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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 May 31, 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.
(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.)
1800 Corporate Blvd, NW Suite 101
BOCA RATON, FLORIDA 33431
(Address of principal executive offices)
(905) 632-3522
(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 June 18, 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
May 31, 2001 (Unaudited) and August 31, 2000
MAY 31, AUGUST 31,
2001 2000
----------- ---------
(Unaudited) (Note)
ASSETS
Current Assets:
Cash and cash equivalents ................................... $29,933 $12,147
Accounts receivable (net of allowance for doubtful accounts) 485,550 331,143
Notes receivable - related party ............................ -- 80,828
Inventories ................................................. 104,412 173,693
Prepaid expenses ............................................ 181,939 98,865
------------ ------------
Total current assets ................................... 801,834 696,676
------------ ------------
Property and equipment:
Computer equipment .......................................... 1,065,597 888,440
Furnishings and equipment ................................... 456,317 367,182
Vehicles .................................................... 76,926 --
Leasehold improvements ...................................... 219,809 83,425
------------ ------------
1,818,649 1,339,047
Less: accumulated depreciation ............................. (911,381) (782,051)
------------ ------------
Total property and equipment ........................... 907,268 556,996
------------ ------------
Other assets ................................................... 120,364 143,466
------------ ------------
Total assets ................................................... $1,829,466 $1,397,138
============ ============
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XBOX TECHNOLOGIES, INC.
BALANCE SHEETS (Continued)
May 31, 2001 (Unaudited) and August 31, 2000
MAY 31, AUGUST 31,
2001 2000
----------- ---------
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ............................................ $1,343,822 $423,617
Accounts payable - related party ............................ 40,000 --
Accrued liabilities ......................................... 582,409 268,033
Accrued consulting fees - related party ..................... 125,000 275,000
Notes payable - related party ............................... 210,871 --
Other current liabilities ................................... 16,845 --
Customer deposits ........................................... 22,666 16,666
Current portion of capitalized lease obligation ............. 5,406 5,406
Current portion of note payable ............................. 990,820 --
Accrued interest ............................................ 110,682 --
Deferred revenue ............................................ 198,633 265,494
------------ ------------
Total current liabilities ...................................... 3,647,154 1,254,216
------------ ------------
Notes payable .................................................. 2,739,779
Less current portion of note payable ........................... 990,820 --
------------ ------------
1,748,959
Capital lease obligation ....................................... 9,572 18,368
Other Loans .................................................... 33,754 --
------------ ------------
Total long term liabilities .................................... 1,792,285 18,368
------------ ------------
Total liabilities .............................................. 5,439,439 1,272,584
------------ ------------
Stockholders' equity (deficit):
Preferred stock, par value $.10 per share
Authorized shares -- 5,000,000
Issued and outstanding shares - 834,830 at May 31, 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 May 31, 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 ........................................ (30,268,330) (24,315,092)
------------ ------------
Total stockholders' equity (deficit) ........................... (3,609,973) 124,554
------------ ------------
Total liabilities and stockholders' equity (deficit) ........... $1,829,466 $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 Nine Months Ended May 31, 2001 and May 31, 2000
(Unaudited)
THREE MONTHS ENDED MAY 31 NINE MONTHS ENDED MAY 31
-------------------------------- --------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net Revenue .................... $747,980 $248,848 $1,694,072 $595,822
Cost of revenue ................ 124,388 73,138 346,868 228,962
------------ ------------ ------------ ------------
Gross margin ................... 623,592 175,710 1,347,204 366,860
Operating expenses:
Selling expenses ......... 1,508,429 791,502 3,691,369 1,573,046
Research and development
expenses ................ 386,609 27,249 1,230,225 150,285
General and administrative
expenses ................ 698,923 949,147 2,281,137 2,483,996
------------ ------------ ------------ ------------
Total operating expenses 2,593,961 1,767,898 7,202,731 4,207,327
------------ ------------ ------------ ------------
Operating loss ................. (1,970,369) (1,592,188) (5,855,527) (3,840,467)
------------
Other income/(expenses)
Interest expense ......... (55,193) (143,392) (112,223) (198,223)
Interest income .......... 1,615 7,745 14,512 10,781
------------ ------------ ------------ ------------
Total other
income/(expenses) ..... (53,578) (135,647) (97,711) (187,442)
------------ ------------ ------------ ------------
Net loss ....................... $(2,023,947) $(1,727,835) $(5,953,238) $(4,027,909)
------------ ------------ ------------ ------------
Net loss per share ............. $(0.07) $(0.06) $(0.22) $(0.15)
------------ ------------ ------------ ------------
Weighted average number of
shares outstanding ....... 27,596,755 27,413,234 27,596,755 27,093,582
------------ ------------ ------------ ------------
See accompanying notes to financial statements.
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XBOX TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended May 31, 2001 and May 31, 2000
(Unaudited)
NINE MONTHS ENDED MAY 31
------------------------------
2001 2000
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OPERATING ACTIVITIES
Net loss ............................................................. $(5,953,238) $(4,027,910)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ................................................. 129,330 129,916
Amortization ................................................. 23,101 --
Compensation expense in connection with options .............. --
Accounts receivable .......................................... (154,407) (333,310)
Inventories .................................................. 69,281 41,235
Prepaid expenses ............................................. (83,074) (55,754)
Accounts payable ............................................. 920,205 54,012
Accounts payable - related party ............................. 40,000 --
Other current liabilities .................................... 16,845 8,810
Accrued liabilities .......................................... 164,377 221,236
Deferred revenue ............................................. (66,861) --
Accrued payroll liabilities .................................. -- --
Accrued interest ............................................. 110,682 --
Customer deposits ............................................ 6,000 4,051
Other non-accrued liabilities ................................ -- 50,874
----------- -----------
Net cash used in operating activities ........................ (4,777,759) (3,906,840)
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INVESTING ACTIVITIES
Capital expenditures ................................................. (479,602) (317,376)
Loans to related party ............................................... 291,699 (3,511,117)
Cash acquired from acquisition ....................................... 15,383
Other assets ......................................................... -- (195,436)
----------- -----------
Net cash used in investing activities ................................ (187,903) (4,008,546)
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FINANCING ACTIVITIES
Net proceeds from issuance of common stock ........................ 60,832
Proceeds from notes payable ....................................... 4,958,490 7,837,400
Proceeds from other loans ......................................... 33,754 --
Payments on capitalized lease obligation .......................... (8,796) (7,301)
----------- -----------
Net cash provided by financing activities ........................... 4,983,448 7,890,931
----------- -----------
Net increase (decrease) in cash ...................................... $17,786 $(24,455)
Cash at beginning of period .......................................... 12,147 200,048
Cash at end of period ................................................ $29,933 $175,593
=========== ===========
SUPPLEMENTARY DISCLOSURE OF INTEREST AND TAXES PAID
Interest paid ........................................................ $112,223
Taxes paid ........................................................... -- --
SUPPLEMENTARY DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Preferred stock issued in connection with debt-equity conversion ..... $2,218,711
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XBOX TECHNOLOGIES, INC.
Form 10-QSB
May 31, 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 Knowledge Mechanics Inc. (XBOX or the
"Company"). 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 nine month period ended May 31,
2001 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 Inspirations, Inc., a Cayman Island corporation
and the Company's largest stockholder ("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 $2,739,779 from TECH Cayman under
a line of credit agreement. The loan bears interest at prime plus 1%.
4. SUBSEQUENT EVENTS
On July 13, 2001, XBOX acquired 100% of the shares YOUpowered Inc.
("YPI") a provider of personalization technology for e-business and
customers for approximately $3.7 million payable in shares of common
stock and Series B Preferred Stock of XBOX. XBOX incurred approximately
$150,000 in transaction costs related to this acquisition.
Pursuant to the Agreement and Plan of Merger dated July 5, 2001 by and
between XBOX and YPI, XBOX will initially issue (i) 10,248,392 shares
of its Common Stock and (ii) 2,049,678 shares of its Series B Preferred
Stock to the former stockholders of YPI. XBOX may be required to issue
additional shares of its Common Stock and Series B Preferred Stock to
the former stockholders of YPI depending on the resolution of certain
contingent liabilities and the achievement by XBOX of certain revenue
and trading price targets.
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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 whose strategy is to acquire various companies in the software industry.
XBOX currently has one operating subsidiary, Knowledge Mechanics Inc. (KM),
formerly Knowledgeware Solutions Inc. Knowledge Mechanics is an e-learning
company competing in the Learning Content Management Space(LCMS). This newly
identified segment is rapidly emerging as the latest trend in the explosive
e-Learning market, according to new reports from leading industry analysts. LCMS
solutions allow companies to create small units of instructional content called
learning objects, reducing the time and cost of content creation as well as
facilitating personalized learning for students. Careful division and management
of data in learning objects allow enterprises to markedly leverage their
repositories of data and learning exercises. Learning Content Management Systems
enable educators to variously assemble and re-purpose information based on
variable criteria, such as an individuals role & proficiency level.
The third quarter saw many accomplishments in the evolution of
Knowledge Mechanics as a segment leader. A number of sales contracts were
secured, and clients now include:
o a company which provides distance-learning content to the insurance
industry
o a media management and marketing content firm
o a provider of end-user e-learning and performance support solutions
for enterprise-wide applications such as CRM (customer relationship
management) and ERP (enterprise resource planning)
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 actively engaged in talks with third parties
concerning the sale of FullMetrics' assets. However, no assurance can be given
that a definitive agreement to sell the assets of FullMetrics will be reached.
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REVENUES
Consolidated net revenues increased 200.6% to $747,980 for the quarter
ended May 31, 2001 compared to $248,848 for the same period ended May 31, 2000.
The North American operations of Knowledge Mechanics accounted for substantially
all revenues generated this quarter. Fullmetrics revenue decreased from $231,024
for the quarter ended May 31, 2000 to $8,259 for the quarter ended May 31, 2001.
This is a result of the wind-up of operations as mentioned above. Knowledge
Mechanics revenue increased from $17,824 for the quarter ended May 31, 2000 to
$739,721 for the quarter ended May 31, 2001.
License revenue accounted for $281,670 or 37.7% of total revenue.
Knowledge Mechanics also delivered $29,791 in training and consulting
services in connection with the implementation of KM Studio. Deferred
maintenance revenue in the amount of $36,247 was recorded as a result of
confirmed License agreements.
The company also earned $289,000 of customization revenue in
conjunction a pilot project. Knowledge Mechanics entered into a pilot and
evaluation project with an industry leader who required specific product
modifications.
Knowledge Mechanics also realized $78,013 of custom content development
revenue. Although custom content is an important revenue source, management is
continuing the process of transitioning from a custom content-house developer
providing courseware conversion of hard-copy training materials to a software
provider allowing clientele the ability to dynamically develop, deploy and
maintain internally the development of its own courseware materials.
GROSS MARGINS
Gross margin for the quarter ended May 31, 2001 was 83.4% of net
revenues, up from 70.6% for the quarter ended May 31, 2000. This increase is a
result of higher margins on Knowledge Mechanic's products.
SALES AND MARKETING EXPENSE
Sales and Marketing costs increased 90.6% to $1,508,429 for the quarter
ended May 31, 2001 from $791,502 for the same period ended May 31, 2000.
Knowledge Mechanics accounted for $1,472,163 of current quarter costs, with the
balance of $36,266 being Fullmetric's costs. In the same quarter of 2000,
Knowledge Mechanics and Fullmetrics had sales and marketing costs of $366,753
and $424,748 respectively. Knowledge Mechanics sales and marketing costs have
increased 300% over the same period ended May 31, 2000. This reflects the growth
of the sales force and new marketing initiatives in Knowledge Mechanics.
Increased sales headcount associated with the expansion into the
Western US markets along with its related increase in personnel and travel
expenses contributed significantly to this increase. The company opened offices
in Dallas and San Jose during the period.
Marketing costs also contributed to the increase as the company
continued its aggressive advertising and promotional campaigns during the
quarter primarily in its core North American markets. KM's presence at several
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conferences and seminars was also a contributing factor. The presence of KM at
industry conferences and seminars is designed to generate interest in its
products. It is management's expectation that this interest will result in
increasing revenues for the coming quarters. However, no assurance can be given
that revenues will actually increase in the coming quarters or that any increase
in revenues will result in profitability for the Company.
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.
The company incurred $386,609 in research and development costs during
the quarter ended May 31, 2001 All development activities are coordinated from
North America. Direct internal development costs associated with payroll and
facilities accounted for approximately 70.0% of the total with the balance
comprising subcontract and 3rd party services and translation expenses
associated with the update release of Knowledge Mechanics Studio 3.1 into
foreign markets.
GENERAL AND ADMINISTRATIVE EXPENSE
General and Administrative expenses decreased 26.4% to $698,923 for the
three months ended May 31, 2001 from $949,147 for the quarter ended May 31,
2000. This decrease is the result of the elimination of a consulting fee charged
in the quarter ended May 31, 2000, and reduced administrative costs associated
with the winding up of the Fullmetrics operation.
NET INTEREST EXPENSE
Net interest expense totaled $53,578 for the quarter ended May 31,
2001, down 61.5% from $135,647 for same period last year. This decrease is due
to the conversion of $11,806,426 of debt to 702,763 shares of Series A
Convertible Preferred Stock in August, 2000.
NET LOSS
The net loss increased to $2,023,947 for the quarter ended May 31, 2001
from $1,727,835 for same period ended May 31, 2000. This increase is largely the
result of lower than expected sales volume and a greater commitment towards
development and marketing and promotional media programs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities have been insufficient in the past to fulfill
all of its working capital needs. 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
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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 $4,777,759 for the nine months
ended May 31, 2001. Cash was used exclusively to fund the company's operating
and development requirements. Funds provided from financing activities provided
$4,983,448 for the period. Net cash used related to investing activities for
plant and equipment purposes totaled $187,903 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 July 11, 2001, the Company created a new class of preferred stock
called Series B Convertible Preferred Stock. The rights and preferences of such
class of stock is described in the Certificate of Designation of Rights and
Preferences of Series B Convertible Preferred Stock of XBOX Technologies, Inc."
which is attached hereto as Exhibit 4.1.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 4.1 Certificate of Designation of Rights and Preferences of
Series B Convertible Preferred Stock of XBOX Technologies, Inc..
(b) No Current Reports on Form 8-K were filed during the fiscal quarter
ended May 31, 2001.
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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: July 19, 2001 By: /s/ JOHN VAN LEEUWEN
-----------------------------
John Van Leeuwen
Interim Chief Executive Officer
(principal executive officer)
By: /s/ FRANK VAN LUTTIKHUIZEN
-----------------------------
Frank Van Luttikhuizen
Interim Chief Financial Officer
(principal accounting officer)
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XBOX TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-QSB
FISCAL QUARTER ENDED May 31, 2001
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
4.1 Certificate of Designation of Rights and Preferences of Series B Filed herewith
Convertible Preferred Stock of XBOX Technologies, Inc.............. electronically
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