAYSHORE DRIVE, SUITE PH2B
COCONUT GROVE, FL 33133
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(Address of principal executive offices)
(905) 631-6608
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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, par value $.10 per share, outstanding as
of January 26, 2001 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
November 30, 2000 (Unaudited) and August 31, 2000
November 30, August 31,
2000 2000
----------- ---------
(Unaudited) (Note)
ASSETS
Current Assets:
Cash and cash equivalents .......................................... $ 519,610 $ 12,147
Accounts receivable (net of allowance for doubtful accounts) ....... 387,095 331,143
Notes receivable - related party ................................... 45,157 80,828
Inventories ........................................................ 146,243 173,693
Prepaid expenses ................................................... 238,916 98,865
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Total current assets .......................................... 1,337,021 696,676
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Property and equipment:
Computer equipment ................................................. 937,600 888,440
Furnishings and equipment .......................................... 375,497 367,182
Vehicles ........................................................... 27,749 --
Leasehold improvements ............................................. 83,898 83,425
------------ ------------
1,424,744 1,339,047
Less: accumulated depreciation .................................... (818,117) (782,051)
------------ ------------
Total property and equipment .................................. 606,627 556,996
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Other assets:
Software development costs - net of amortization ................... 111,765 119,216
Other assets .................................................... 24,000 24,250
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Total other assets ............................................ 135,765 143,466
------------ ------------
Total assets .......................................................... $ 2,079,413 $ 1,397,138
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ................................................... $ 399,012 $ 423,617
Accrued liabilities ................................................ 331,382 268,033
Accrued consulting fees - related party ............................ 200,000 275,000
Other current liabilities .......................................... 4,981 --
Customer deposits .................................................. 22,666 16,666
Current portion of capitalized lease obligation .................... 5,449 5,406
Accrued interest ................................................... 31,208 --
Deferred license fees .............................................. 12,833 265,494
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Total current liabilities ............................................. 1,007,531 1,254,216
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Notes payable ......................................................... 392,689 --
Capital lease obligation .............................................. 12,347 18,368
Subordinated Loans .................................................... 17,984 --
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Total long term liabilities ........................................... 423,020 18,368
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Total liabilities ..................................................... 1,430,551 1,272,584
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Stockholders' equity (deficit):
Preferred stock, par value $.10 per share
Authorized shares -- 5,000,000
Issued and outstanding shares - 834,830 at November 30, 2000
and 702,763 at August 31, 2000 ................................ 83,483 70,276
Common stock, par value $.10 per share
Authorized shares -- 50,000,000
Issued and outstanding shares - 27,596,755 at November 30, 2000
and 27,596,755 at August 31, 2000 ............................. 2,759,675 2,759,675
Additional Paid in Capital ........................................ 23,815,199 21,609,695
Accumulated deficit ............................................... (26,009,495) (24,315,092)
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Total stockholders' equity (deficit) .................................. 648,862 124,554
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Total liabilities and stockholders' equity (deficit) .................. $ 2,079,413 $ 1,397,138
============ ============
Note: The balance sheet as of August 31, 2000 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 Ended November 30, 2000 and November 30, 1999
(Unaudited)
THREE MONTHS ENDED NOVEMBER 30
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2000 1999
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Revenues ........................... $ 511,465 $ 219,585
Cost of sales ...................... 86,576 135,497
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Gross profit ....................... 424,889 84,088
Operating expenses:
Selling ...................... 1,137,394 386,702
Research and development ..... 439,351 87,662
General and administrative ... 522,039 663,430
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Total operating expenses ... 2,098,784 1,137,794
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Operating loss ..................... (1,673,895) (1,053,706)
Interest expense ................... (31,394) (12,605)
Interest and other income .......... 10,886 811
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Net loss ........................... $ (1,694,403) $ (1,065,500)
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Net loss per share-basic and diluted $ (0.06) $ (0.04)
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Weighted average number of
shares outstanding ........... 27,596,755 26,631,775
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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 Three Months Ended November 30, 2000 and November 30, 1999
(Unaudited)
THREE MONTHS ENDED NOVEMBER 30
-----------------------------------
2000 1999
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OPERATING ACTIVITIES
Net loss ............................................................. (1,694,403) (1,065,500)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ................................................. 36,066 64,152
Amortization ................................................. 7,701 --
Compensation expense in connection with options .............. -- 55,938
Accounts receivable .......................................... (55,952) (41,270)
Inventories .................................................. 27,450 (17,047)
Prepaid expenses ............................................. (140,051) 9,516
Accounts payable ............................................. (24,605) 73,972
Accounts payable - related party ............................. (49,459)
Other current liabilities .................................... 4,981 (17,786)
Accrued liabilities .......................................... (11,651) 0
Deferred license fees ........................................ (252,661) 0
Accrued payroll liabilities .................................. -- (65,234)
Accrued interest ............................................. 31,208 38,162
Customer deposits ............................................ 6,000 21,250
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Net cash used in operating activities ........................ (2,065,917) (993,306)
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INVESTING ACTIVITIES
Capital expenditures ................................................. (85,697) (27,215)
Loans to related party ............................................... 35,671 (1,269,335)
Cash acquired from acquisition ....................................... -- 15,383
Other assets ......................................................... 0
----------- -----------
Net cash used in investing activities ................................ (50,026) (1,281,167)
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FINANCING ACTIVITIES
Net proceeds from issuance of common stock ........................ -- 0
Proceeds from notes payable ....................................... 2,611,400 2,513,500
Proceeds from subordinated loans .................................. 17,984 --
Payments on notes payable ......................................... -- 0
Deferred lease obligation ......................................... -- 0
Payments on capitalized lease obligation .......................... (5,978) (7,219)
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Net cash provided (used) by financing activities ..................... 2,623,406 2,506,281
Net increase (decrease) in cash ...................................... $ 507,463 $ 231,808
Cash at beginning of period .......................................... 12,147 200,048
Cash at end of period ................................................ $ 519,610 $ 431,856
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SUPPLEMENTARY DISCLOSURE OF INTEREST AND TAXES PAID
Interest paid ........................................................ $ 31,394
Taxes paid ........................................................... $ 0
SUPPLEMENTARY DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Preferred stock in connection with debt-equity conversion ............ $ 2,218,711
See accompanying notes
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XBOX TECHNOLOGIES, INC.
F/K/A NICOLLET PROCESS ENGINEERING, INC.
Form 10-QSB
November 30, 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
three month period ended November 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended
August 31, 2001. 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, 2000.
2. NET LOSS PER SHARE
Basic loss 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. NOTES PAYABLE
In November 2000, the Company agreed to convert $2,218,711 of
indebtedness to TECH Cayman into 132,067 shares of Series A Convertible
Preferred Stock at a conversion price of $16.80 per share. Each share
of preferred stock is currently convertible into 200 shares of common
stock, and each share of preferred stock has that number of votes on
all matters submitted to the stockholders that is equal to the number
of shares of common stock into which it is then convertible.
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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 FOR THE FISCAL YEAR
ENDED AUGUST 31, 2000.
RESULTS OF OPERATIONS
GENERAL
XBOX Technologies, Inc. ("XBOX", or the "Company") is a technology
holding company and is pursuing a strategy to acquire various companies in the
software industry. XBOX currently has one operating subsidiary, Knowledge
Mechanics Inc., formerly Knowledgeware Solutions Inc. ("Knowledge Mechanics").
This quarter saw many developments in the evolution of Knowledge Mechanics as a
leader in the E-learning marketplace.
In September Knowledge Mechanics expanded its presence in foreign
markets by establishing an office in Manchester, England, to serve all of Europe
as well as the Middle East and Africa.
In November, the company released Knowledge Mechanics Studio 3.1, the
company's most comprehensive e-Learning software to date. Knowledge Mechanics
Studio 3.1 combines its predecessor's database-focused authoring platform with a
number of customer-driven functionality enhancements. This powerful platform
helps organizations better manage training and knowledge-sharing efforts while
dramatically reducing costs.
Knowledge Mechanics teamed up with a leading global provider of
learning and performance management solutions to demonstrate interoperability
and re-use of content. Proving interoperability, the company developed and
produced an ADL compliant lesson on its Knowledge Mechanics Studio 3.1 authoring
platform. The lesson was then exported to a Learning Enterprise system and
tracked. All programming needed to develop and produce SCORM-conformant content
is automatically applied as content and is exported to the LMS.
XBOX has one other wholly owned subsidiary, FullMetrics Inc. As
previously announced, FullMetrics, which engaged in the business of providing
software solutions for companies in the plastics and die casting industries,
ceased most of its operations in August 2000, although it continues to support
existing customers. The Company is currently exploring the possibility of
selling some or all of FullMetrics' assets to interested third parties.
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REVENUES
Consolidated revenues increased 133% to $511,000 for the quarter ended
November 30, 2000 compared to $220,000 for the same period ended November 30,
1999. Revenue from Knowledge Mechanics was $440,000 compared to $22,000 for the
same period ended November 30, 1999. Of this $440,000, license Fees accounted
for $325,000 of which $265,000 was generated from two large contracts closed
late last year but, because of acceptance clauses and delays in delivery due to
translation issues, revenues were not recognized until this fiscal quarter. In
addition, the company completed several obligations under contract and delivered
$106,000 in custom content development projects. Although custom content is an
important revenue source, management is currently in the process of
transitioning from a custom content-house developer to a software provider which
will allow clientele to develop and maintain internally the development of its
own courseware.
Revenue from Fullmetrics was $75,000 compared to $198,000 for the same
period ended November 30, 1999, reflecting the winding up of the Fullmetrics
operation.
GROSS MARGINS
For the quarter ended November 30, 2000 gross margin was 83% of
revenues compared to 38% for the same period ended November 30, 1999. This
increase is due mainly to an increase in the percentage of revenue attributable
to Knowledge Mechanics, which has significantly higher margins than Fullmetrics.
Cost of goods sold in Fullmetrics includes equipment purchases, while in
Knowledge Mechanics cost of goods sold consists primarily of commissions paid on
sales, 3rd party OEM product license fees and royalties.
SALES AND MARKETING EXPENSE
Sales and Marketing costs increased dramatically to $1,137,000 for the
quarter ended November 30, 2000 from $387,000 for the same period ended November
30, 1999.
Increased sales headcount associated with the expansion into US as well
as foreign markets and its related increase in personnel and travel expenses
contributed significantly to this increase as the company began expanding into
new geographical and global regions.
Knowledge Mechanics also retained the services of professional 3rd
party recruiters for purposes of locating and recruiting top sales talent.
Increased marketing costs also contributed to the overall increase as
Knowledge Mechanics embarked on aggressive advertising and promotional campaigns
during the quarter. Significant presence at several conferences and seminars
yielding considerable interest in the company's products and services was also a
contributing factor. It is management's belief that this interest, combined with
the new sales and marketing strategies including a focus on the Software and
Healthcare verticals will result in growing revenues in the coming quarters.
RESEARCH AND DEVELOPMENT
The company's policy is to expense as research and development all
costs associated with the exploration of new technologies and processes as well
as costs in connection with the development of ongoing projects.
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As of November 30, 2000 the company incurred $439,000 in research and
development costs. Direct internal development costs associated with payroll and
facilities accounted for approximately 85.0% of the total, with the balance
comprising subcontract and 3rd party services associated with the update release
of Knowledge Mechanics Studio 3.1.
GENERAL AND ADMINISTRATIVE EXPENSE
General and Administrative expenses decreased 21% to $522,000 for the
three months ended November 30, 2000 from $663,000 for the quarter ended
November 30, 1999. This change consists of an increase in Knowledge Mechanics of
approximately $124,000, which is attributable to the development of the
Professional Services functional lines designed to support the implementation
and integration of Knowledge Mechanics Studio. The personnel costs associated
with the development of this area contributed approximately $90,000 to the
increase. General and Administrative expenses in Fullmetrics decreased
approximately $250,000 from the quarter ended November 30, 1999, reflecting the
wind-up of its activities.
NET LOSS
The net loss increased to $1,694,000 for the quarter ended November 30,
2000 from $1,066,000 for the quarter ended November 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities have been insufficient in the past
to fulfill all of its working capital needs. TECH Inspirations, Inc., a Cayman
Island corporation and the Company's largest stockholder ("TECH Cayman") has
been funding the cash needs of the Company pursuant to credit facilities that
were originally held by Norwest Business Credit, Inc. (the "Credit Facility").
On December 12, 2000, TECH Cayman sent the Company a letter in which it
committed to advance the Company funds under the Credit Facility in an amount
sufficient to cover the Company's cash needs for Fiscal 2001. However, if TECH
Cayman was unable or refused to fulfill this commitment, the Company would
likely need to raise funds from external sources. The Company cannot provide any
assurance it would be able to raise money from external sources if necessary,
nor can there be any assurance that if the Company was able to obtain funds from
external sources, the terms on which funds would be obtained would be favorable
to the Company.
As of September 1, 1999, Knowledge Mechanics, Inc. entered into an
agreement with XBOX Technologies whereby XBOX would make available to Knowledge
Mechanics a revolving credit facility for working capital purposes. Subsequent
to this agreement, Knowledge Mechanics has been able to negotiate an increase in
this facility. The terms of the agreement specify that Knowledge Mechanics issue
to XBOX a promissory note. This note contains all provisions and covenants
necessary to administer the facility. Interest accrues at an APR of 9.25% or an
effective rate of 9.65% annually. Principal and interest are required to be paid
no later than the earlier of the due date or as excess cash reserves from future
operations permit. Furthermore, the entire assets of the company secure the
loan. The outstanding balance, including accrued interest, as of November 30,
2000 is $5,259,000.
Net cash used in operations totaled $2,066,000 for the quarter ended
November 30, 2000. Cash was used exclusively to fund the company's operating and
development requirements. Funds provided from financing activities provided
$2,623,000 for the period. Net cash used related to investing activities for
plant and equipment purposes totaled $50,000 for the period.
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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.
On November 30, the Company issued 132,067 shares of Series A
Convertible Preferred Stock to TECH Cayman. These shares were issued in
connection with the conversion of $2,218,711 of indebtedness under the Credit
Facility into shares of Series A Convertible Preferred Stock a conversion price
of $16.50 per share. Each share of Preferred Stock is currently convertible into
200 shares of Common Stock, and each share of Preferred Stock has that number of
votes on all matters submitted to the stockholders that is equal to the number
of shares of Common Stock into which it is then convertible. The transactions
described above were exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, and the rules promulgated thereunder. The
Company received assurances from TECH Cayman that the acquisition of the
Company's securities was for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the securities issued in this transaction. TECH Cayman was granted
appropriate access to information about the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company is currently in default of the minimum book net worth
covenant under the Credit Facility and has borrowed funds in excess of the
borrowing base limitations imposed by the Credit Facility. The Company is
continuously working with TECH Cayman 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.
None
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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 TECHNOLOGIES, INC.
Dated: February 1, 2001 By: /s/ JOHN VAN LEEUWEN
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John Van Leeuwen
Interim Chief Executive Officer
(principal executive officer)
By: /s/ FRANK VAN LUTTIKHUIZEN
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Frank Van Luttikhuizen
Interim Chief Financial Officer
(principal accounting officer)
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