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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 February 28, 2001
[ ] 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 of incorporation (IRS Employer
or organization) Identification No.)
1800 CORPORATE BLVD, NW SUITE 101
BOCA RATON, FLORIDA 33431
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(Address of principal executive offices)
(905) 632-3522
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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 March 24, 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.
Balance Sheets
February 28, 2001 (Unaudited) and August 31, 2000
FEBRUARY 28, AUGUST 31,
2001 2000
------------ ------------
(Unaudited) (Note)
ASSETS
Current Assets:
Cash and cash equivalents ......................................... $ 22,426 $ 12,147
Accounts receivable (net of allowance for doubtful accounts) ...... 538,646 331,143
Notes receivable - related party .................................. -- 80,828
Inventories ....................................................... 119,713 173,693
Prepaid expenses .................................................. 264,697 98,865
------------ ------------
Total current assets ......................................... 945,482 696,676
------------ ------------
Property and equipment:
Computer equipment ................................................ 1,042,357 888,440
Furnishings and equipment ......................................... 386,733 367,182
Vehicles .......................................................... 76,926 --
Leasehold improvements ............................................ 83,898 83,425
------------ ------------
1,589,914 1,339,047
Less: accumulated depreciation ................................... (862,471) (782,051)
------------ ------------
Total property and equipment ................................. 727,443 556,996
------------ ------------
Other assets:
Software development costs - net of amortization .................. 104,314 119,216
Other assets ................................................... 23,751 24,250
------------ ------------
Total other assets ........................................... 128,065 143,466
------------ ------------
Total assets ......................................................... $ 1,800,990 $ 1,397,138
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XBOX TECHNOLOGIES, INC.
Balance Sheets (Continued)
February 28, 2001 (Unaudited) and August 31, 2000
FEBRUARY 28, AUGUST 31,
2001 2000
------------ ------------
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable .................................................. $ 519,790 $ 423,617
Accrued liabilities ............................................... 438,306 268,033
Accrued consulting fees - related party ........................... 125,000 275,000
Notes payable - related party ..................................... 150,422 --
Other current liabilities ......................................... 17,035 --
Customer deposits ................................................. 22,666 16,666
Current portion of capitalized lease obligation ................... 5,265 5,406
Accrued interest .................................................. 56,121 --
Deferred revenue .................................................. 161,043 265,494
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Total current liabilities ............................................ 1,495,648 1,254,216
------------ ------------
Notes payable - related party ........................................ 1,841,689 --
Capital lease obligation ............................................. 10,978 18,368
Subordinated Loans ................................................... 38,700 --
------------ ------------
Total long term liabilities .......................................... 1,891,367 18,368
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Total liabilities .................................................... 3,387,015 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 February 28, 2001
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 February 28, 2001
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 ............................................... (28,244,382) (24,315,092)
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Total stockholders' equity (deficit) ................................. (1,586,025) 124,554
------------ ------------
Total liabilities and stockholders' equity (deficit) ................. $ 1,800,990 $ 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.
Statements of Operations
For the Three Months and Six Months
Ended February 28, 2001 and February 28, 2000
(Unaudited)
THREE MONTHS ENDED FEBRUARY 28 SIX MONTHS ENDED FEBRUARY 28
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales ...................... $ 434,628 $ 131,974 $ 946,093 $ 351,559
Cost of sales .................. 135,905 20,328 222,480 155,825
------------ ------------ ------------ ------------
Gross margin ................... 298,723 111,646 723,613 195,734
Operating expenses:
Selling expenses ......... 1,045,546 394,842 2,182,940 781,544
Research and development
expenses ................ 404,265 35,374 843,616 123,036
General and administrative
expenses ................ 1,060,173 871,419 1,582,213 1,534,849
------------ ------------ ------------ ------------
Total operating expenses 2,509,984 1,301,635 4,608,769 2,439,429
------------ ------------ ------------ ------------
Operating loss ................. (2,211,261) (1,189,989) (3,885,156) (2,243,695)
Other income/(expenses)
Interest expense ......... (25,637) (65,809) (57,030) (78,414)
Interest income .......... 2,010 2,225 12,897 3,036
------------ ------------ ------------ ------------
Total other
income/(expenses) ..... (23,627) (63,584) (44,133) (75,378)
------------ ------------ ------------ ------------
Net loss ....................... $ (2,234,888) $ (1,253,573) $ (3,929,289) $ (2,319,073)
------------ ------------ ------------ ------------
Net loss per share ............. $ (0.08) $ (0.05) $ (0.14) $ (0.08)
------------ ------------ ------------ ------------
Weighted average number of
shares outstanding ....... 27,596,755 27,296,706 27,596,755 27,296,706
------------ ------------ ------------ ------------
See accompanying notes to financial statements.
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XBOX TECHNOLOGIES, INC.
Statements of Cash Flows
For the Six Months Ended February 28, 2001 and February 28, 2000
(Unaudited)
SIX MONTHS ENDED FEBRUARY 28
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2001 2000
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OPERATING ACTIVITIES
Net loss ............................................................. (3,929,289) (2,319,073)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ................................................. 80,420 87,854
Amortization ................................................. 15,401 --
Accounts receivable .......................................... (207,504) (89,592)
Inventories .................................................. 53,980 44,668
Prepaid expenses ............................................. (165,832) 12,730
Accounts payable ............................................. 96,173 (156,348)
Other current liabilities .................................... 17,035 (22,578)
Accrued liabilities .......................................... 20,273 (106,769)
Deferred license fees ........................................ (104,451) --
Accrued interest ............................................. 56,121 --
Customer deposits ............................................ 6,000 --
----------- -----------
Net cash used in operating activities ........................ (4,061,673) (2,549,108)
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INVESTING ACTIVITIES
Capital expenditures ................................................. (250,867) (67,609)
Loans to related party ............................................... 231,250 (2,654,189)
Cash acquired from acquisition ....................................... -- 15,383
Other assets ......................................................... -- (2,875)
----------- -----------
Net cash used in investing activities ................................ (19,617) (2,709,290)
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FINANCING ACTIVITIES
Net proceeds from issuance of common stock ........................ -- 60,832
Proceeds from notes payable ....................................... 4,060,400 5,335,500
Proceeds from subordinated loans .................................. 38,700 --
Payments on capitalized lease obligation .......................... (7,531) (7,603)
----------- -----------
Net cash provided (used) by financing activities ..................... 4,091,569 5,388,729
Net increase (decrease) in cash ...................................... $ 10,279 $ 130,331
Cash at beginning of period .......................................... 12,147 200,048
Cash at end of period ................................................ $ 22,426 $ 330,379
=========== ===========
SUPPLEMENTARY DISCLOSURE OF INTEREST AND TAXES PAID
Interest paid ........................................................ $ 57,030
Taxes paid ........................................................... $ 0
SUPPLEMENTARY DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Preferred stock in connection with debt-equity conversion ............ $ 2,218,711
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XBOX TECHNOLOGIES, INC.
Form 10-QSB
February 28, 2001
Notes to Financial Statements
1. 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
six month period ended February 28, 2001 are not necessarily indicative
of the results that may be expected for the year ending 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 - RELATED PARTY
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.
In addition, the Company was advanced $1,841,689 from TECH Cayman under
a line of credit agreement. The loan bears interest at prime plus 1%.
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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 continued to see developments in the evolution of
Knowledge Mechanics as a leader in the E-learning marketplace.
In February, Knowledge Mechanics launched its Custom Content Developer
(CCD) Program in response to an increased demand for courseware delivered via
the Internet. The program is geared toward small and medium-sized companies
creating specialized online training for Fortune 5000 businesses. Knowledge
Mechanics provides organizations with a cost-effective way to create courses and
also, dynamically store, assemble, easily maintain and deploy content for the
Internet, classroom or computer-based training.
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.
REVENUES
Consolidated revenues increased 229% to $434,628 for the quarter ended
February 28, 2001 compared to $131,974 for the same period ended February 28,
2000. Net revenue generated from Knowledge Mechanics totaled $399,008 compared
to $14,930 for the same period ended February 28, 2000. Revenue from North
American and European operations totaled $276,100 and $122,908, respectively.
License Fees accounted for $257,137, or 64.7% of total revenues with
approximately $158,651 derived from North America.
Revenue from Fullmetrics was $35,620 compared to $117,044 for the same
period ended February 28, 2000, reflecting the winding up of the Fullmetrics
operation.
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GROSS MARGINS
For the quarter ended February 28, 2001, consolidated cost of goods
sold totaled $135,905 or 31.3% of revenues. Cost of goods sold consists
primarily of commissions paid on sales, 3rd party OEM product license fees,
royalties and fees paid to the company's partners and resellers.
Gross margin from Knowledge Mechanics' North American operations was
$229,683 or 83.2% of revenue while margins earned from European operations was
$66,165 or 53.9% of revenues. Distributor fees paid to partners and resellers
totaling $42,517 or 74.9% of total European cost of goods contributed to lower
European margins.
SALES AND MARKETING EXPENSE
Sales and Marketing costs increased dramatically to $1,045,546 for the
quarter ended February 28, 2001 from $394,842 for the same period ended February
28, 2000. These increases were the result of additional personnel costs
associated with new sales initiatives in the U.S. and Europe.
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 international conferences
and seminars that yielded 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 rapidly 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 daily operations and the development of ongoing
projects.
As of February 28, 2001 the company incurred $404,265 in research and
development costs in such endeavors. 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.
The company also incurred consulting charges totaling $52,739 in
connection with architectural design and functionality aspects of the web-based
version of Knowledge Mechanics Studio.
All Research and Development activities originate from North America.
GENERAL AND ADMINISTRATIVE EXPENSE
General and Administrative expenses totaled $1,060,173 for the three
months ended February 28, 2001. Of this total $284,518, or 26.8%, is directly
attributable to the further development of the Professional Services functional
lines designed to support the implementation and integration of Knowledge
Mechanics Studio.
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NET LOSS
The net loss increased to $2,234,888 for the quarter ended February 28,
2001 from $1,253,573 for the quarter ended February 28, 2000 as the company
expanded its sales and marketing presence in global markets.
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.
Net cash used in operations totaled $4,061,673 for the quarter ended
February 28, 2001. Cash was used exclusively to fund the company's operating and
development requirements. Funds provided from financing activities provided
$4,091,569 for the period. Net cash used related to investing activities for
plant and equipment purposes totaled $19,617 for the period.
The company is currently negotiating with several financial
institutions regarding securing a $500,000 revolving credit facility for working
capital purposes and to meet short-term fluctuations in receivables.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal, governmental, administrative or
other proceedings to which the Company is a party or of which any of its
property is the subject.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company is currently in default of the minimum book net worth
covenant under the Credit 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. TECH Cayman has waived compliance with the covenant, and
accordingly the debt is classified as non-current in the Company
balance sheet.
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: April 9, 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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