-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G/a6FX5AzkhURdxylpC1/aI6JhhoiuwVOeGVmTtJVcqcYl1ArA15gNmCkyckN4fs w6nRqGUaFV3deRtIGZqF7A== 0000950005-98-000338.txt : 19980401 0000950005-98-000338.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950005-98-000338 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: XIOX CORP CENTRAL INDEX KEY: 0000782995 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 953824750 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-15797 FILM NUMBER: 98583569 BUSINESS ADDRESS: STREET 1: 577 AIRPORT BLVD STE 700 CITY: BURLINGAME STATE: CA ZIP: 94010 BUSINESS PHONE: 4153758188 MAIL ADDRESS: STREET 1: 577 AIRPORT BLVD SUITE 700 CITY: BURLINGAME STATE: CA ZIP: 94010 10-K405 1 FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 F O R M 10-KSB (Mark One) (X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997; or ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission file #0-15797 XIOX CORPORATION ----------------------------------------------------------- (Name of small business issuer as specified in its charter)
Delaware 953824750 - ----------------------------------------------------------- ---------------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 577 Airport Boulevard, Suite #700 Burlingame, California 94010 - ----------------------------------------------------------- ---------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number: (650) 375-8188 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: None ---------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value ---------------------------- (Title of Class)
Check whether the issuer (l) 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 --- --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. X --- Issuer's revenues for its most recent fiscal year were: $5,060,890. ------------ 1 The aggregate market value of the voting stock held by non-affiliates as of March 2, 1998 was approximately $ 5,716,937 (based upon the average bid and asked prices of such stock as reported by the National Association of Securities Dealers Quotations Listing on that date). As of March 1, 1998 the total number of shares of common stock of the Registrant outstanding was 2,932,934. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference into the parts of Form 10-KSB indicated: (1) Xiox Annual Report to Stockholders for the year ended December 31, 1997 for Part II; (2) Proxy Statement dated April 15, 1998 for the Annual Meeting of Stockholders to be held May 18, 1998 for Part III. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those projected in the forward-looking statements included herein as a result of a number of factors, including but not limited to those discussed in Item 1, "Description of Business," of this report and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," incorporated by reference to pages 2 through 5 of the Company's 1997 Annual Report to Stockholders. 2 PART I ITEM 1. DESCRIPTION OF BUSINESS A. The Company Xiox Corporation, a Delaware corporation (the "Company" or "Xiox"), was incorporated in California in September 1982 and became a publicly held company in February 1986. The Company designs, develops, manufactures and markets telecommunications management software and hardware systems which operate on personal computers, Local Area Networks and stand-alone proprietary hardware. The Company's systems efficiently provide information to facilitate telephone expense control; client, department or project billback; call traffic monitoring and analysis; and fraud control prevention. In addition, the Company markets voice mail and a complete family of telephone and network security products. Since the Company's incorporation, its product line has expanded from a single software system to a full range of Telecommunication Management Systems, each of which has been designed to address the needs of small or large businesses in many different industries. In addition to its software and hardware-based systems, the Company also provides call costing rate tables and system enhancements to end users under subscription arrangements. The Company markets its systems with its own sales force, through dealers who include subsidiaries of the Regional Bell Operating Companies ("RBOC's"), and through Original Equipment Manufacturers ("OEM's"). The agreements with the RBOC's and many other dealers do not include any commitment by such dealers to purchase a minimum number of systems. DEVELOPMENTS DURING 1997: In March 1997 Xiox released Prophet H version 2.2. This upgrade enhances the Prophet H's ability to handle multiple dialing requirements. In April 1997 GBS for Windows Version 1.03 was released. This release included an enhanced polling module allowing more flexibility in multi-site polling applications. NANP text updates and the new Caribbean area codes were added to the fraud report libraries. This release also included support for Windows NT 3.51 workstation. In June 1997 the Company introduced FMS for Windows. The product features seven integrated modules, including Facilities, Inventory, Equipment, Cable & Circuits, Work Orders, Help Desk and Consolidated Billing, all managed in a LAN enabled RDBMS system. The product includes the point and click ease of Microsoft Windows(TM) and the ability to present and link scanned pictures of personnel, technicians, inventory and even floor plans. 3 In October 1997 the Company released GBS for Windows version 1.04. This upgrade featured many marketing and support enhancements including an Intelligent Configuration Wizard to help simplify the installation and set-up of the software. Reporting libraries were enhanced, adding many reports that customers had requested, including a new ANI (Automatic Number Identification) reporting library. Descriptive text was also added for account codes and dialed numbers to enhance reports for applications such as client bill-back. This release also included support for Windows NT 4.0 workstation. In October 1997 the Company released Summa Pro version 5.3 which included three significant enhancements. The Summa Pro now has the capability to turn off a hotel's guest phones if they exceed a user-definable credit limit. Version 5.3 also supports separate pricing for Internet users. This feature allows an additional grace period to be set for local free, toll free, incoming and operator assisted calls. Calls within this grace period will be charged at one rate, and calls exceeding this grace period will, in addition, be charged for all minutes beyond this grace period. In 1997 Xiox began a large development effort in a new product line addressing the combined telephony and data markets. In connection with this development effort, the Company formed a subsidiary in Belgium, XIOX Flanders N.V., in which the company holds an 94.9% interest and a shareholder of the Company holds a 5.1% interest. B. Products Xiox products are sold to the Commercial and Hospitality markets and are comprised of six product categories: Call Accounting, Traffic Engineering, Facilities and Alarm Management, PBX security, Voice Mail/Auto Attendant and Answer Detection systems. Often the first four of these categories are combined into an integrated package called Telecommunications Management System ("TMS"). These products are provided on several platforms: proprietary stand-alone hardware, personal computers, Local Area Networks or as a Service Bureau offering. The Company has implemented TMS for clients as a managed outsourcing project when customers are looking for an alternative to running call accounting themselves. TMS or Telemanagement products can be used in most industries. The primary benefits customers look for in implementing a telemanagement system are a decrease in communications costs through reductions in the number of minutes of telephone time utilized and a reduction in the cost per minute of telecommunication usage. Xiox Commercial Industry Product Applications Call Accounting Software Call Accounting software is used to collect data on telephone calls, generally from the PBX, and to price these calls by applying interexchange and local exchange carrier tariffs to them. The rated calls are placed into a database and can be sorted, summed and printed in a variety of report formats. Savings generated by implementing a call accounting system range between 10-40% of 4 the total number of minutes used each month compared to telecommunication networks not using a call accounting system. Call Accounting generates savings by allowing a company to use its telecommunications network more efficiently by reducing its minutes of usage. If each employee were to reduce phone usage by five minutes per day, the direct savings for 100 employees at $0.12 per minute cost would be $15,000 per year. Call Accounting software systems and related subscription services are designed to be utilized in connection with the user's computerized telephone system and personal computer or local area network. The Company does not manufacture the computers and provides them only upon customer request. The Company's Call Accounting systems do not require additional expansion boards to be inserted into the computer. Nor does an end user's computer need to be dedicated to perform only call accounting functions under a Windows based operating system (Win 3.1x, Win95 and NT3.5X workstations). For additional data security, Xiox offers a Call Storage Buffer. These external call storage devices are built to Xiox's specifications and are sold by Xiox through its channels of distribution as part of an integrated system. The software is also used by professional and legal firms to pass on, usually with a mark-up, telephone expenses incurred on behalf of clients. Hotels, university campuses, hospitals, and shared tenant organizations use the software to charge guests, students, faculty, patients, and tenants for their telephone usage. GBS for Windows(TM) was designed for ease of use. All of the Xiox tools and reports are accessible with point and click functionality, including macros for viewing information in colorful graphical formats; Intelligent Configuration(TM) (patent pending) for automatic and simple installation; scheduled polling, processing and reporting; icon management of multiple sites; and rate table updates at a click of a button. By utilizing these tools, a Xiox GBS for Windows(TM) user can install, run, and make high impact graphical presentations within hours. In comparison, DOS-based, Windows(TM) and other competitive packages can take up to several days to install, configure and train, with additional time needed to prepare the first graph. Xiox GBS for Windows(TM) is built upon its predecessor GBS product's reputation for accuracy, flexibility and quality of support. The Xiox General Business Software Plus ("GBP") product line is designed to operate on a Personal Computer and share data on Local Area Networks. Systems are configured to report on up to 30,000 Telephone Extensions and can process an unlimited number of Call Records. A menu of standard reports provides selections from a library of up to 126 different detail and summary report topics, or from one of 324 available custom reports. A pre-select feature allows users to retrieve small, manageable files quickly from large databases in order to facilitate 5 generation of any of the systems reports. The flexibility of this table-driven interface provides the ability to pinpoint call exceptions and offer ad hoc reporting. Customers may choose from five separate Rate Table products to match their common carrier rate options for accurate call rating. Specialized carrier arrangements like SDN's, VPN's, and Tariff 12 offerings can also be integrated. When coupled with Xiox's table driven interface for Dialing Recognition Templates and Call Processing Rules, the 99.5% or greater accuracy in matching actual rates provides increased customer use of the information as a management tool and subsequently greater savings. Customers with more than one location may elect to establish a central (host) site that will poll remote sites over telephone lines or through Wide Area Networks ("WANS"). Xiox Central Polling Software works in conjunction with pollable call storage buffers to create a networked telemanagement system. Since Xiox systems operate on Local Area Networks, customers may use existing LAN-to-LAN connectivity to poll data. Call Accounting Hardware The Prophet Series, the Company's hardware-based Call Accounting Systems, are microprocessor based stand-alone systems. Available with both general business and lodging firmware, the Prophet systems are available in a range of sizes. Call storage, call processing, and call rating are all performed within the firmware of the device. An external keypad is available for report generation. Reports may also be generated via a touch-tone telephone. This series is aimed at the lower-cost end user market and is sold through Xiox's distribution channels. An enhancement to the product includes the Prophet Writer software. When downloaded to a customer-provided PC, call records may be stored to the PC hard disk. Prophet Writer software greatly enhances the reporting capabilities of the Prophet system. Also, a polling option allows data from multiple remote Prophet devices to be collected and reported on a central site. Traffic Engineering for Windows Software The Xiox Traffic Engineering for Windows Software ("XTES") is a management tool used to reduce the cost per minute of telecommunications expenses. This is accomplished by analyzing trunk utilization, and identifying problems with Automatic Route Selection (also called "Least Call Routing") programs in the PBX. The product greatly simplifies the "Traffic Engineering" function. The "Alerts and Suggestions" report identifies actions that should be considered to reduce costs or eliminate blockage. The Xiox Traffic Engineering Software works in conjunction with the Xiox Call Accounting Software databases or as a separate application to reduce the user's cost per minute. The use of the 6 software and resulting improvements to automatic route selection from implementation of the suggestions can materially reduce most companies' cost per minute. Facilities Management Software The XIOX Windows Facilities Management ("XFMS") is a software system that automates record keeping for voice and data facilities. XFMS provides financial and operational control by integrating service order processing, equipment inventory management, cost allocation, trouble management, directory, and cable record management into a powerful database management system. XFMS enables a user to integrate interrelated tasks with a minimum number of entries. The system is also used to manage expenses and can be used in conjunction with call accounting to provide a consolidated extension report of all telephony-related expenses incurred by a user or tenant over a specific time period. Companies are becoming increasingly aware of this type of product and the benefits it provides in managing a complex telecommunications installation. Fort Knox (R) PBX Security Products PBX toll fraud costs U. S. businesses billions of dollars each year in lost resources. Theft of a company's long distance service by criminals erodes profits and costs the victims additional losses in personnel time, litigation and problem resolution. In addition to these costs, victims of toll fraud risk the security of sensitive information conveyed either by telephone or data networks. The Company's Fort Knox (R) Family of products provide protection against toll fraud and other illicit entry to the corporate telecommunications network. The Fort Knox products can be used singly to protect specific hacker entry points or in combination to provide protection to the telecommunications network. The Xiox Hacker Preventer(R) ("XHP") utilizes artificial intelligence and voice energy analysis to separate hackers from legitimate users. The XHP protects an entire telecommunications system, while allowing authorized users full use of all of the system's money saving features. These standard PBX features such as Direct Inward Service Access ("DISA") are usually disabled to thwart hackers; the XHP restores the functionality of the PBX back to the users and provides secure access to voicemail and other internal communication destinations. The Xiox Hacker Deadbolt(R) ("XHDB") provides protection for the remote maintenance and testing ports of the PBX system, Voice Mail systems, and other customer premises equipment. The XHDB can be purchased as a stand-alone unit or as an integrated component of the Xiox Hacker Preventer(TM). 7 The Xiox Hacker Tracker(R) ("XHT") is a cost-effective, dedicated software package that alarms and reports on "suspicious" PBX traffic to help reduce the risk of Toll Fraud. The XHT comes pre-configured with the most useful reports for tracking and trapping illicit hackers. The XHT includes complete, easy to follow software documentation, and allows a customer to silently monitor system usage and traffic to potential fraudulent destinations. Xiox Hospitality Industry Product Applications Voice Mail/Auto Attendant Summa Voice is a voice mail/auto attendant product specifically engineered for 50 to 250-room hotels. This product enables these properties to offer their guests voice mail services that are easy to install, operate and use. With a voice mail product, hotels are able to provide accurate, timely and confidential message-taking service for their guests, thereby improving guest satisfaction. The product also reduces the amount of time that hotel staff spend writing messages. This increases the amount of time available for personal service to guests, which in turn improves guest satisfaction. Call Accounting Software Xiox Lodging Software is specifically designed for hotels, motels, hospitals and nursing homes. It immediately prices calls and produces a call receipt which is posted to the guest's or patient's folio. If the business has a computerized property management system, the call accounting system prices and processes call records and communicates them to the property management system for automatic integration into a guest's records. Call Accounting Hardware Xiox Summa Prophet H Series prices, marks up and can post to the hotel's property management system or can provide easy-to-use guest billback capability for properties without a Property Management System ("PMS"). The Prophet H stores 1,000 call records and is available in two models: the H-3, which manages up to 300 extensions, and the H-10, which manages up to 10,000 extensions. Both Lodging systems interface with almost all available Property Management Systems and produce daily and monthly profit reports. Xiox Summa Pro is a stand-alone call accounting system designed for budget and economy hotels with up to 500 extensions and provides a call storage capacity of 14,000 call records. The product allows smaller properties to afford the revenue-producing benefits of call accounting systems such as accurate tracking and billing of guest calls. It features smart, easy-to-use commands that allow any property manager or front desk employee to learn to operate without lengthy training and includes one-touch reporting and credit limit alarm. 8 The Xiox Summa Pro offers one-step processing of guest checkout, night audit procedures, credit limit and current call reports. Additionally, it features an array of system alarms including 911, accurate tracking and billing of guest calls, with separate billing for administrative extensions, and a four line display with easy prompting and descriptive problem identification. The compact physical size of the Xiox Summa Pro is designed for the limited space in a front desk environment. Answer Detection The Xiox Summa Call Detection Unit ("SCD") is a hardware system offered to lodging properties to help accurately bill customers and often increase revenue. With a 288-trunk capacity, the SCD can interface with most PBX's and supports direct T-1 connection. This stand-alone unit provides diagnostics for remote trunk troubleshooting and alarms for hardware or software failure. Detailed reporting enables tracking of Answered Calls, Unanswered Calls and Recovered Revenue. In the lodging industry, a 45-second grace period is usually used to determine if a call is completed. Guests are charged for all calls over this threshold, including calls to invalid numbers or numbers where no one answered. Shorter calls, even those completed within 45 seconds, are not charged to the guest. The SCD tags call records as having an actual answer instead of relying upon a predetermined time period to presume actual call completion. This definite tagging allows the typical lodging customer to charge for short calls that would not have been charged prior to the installation. The average customer's telephone related revenues are estimated to increase using this device. Although hotels have used call accounting to bill guests for some time, these systems have been unable to determine if calls were actually completed. Lost revenues from undetected, yet completed calls under the 45-second threshold result in lost revenue, as well as unrecovered expense. Furthermore, guest complaints about billed calls not completed have been a problem for hotels, motels and resorts. Product Support and Subscription Services The Company obtains and resells third-party hardware, primarily external buffers. In addition, the Company provides an option for its customers and its dealers for system installation and training and travel costs associated with familiarizing customers with the Company's systems. The Company renews Product Support subscriptions for its customers on an annual basis. Renewal of Product Support entitles a client to unlimited access to the Product Support Center. It also entitles the customer to receive any product enhancements or "bug fixes" throughout that year. 9 The Company provides end users with call costing rate tables under annual subscriptions. These rate tables provide the end user with current telephone tariffs to generate accurate call rating. The Company offers several rate table options, based on the complexity of the customer's telecommunications environment. The Company also offers enhancements to and support of its systems after the first year of use. C. Sales, Marketing and Distribution Methods The Company markets its systems to end users primarily through its network of authorized dealers. The Company sells to over 450 dealers including the RBOC's (i.e., US West Information Systems and Bellsouth Communications Systems) and several independent business telephone dealers. Most of the Company's dealer agreements do not include commitments by such dealers to purchase a minimum number of systems and typically may be canceled at any time with 30 days prior written notice. Xiox's ability to effectively distribute its products depends in part upon the financial and business condition of its distribution network. One customer accounted for 12 percent of revenue during 1997 while no single customer accounted for more than 10 percent of the Company's revenues in 1996. During each of the years ended December 31, 1997 and 1996 the Company's export sales were less than 2% of total sales. The Company's marketing approach varies depending upon the type of system. A description of each of these approaches is set forth below: Xiox General Business Software, Xiox Call Analyzer, Xiox GBS for Windows, Xiox Traffic Engineering Software, Xiox Facilities Management Software and Fort Knox(R) Security Products These systems are typically marketed to large corporations primarily through the Company's direct sales force, RBOC's or business telephone dealers. In order for dealers to effectively establish and support their customer base, the Company must commit technical and sales personnel to training dealers with respect to installation and application support. Xiox Lodging Software, Telephone Call Detection Devices, Summa Prophet H, Summa Pro and Summa Voice. The Summa Suite family of products are targeted to both independent and chain-affiliated properties in the lodging industry. Marketing of Xiox Lodging Software is through the direct sales force, value-added dealers specializing in Lodging, and OEM's with Lodging specific systems. Xiox Prophet Call Accounting Systems. These hardware devices are marketed exclusively through the Company's distributors and original equipment manufacturers. 10 D. Revenue Patterns The Company's operating history has indicated a sales pattern reflective of both the telecommunication and computer industries with sales generally weaker in the first quarter of each calendar year than the last quarter of the previous year. The year over year decreases in these quarters are attributable to a lower number of North American Numbering Plan ("NANP") upgrades. E. Industry and Competition The telecommunications management systems industry has been characterized by intense competition and rapid technological and marketing changes. Decisions of the FCC and the divestiture by AT&T of the RBOC's significantly altered the marketing and distribution of telecommunications equipment and systems. The principal competitive factors in the market for telephone management and call accounting software systems are customer service, dealer coverage, name recognition, product performance, price and flexibility of product design. Many of Xiox's competitors have significantly greater financial, marketing and technical resources. The actions of these companies may have a material adverse effect on the Company. In order for Xiox to remain competitive, it must rapidly respond to such changes, including the enhancement and upgrading of existing products and the introduction of new products. There can be no assurance that the Company will be able to respond to such changes. Original Equipment Manufacturers. Currently, Xiox products compete with systems offered by manufacturers of computerized telephone systems. The Company competes with these companies on the basis that its products operate on standard personal computers and are typically offered at lower prices, as many of these competitive products require a significant hardware investment. Independent Hardware and Software Developers. Xiox also competes directly or through dealers with numerous independent hardware and software developers. The Company believes it effectively competes with other companies on the basis of price, performance and more sophisticated features. However, because the market in which the Company competes is intensely competitive, there can be no assurance that the Company will remain competitive in respect to some or all of these factors. F. Research and Development Expenses Xiox is committed to the development of new products and to the continued enhancement of its existing products. During 1997 significant enhancements were made to the GBS for Windows software and Summa Pro and Prophet H hardware products. In addition, new products released included FMS for Windows. During 1997 and 1996, research and development expenses were $1,020,145 and $733,952, respectively. 11 In 1997 Xiox began a large development effort on a new product line addressing the combined telephony and data markets. During the fourth quarter of 1997 the Company expended $446,242 on research and development. The Company expects the quarterly research and development spending during 1998 to exceed this amount. G. Patents, Copyrights, Trademarks and Licenses The Company has filed for copyrights its computer programs and algorithms. The Company has filed or received trademark protection for its service marks under its Fort Knox(R) Family of products including Hacker Tracker(R), Hacker Preventer(TM), Hacker Deadbolt(R), and Hacker Stopper(R). The Company also filed for patents on: (1) an innovative technique used to automatically determine the data transmission rate (baud rate) and characteristics from another device under the RS-232C protocol; and (2) technology used by the Xiox Hacker Preventer(TM) product to profile and react to a user's observed behavior. The Company has received patents on: (1) an innovative answer detection technology; and (2) an intelligent software application installation and configuration methodology that includes a remote rate table delivery system. Xiox resolved a patent interference proceeding declared by the U.S. Patent and Trademark Office concerning patent claims which cover a technique for detecting telephone toll fraud. The interference involved a patent application owned by Xiox and a patent application and patent owned by Coral Systems, Inc. ("Coral"). In connection with the resolution of the interference Coral agreed to pay Xiox $425,000, and Xiox granted Coral and Lightbridge, Inc., Coral's parent, a nonexclusive, fully paid-up license to patents issuing on the Xiox patent application. H. Production and Backlog The Company produces its products from a library of master diskettes upon receipt of firm orders. Software orders are usually placed on an as needed basis and are shipped by the Company shortly after receipt of an order. As a result, the Company does not have a substantial backlog, and the Company's backlog at any particular time is generally not indicative of its future level of sales. The Company's hardware products are manufactured to Xiox specifications by outside suppliers. These products are also available from alternate domestic suppliers. The company defers substantial revenue from annual subscriptions for its annual rate table and maintenance and support agreement subscriptions. This deferred revenue is amortized over the life of the subscription. I. Employees The Company had 55 full-time employees as of December 31, 1997 and 56 total employees. 12 ITEM 2. DESCRIPTION OF PROPERTY The Company leases approximately 13,168 square feet of office space at 577 Airport Boulevard, Suite 700, Burlingame, California, 4,339 square feet of which is subleased. The lease expires in July 31, 2000. In addition, the Company leased 10,538 square feet of multi-use space at 150 Dow Court, Manchester, N. H. under a five-year lease which expired December 31,1997. On July 1, 1997 Xiox exercised its option to renew this lease for an additional five years to expire December 31, 2002. On November 18, 1997 the Company negotiated to cancel this lease effective February 1, 1998 and sign a seven-year lease for 19,069 square feet at the same address which begins February 1, 1998 and expires January 31, 2005. The Company also leased a 734-square foot facility at 600 E. Baseline, Suite B2, Tempe, Arizona under a one-year lease which expired January 1, 1997. The Company relocated the Tempe facility in November, 1996 to a 692-square foot facility at 8010 East McDowell Road, Scottsdale, Arizona under a three-year lease which expires October 31, 1999. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS This information is set forth under the caption "Stock Trading Information" on page 23 of the Company's 1997 Annual Report to Stockholders (the "Annual Report") and is hereby incorporated by reference. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This information is set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 2 through 5 of the Annual Report and is hereby incorporated by reference. ITEM 7. FINANCIAL STATEMENTS The following financial statements of the Company and the independent auditors' report appearing on pages 6 through 22 of the Annual Report are hereby incorporated herein by reference. Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 Notes to Consolidated Financial Statements Independent Auditors' Report The Annual Report, except for those portions which are expressly incorporated by reference in this filing, is furnished for the information of the Securities and Exchange Commission and is not to be deemed as filed as part of this Report on Form 10-KSB. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 14 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to instruction E(3) to Form 10-KSB, the information required by Item 9 of Form 10-KSB with respect to the members of the Board of Directors and Executive Officers of the Company is incorporated by reference to the information contained in the sections captioned "Nominees", "Business Experience of Directors", "Executive Officers" and "Compliance with Section 16(a) of the Exchange Act" in the Company's definitive proxy statement for the 1998 annual meeting of stockholders to be filed with the Securities Exchange Commission (the "SEC"). ITEM 10. EXECUTIVE COMPENSATION Pursuant to instruction E(3) to Form 10-KSB, the information required by Item 10 of Form 10-KSB with respect to executive compensation is incorporated by reference to the information contained in the section captioned "Executive Compensation" in the Company's definitive proxy statement for the 1998 annual meeting of stockholders to be filed with the SEC. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pursuant to instruction E(3) to Form 10-KSB, the information required by Item 11 of Form 10-KSB with respect to security ownership of certain beneficial owners and management is incorporated by reference to the information contained in the sections captioned "Principal Stockholders" and "Security Ownership of Management" in the Company's definitive proxy statement for the 1998 annual meeting of stockholders to be filed with the SEC. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to instruction E(3) to Form 10-KSB, the information required by Item 12 of Form 10-KSB with respect to certain relationships and related transactions is incorporated by reference to the information contained in the section captioned "Certain Relationships and Related Transactions" in the Company's definitive proxy statement for the 1998 annual meeting of stockholders to be filed with the SEC. 15 ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report: 1. Financial Statements: The following Consolidated Financial Statements of Xiox Corporation and Report of KPMG Peat Marwick LLP, Independent Auditors, are incorporated by reference to pages 6 through 22 of the Registrant's Annual Report to Stockholders:
Page(s) in 1997 Annual Report ------------- Consolidated Balance Sheets as of 6 December 31, 1997 and 1996 Consolidated Statements of Operations 7 for the years ended December 31, 1997 and 1996 Consolidated Statements of Stockholders' Equity for 8 the years ended December 31, 1997 and 1996 Consolidated Statements of Cash Flows 9-10 for the years ended December 31, 1997 and 1996 Notes to Consolidated Financial Statements 11-21 Independent Auditors' Report 22
16 2. Exhibits: The Exhibits listed on the accompanying Index to Exhibits immediately following the financial statement schedules are filed as part of, or incorporated by reference into, this Report.
Number Description - ------ ----------- 2.1(1) Proposed Agreement and Plan of Merger between the Company and Xiox Corporation, a Delaware Corporation. 3.l(2) Certificate of Incorporation as filed with the Secretary of State of the State of Delaware. 3.2(2) Bylaws. 4.1(2) Certificate of Incorporation as filed with the Secretary of State of the State of Delaware and Bylaws. 4.2(3) Common Stock Purchase Agreement dated June 30, 1997 between Company and Flanders Language Valley C.V.A. 4.3(3) Investor Rights Agreement dated June 30, 1997 between Registrant and Flanders Language Valley C.V.A. 10.02(4) Dealer Sales Agreement dated April 25, 1985 between Registrant and PacTel InfoSystems. 10.04(5) Xiox Corporation Restated 1984 Stock Option Plan. 10.05(13) Form of Notice of Grant and Stock Option Agreement to Restated 1984 Stock Option Plan. 10.06(5) Form of Stock Purchase Agreement. 10.07(5) Form of Automatic Option Agreement. 10.08(5) Form of Stock Purchase Agreement. 10.09(2) Lease Agreement between the Company and Bay Park Plaza dated March 20, 1987. 10.10(6) Amended Lease Agreement between the Company and Bay Park Plaza dated July 28, 1994. 17 10.12(12) Sublease and Lease Agreement between the Company C. E. Heath Compensation and Liability Company dated April 1, 1996. 10.13(2) Form of Director Indemnity Agreement. 10.14(7) Xiox Corporation 1994 Stock Plan. 10.15(7) Form Stock Option Agreement to 1994 Stock Plan. 10.16(11) Xiox Corporation 1994 Stock Plan, as amended. 10.25(8) Agreement for the Purchase and Sale of Stock of SFX, Inc. (formerly Summa Four Business Products, Inc.) dated March 27, 1991. 10.26(9) Agreement for Business Combination by and among Xiox Corporation and Gemini Telemanagement Systems (principal shareholders Richard Alter, Gregory Bell and Darrell Krulce) dated August 17, 1994. 10.27(10) Asset Purchase Agreement of Instor Systems Corporation dated October 12, 1994. 10.28* Lease Agreement between the Company and One Dow Court, Inc. dated November 18, 1997. 13.1* 1997 Annual Report to Stockholders. 21.1** Subsidiaries of the Company. 23.1* Consent of KPMG Peat Marwick LLP, Independent Auditors. 24.1 Power of Attorney (See Page 20). 27.1* Financial Data Schedule. * Filed herewith. ** Listed under the caption "Principles of Consolidation" in the Company's 1997 Annual Report to Stockholders, attached as Exhibit 13.1 (1) Incorporated by reference to Company's Report on Form 10-K for the year ended December 31, 1986. (2) Incorporated by reference to Company's Report on Form 10-K for the year ended December 31, 1987. 18 (3) Incorporated by reference to Company's Report on Form 8-K, as filed by Company on July 22, 1997 and October 8, 1997. (4) Incorporated by reference to Company's Registration Statement on Form S-1. (5) Incorporated by reference to the Company's Registration Statement on Form S-8 (File No. 33-42433). (6) Incorporated by reference to Company's Report on Form 10-KSB for the year ended December 31, 1995. (7) Incorporated by reference to Company's Registration Statement on Form S-8 (File No. 33-88996) filed on February 1, 1995. (8) Incorporated by reference to Company's Form 8-K filed on March 27, 1991, as amended on June 7, 1991. (9) Incorporated by reference to Company's Form 8-K filed on August 29, 1994, as amended on October 28, 1994. (10) Incorporated by reference to Company's Form 8-K filed on December 15, 1994. (11) Incorporated by reference to Company's Registration Statement on Form S-8, filed on June 20, 1997 (File No. 33-39703). (12) Incorporated by reference to Company's Report on Form 10-K for the year ended December 31, 1996. (13) Incorporated by reference to Company's Registration Statement on Form S-8 (File No. 33-37686).
B. Reports on Form 8-K. The Company filed the following reports on Form 8-K or 8-K/A during the year ended December 31, 1997: Exhibit 5.2.i Customer Agreement relating to the Company's sale of certain assets of Gemini Telemanagement Systems, filed February 28, 1997 on Form 8-K/A Amendment #2. Common Stock Purchase Agreement and Investor Rights Agreement dated June 30, 1997 and filed July 22, 1997 on Form 8-K. Amended 8-K/A filed October 8, 1997. 19 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Xiox Corporation Date: By: March 30, 1998 /s/ William H. Welling -------------------------------------------- William H. Welling Chairman and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Melanie D. Reid and William H. Welling, jointly and severally, his respective attorneys-in-fact, each with the power of substitution, for each other in any and all capacities, to sign any amendments to this Report on Form 10-KSB, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his respective substitute or substitutes, may do or cause to be done by virtue hereof. In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 30, 1998 /s/ William H. Welling ------------------------------------------- William H. Welling Chairman and Chief Executive Officer (Principal Executive Officer) and Director March 30, 1998 /s/ Mark A. Parrish, Jr. ------------------------------------------- Mark A. Parrish, Jr. Director March 30, 1998 /s/ Atam Lalchandani ------------------------------------------- Atam Lalchandani Director and Assistant Corporate Secretary 20 SIGNATURES (con't) March 30, 1998 /s/ Bernard T. Marren ------------------------------------------- Bernard T. Marren Director March 30, 1998 /s/ Robert K. McAfee ------------------------------------------- Robert K. McAfee Director March 30, 1998 /s/ Philip Vermeulen ------------------------------------------- Philip Vermeulen Director March 30, 1998 /s/ Melanie D. Reid ------------------------------------------- Melanie D. Reid Vice President of Finance/Chief Financial Officer/Corporate Secretary 21 EXHIBIT INDEX
Number Description - ------ ----------- 2.1(1) Proposed Agreement and Plan of Merger between the Company and Xiox Corporation, a Delaware Corporation. 3.l(2) Certificate of Incorporation as filed with the Secretary of State of the State of Delaware. 3.2(2) Bylaws. 4.1(2) Certificate of Incorporation as filed with the Secretary of State of the State of Delaware and Bylaws. 4.2(3) Common Stock Purchase Agreement dated June 30, 1997 between Company and Flanders Language Valley C.V.A. 4.3(3) Investor Rights Agreement dated June 30, 1997 between Registrant and Flanders Language Valley C.V.A. 10.02(4) Dealer Sales Agreement dated April 25, 1985 between Registrant and PacTel InfoSystems. 10.04(5) Xiox Corporation Restated 1984 Stock Option Plan. 10.05(13) Form of Notice of Grant and Stock Option Agreement to Restated 1984 Stock Option Plan. 10.06(5) Form of Stock Purchase Agreement. 10.07(5) Form of Automatic Option Agreement. 10.08(5) Form of Stock Purchase Agreement. 10.09(2) Lease Agreement between the Company and Bay Park Plaza dated March 20, 1987. 10.10(6) Amended Lease Agreement between the Company and Bay Park Plaza dated July 28, 1994. 22 10.12(12) Sublease and Lease Agreement between the Company C. E. Heath Compensation and Liability Company dated April 1, 1996. 10.13(2) Form of Director Indemnity Agreement. 10.14(7) Xiox Corporation 1994 Stock Plan. 10.15(7) Form Stock Option Agreement to 1994 Stock Plan. 10.16(11) Xiox Corporation 1994 Stock Plan, as amended. 10.25(8) Agreement for the Purchase and Sale of Stock of SFX, Inc. (formerly Summa Four Business Products, Inc.) dated March 27, 1991. 10.26(9) Agreement for Business Combination by and among Xiox Corporation and Gemini Telemanagement Systems (principal shareholders Richard Alter, Gregory Bell and Darrell Krulce) dated August 17, 1994. 10.27(10) Asset Purchase Agreement of Instor Systems Corporation dated October 12, 1994. 10.28* Lease Agreement between the Company and One Dow Court, Inc. dated November 18, 1997. 13.1* 1997 Annual Report to Stockholders. 21.1** Subsidiaries of the Company. 23.1* Consent of KPMG Peat Marwick LLP, Independent Auditors. 24.1 Power of Attorney (See Page 20). 27.1* Financial Data Schedule. * Filed herewith. ** Listed under the caption "Principles of Consolidation" in the Company's 1997 Annual Report to Stockholders, attached as Exhibit 13.1 23 (1) Incorporated by reference to Company's Report on Form 10-K for the year ended December 31, 1986. (2) Incorporated by reference to Company's Report on Form 10-K for the year ended December 31, 1987. (3) Incorporated by reference to Company's Report on Form 8-K, as filed by Company on July 22, 1997 and October 8, 1997. (4) Incorporated by reference to Company's Registration Statement on Form S-1. (5) Incorporated by reference to the Company's Registration Statement on Form S-8 (File No. 33-42433). (6) Incorporated by reference to Company's Report on Form 10-KSB for the year ended December 31, 1995. (7) Incorporated by reference to Company's Registration Statement on Form S-8 (File No. 33-88996) filed on February 1, 1995. (8) Incorporated by reference to Company's Form 8-K filed on March 27, 1991, as amended on June 7, 1991. (9) Incorporated by reference to Company's Form 8-K filed on August 29, 1994, as amended on October 28, 1994. (10) Incorporated by reference to Company's Form 8-K filed on December 15, 1994. (11) Incorporated by reference to Company's Registration Statement on Form S-8, filed on June 20, 1997 (File No. 33-39703). (12) Incorporated by reference to Company's Report on Form 10-K for the year ended December 31, 1996. (13) Incorporated by reference to Company's Registration Statement on Form S-8 (File No. 33-37686)
24 EX-10.28 2 LEASE AGREEMENT 12 December 1997 Mr. Robert Boyd, Vice President Xiox Corporation 150 Dow Street Manchester, New Hampshire 03101 Dear Bob, We have finally been able to have the space Xiox is leasing reviewed by our surveyor. She has advised me that, rather than the 19,737 square feet we used in the lease, the correct figure is 19,069 square feet, a reduction of 668 square feet. During the first two years of the Lease, that works out to a reduction of $3,173.00 per year. The amount is slightly higher each subsequent year, depending on the inflation of the Index. Assuming you agree with the square footage revision, and with the recalculated table of rents below, please sign where indicated at the end of this letter, denoting Xiox's acknowledgment of and agreement to this letter acting as an amendment to the Lease, dated 18 November 1997, between our companies. Please also initial the bottom of this page. Other than changing the square footage leased in Paragraph 1. of the Lease, replacing the amounts of the rent required to be paid under Paragraph 3. of the Lease, reducing the deposit required by Paragraph 6. of the Lease to a total of $15,096.31, of which $2,564.06 is acknowledged to be already on deposit, and adjusting the percentage of the building occupied according to Paragraphs 9. and 10. of the Lease to 5.9%, all other terms and conditions of the Lease shall remain in effect. Initial Lease Term: Annual Monthly ------ ------- 02/01/98 - 01/31/99 $90,577.75 $7,548.15 02/01/99 - 01/31/2000 90,577.75 7,548.15 02/01/2000 - 01/31/01 90,577.75 plus COL adjustment. 02/01/01 - 01/31/02 90,577.75 plus COL adjustment. 02/01/02 - 01/31/03 90,577.75 plus COL adjustment. 02/01/03 - 01/31/04 90,577.75 plus COL adjustment. 02/01/04 - 01/31/05 90,577.75 plus COL adjustment. XIOX______ ODC______ 25 Mr. Robert Boyd 12 December 1997 Page Two Optional Lease Term: Annual Monthly ------ ------- 02/01/05 - 01/31/06 76,276.00 plus COL adjustment. 02/01/06 - 01/31/07 76,276.00 plus COL adjustment. 02/01/07 - 01/31/08 76,276.00 plus COL adjustment. 02/01/08 - 01/31/09 76,276.00 plus COL adjustment. 02/01/09 - 01/31/10 76,276.00 plus COL adjustment. 02/01/10 - 01/31/11 76,276.00 plus COL adjustment. 02/01/11 - 01/31/12 76,276.00 plus COL adjustment. Sincerely yours, Ralph P. Sidore Property Manager For Xiox Corporation: Acknowledged and Agreed: - -------------------------------- Robert Boyd, Vice President Date 26 LEASE AGREEMENT LESSOR: ONE DOW COURT, INC. LESSEE: XIOX CORPORATION LOCATION: 19,737 SQUARE FEET, FIFTH FLOOR 15O DOW STREET, MANCHESTER, NEW HAMPSHIRE 03101 27 TABLE OF CONTENTS
Paragraph # and Title Page # - --------------------------- 1. DESCRIPTION OF LEASED PREMISES....................................................................................... 1 2. TERM.................................................................................................................. 1 3. RENT.................................................................................................................. 2 4. OPTION TO RENEW ...................................................................................................... 6 5. CONSTRUCTION ......................................................................................................... 6 6. SECURITY DEPOSIT ..................................................................................................... 8 7. REAL ESTATE TAXES .................................................................................................... 8 8. TAX INCREASES ........................................................................................................ 8 9. HEAT AND INSURANCE ................................................................................................... 9 10. WATER ................................................................................................................ 10 11. ELECTRICITY .......................................................................................................... 10 12. USE OF PREMISES ...................................................................................................... 10 13. CONDITION OF PREMISES ................................................................................................ 13 14. REPAIRS .............................................................................................................. 13 15. FIXTURES AND IMPROVEMENTS ............................................................................................ 14 16. MECHANICS' LIENS ..................................................................................................... 14 17. ALTERATIONS AND IMPROVEMENTS ......................................................................................... 15 18. RISK OF LOSS ......................................................................................................... 15 19. INDEMNITY ............................................................................................................ 15 20. DAMAGE OR DESTRUCTION ................................................................................................ 15 28 21. CONDEMNATION ......................................................................................................... 16 22. INSURANCE ............................................................................................................ 17 23. ADDITIONAL INSURANCE ................................................................................................. 17 24. INSURANCE RIGHTS ..................................................................................................... 17 25. SUBLETTING AND ASSIGNMENT ............................................................................................ 18 26. PARKING .............................................................................................................. 18 27. SUBORDINATION ........................................................................................................ 19 28. QUIET POSSESSION ..................................................................................................... 19 29. ENTRY, INSPECTION AND MAINTENANCE .................................................................................... 19 30. AUTHORITY TO LEASE ................................................................................................... 20 31. DEFAULT .............................................................................................................. 20 32. INTEREST ON OVERDUE RENTAL PAYMENT ................................................................................... 21 33. REMEDIES ............................................................................................................. 21 34. REDELIVERY OF PREMISES ............................................................................................... 22 35. HOLDOVER ............................................................................................................. 22 36. WAIVER ............................................................................................................... 23 37. NOTICE ............................................................................................................... 23 38. SUCCESSORS AND ASSIGNS ............................................................................................... 23 39. BROKERAGE COMMISSION ................................................................................................. 24 40. INVALIDITY OF PARTICULAR PROVISIONS .................................................................................. 24 41. APPLICABLE LAW ....................................................................................................... 24 42. MARGINAL HEADINGS .................................................................................................... 25 43. MISCELLANEOUS ........................................................................................................ 25
29 LEASE THIS LEASE is entered into this 18th day of November, 1997 by and between ONE DOW COURT, INC., a New Hampshire corporation with an address of 160 Dow Street, Manchester, New Hampshire 03101 (hereinafter called "LESSOR"), and XIOX CORPORATION, a California corporation with an address of 577 Airport Boulevard, Suite 700, Burlingame, California 94010, (hereinafter called "LESSEE"). 1. DESCRIPTION OF LEASED PREMISES. The Leased Premises shall mean approximately nineteen thousand seven hundred thirty seven (19,737) square feet of floor space, identified as Space # 521A, on the fifth (5th) floor of the building known and numbered as 150 Dow Street, Manchester, New Hampshire (the "Building"), as more fully described (and outlined in red) on the plans attached hereto as Exhibit A. The Building contains approximately 325,000 square feet of floor space. 2. TERM. a. The term of this Lease shall be for seven (7) years beginning 1 February 1998 and ending 31 January 2005. The Commencement Date of this Lease is 1 February 1998. LESSEE may occupy the Leased Premises earlier if LESSOR's work has been substantially completed and the Manchester Building Department has approved or indicated approval for such work to the extent applicable under existing code enforcement procedures, and provided that the first month's rent has been paid. b. As of the Commencement Date of this Lease, it is specifically agreed that the prior Lease agreement, between LESSEE and LESSOR, dated 21 September 1992, as amended by LESSEE's exercise of the Right of First Refusal for additional space which took effect on 16 April 1995, both of which were extended for a new five (5) year term by a letter from LESSEE to LESSOR dated 1 July 1997, is hereby terminated by mutual agreement. 30 c. In the event that LESSEE is unable to take possession of the Demised Premises, as discussed in Paragraph 5.c. below, LESSEE is entitled to remain in possession of the Leased Premises in which it is currently located as a result of the previous Lease discussed in Paragraph 2.b. above. If such an event occurs, all terms and conditions of the previous Lease shall remain in effect, with the exception of those requiring the payment of rent, until LESSEE's entitlement to those Leased Premises is terminated. LESSEE's entitlement to those Leased Premises shall terminate ten (10) days after the Manchester Building Department has approved or indicated approval for such work to the extent applicable under existing code enforcement procedures. In addition, if LESSEE is unable to take possession of the Demised Premises on or before the indicated Commencement Date of this Lease in Paragraph 2.a. above, the Commencement Date shall change to the tenth (10th) day after the Manchester Building Department has approved or indicated approval for such work to the extent applicable under existing code enforcement procedures. 3. RENT. a. Rent is payable on the first of the month, according to the schedule specified in Paragraph 3.c. below. b. Cost of Living adjustments shall be determined by multiplying the annual rental for the indicated base period by a fraction, the numerator of which shall be the difference between the Index of the "Consumer Price Index" for "Urban Wage Earners and Clerical Workers, Boston, Mass." for November, 1998, and the Index for the month of November immediately preceding the lease year for which the adjustment is applicable; and the denominator of which shall be the Index for November, 1998. The result of this calculation shall be added to the rental amount specified for the prior year in Paragraph 3.c. below in order to determine the correct rent for the indicated year. (As an example of the above, if the index for November, 1998 is 150.0, and the Index for November, 1999 is 156.0, then the difference between them is 6.0, which is the numerator of the fraction discussed above. The denominator of the fraction is, throughout the Lease contract, the November, 1998 Index, which, in this example, is set at 150.0. In this example only, the fraction divides out to create a 4% (.04) increase in the rent for the Lease year beginning 1 February 2000. The 4% (.04) increase would be multiplied by $93,750.75 to create an increase of $3,750.03 for Lease Year #3. This would create annual rent of $97,500.78 and monthly rent of $8,125.07 during the Lease year beginning 1 February 2000.) c. LESSEE shall pay, without set-off or deductions, as minimum rent for the premises, at such place as LESSOR may direct, the following annual and monthly charges: 31 12-Month Monthly Lease Year/Dates Annual Rate Rent ---------------- ----------- ---- #1 02/01/98-01/31/99 $93,750.75 $7,812.56 #2 02/01/99-01/31/2000 $93,750.75 $7,812.56 #3 02/01/2000-01/31/01 At an Annual Rate of $93,750.75 plus a cost-of-living adjustment obtained by multiplying $93,750.75 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for Lease Year #3 be less than the annual rate for Lease Year #2. #4 02/01/01-01/31/02 At an Annual Rate of $93,750.75 plus a cost-of-living adjustment obtained by multiplying $93,750.75 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for Lease Year #4 be less than the annual rate for Lease Year #3. #5 02/01/02-01/31/03 At an Annual Rate of $93,750.75 plus a cost-of-living adjustment obtained by multiplying $93,750.75 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for Lease Year #5 be less than the annual rate for Lease Year #4. #6 02/01/03-01/31/04 At an Annual Rate of $93,750.75 plus a cost-of-living adjustment obtained by multiplying $93,750.75 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for Lease Year #6 be less than the annual rate for Lease Year #5. #7 02/01/2004-01/31/05 At an Annual Rate of $93,750.75 plus a cost-of-living adjustment obtained by multiplying $93,750.75 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for Lease Year #7 be less than the annual rate for Lease Year #6. OPTIONAL LEASE TERM: #8 02/01/05-01/31/06 At an Annual Rate of $78,948.00 plus a cost-of-living adjustment obtained by multiplying $78,948.00 by the Cost of Living Adjustment set forth above. 32 #9 02/01/06-01/31/07 At an Annual Rate of $78,948.00 plus a cost-of-living adjustment obtained by multiplying $78,948.00 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for Lease Year #9 be less than the annual rate for Lease Year #8. #10 02/01/07-01/31/08 At an Annual Rate of $78,948.00 plus a cost-of-living adjustment obtained by multiplying $78,948.00 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for LeaseYear #10 be less than the annual rate for Lease Year #9. #11 02/01/08-01/31/09 At an Annual Rate of $78,948.00 plus a cost-of-living adjustment obtained by multiplying $78,948.00 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for Lease Year #11 be less than the annual rate for Lease Year #10. #12 02/01/09-01/31/10 At an Annual Rate of $78,948.00 plus a cost-of-living adjustment obtained by multiplying $78,948.00 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for Lease Year #12 be less than the annual rate for Lease Year #11. #13 02/01/10-01/31/11 At an Annual Rate of $78,948.00 plus a cost-of-living adjustment obtained by multiplying $78,948.00 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for Lease Year #14 be less than the annual rate for Lease Year #12. #14 02/01/11-01/31/12 At an Annual Rate of $78,948.00 plus a cost-of-living adjustment obtained by multiplying $78,948.00 by the Cost of Living Adjustment set forth above. In no event shall the Annual Rate for Lease Year #14 be less than the annual rate for Lease Year #13. 4. OPTION TO RENEW. a. LESSEE shall have the option to renew this Lease for one (1) additional term of seven (7) years, commencing with 1 February 2005 and ending on 31 January 2012, upon the same terms and conditions (excluding this option to renew) except as provided herein. The annual rent for each option year shall be as specified in Paragraph 3.c. above. b. LESSEE shall exercise the renewal option by giving written notice to 33 LESSOR of its intention to do so on or before 1 August 2004. Should LESSEE not give notice by this date of its intention to exercise the renewal option, LESSOR may advertise the premises for rent and, during normal business hours, may show the leasehold to prospective new tenants. CONSTRUCTION: 5. LESSOR shall make the premises ready for LESSEE's occupancy as follows: a. At LESSOR's expense, the following work will be performed in the Leased Premises: The Leased Premises shall be fitted out in accordance with the layout shown on the plan attached as Exhibit B. b. All work performed by LESSOR under this agreement shall be performed, in good and workmanlike fashion, using materials that meet LESSOR's specifications and the requirements of the applicable Building and Life Safety Codes, and are comparable to those presently used throughout the premises. c. The premises shall be conclusively deemed to be ready for LESSEE's fit-up and/or occupancy when LESSOR's work has been substantially completed and the Manchester Building Department has approved or indicated approval for such work to the extent applicable under existing code enforcement procedures. LESSOR shall notify LESSEE in writing when LESSOR's work has been completed. If, for any month beginning with February, 1998, LESSOR is unable to substantially complete its work and to obtain Building Department approval on or before the 5th day of the month, LESSEE shall not be obligated for any of the rent specified for that month in Paragraph 3 above. d. LESSEE shall be conclusively deemed to have agreed that LESSOR has performed all of LESSOR's work, and any other work required to be performed at the premises, unless, not later than forty-five (45) days after the commencement date of the Lease LESSEE shall give LESSOR written notice specifying in all respects what obligations have not been performed by LESSOR. To the extent such notice contains items which were to have been completed under the scheduled LESSOR's work, LESSOR will promptly complete such work. e. LESSOR will be expending very substantial sums to construct LESSEE s Demised Premises and fit-up according to Exhibit B. The majority of the expenditure will provide for the cost of LESSOR's preparation of the Demised Premises for LESSEE's occupancy, plus the cost of the air conditioning system plus underlayment and carpeting or tile for the entire floor area. The balance, $107,300, is estimated to be the cost of LESSEE's tenant-specific requirements as also laid out on Exhibit B. LESSOR agrees to spend a total of $125,000, including the $107,300 indicated above, on LESSEE's 34 requirements, plus additional construction or installation as specified by LESSEE. Should LESSEE make adjustments to the requirements of Exhibit B, LESSOR will make equitable adjustments to the cost of LESSEE's fit-up. Any resulting reductions in the cost of LESSEE's fit-up will be balanced with equal increases in the value of additional construction or installation as specified by LESSEE. Any resulting increases in the cost of LESSEE s fit-up will be balanced with equal decreases in the value of additional construction or installation as specified by LESSEE. f. LESSEE agrees to repay LESSOR for the $125,000 cost of LESSEE's fit-up, plus the additional construction and/or installation, as outlined in e. above, by: i. A payment of $50,000 at the time of the execution of this Lease. ii. Fit-up repayment as additional rent in the amount of $3,460.87 per month, beginning with the month of March, 1998, and concluding with the payment for the month of February, 2000. This payment shall be due and payable at the same time and under the same conditions as is provided for rent in Paragraph 3. above and Paragraph 33. below. 6. SECURITY DEPOSIT. LESSEE shall deposit with LESSOR, no later than 1 January 1998, a security deposit of $15,625.13, $2,564.06 of which is acknowledged by LESSOR to be already on deposit with LESSOR as a condition of the execution of the previous Lease, discussed in Paragraph 2.b. above, to be held as additional security for the timely completion of LESSEE's obligations hereunder. LESSOR shall apply $7,812.56 of this deposit towards the rent invoice for the month of February, 1998, subject to the provisions of Paragraph 5.c. above. The remaining deposit sum may be mingled with LESSOR's funds, and LESSOR shall not be required to pay interest thereon, except to the extent required by law. LESSOR may use these funds in the event that LESSEE defaults on any payments, to pay for unpaid rent or additional rent, or to pay for necessary repairs of the Leased Premises which are LESSEE's responsibility. 7. REAL ESTATE TAXES. Subject to the provisions of Paragraph 9. below, LESSOR shall pay all real estate taxes assessed against the Leased Premises. 8. TAX INCREASES. a. For purposes of determining LESSEE's proportionate share of tax increases, the tax year starting 1 April 1998 and ending on 31 March 1999 shall be known as the "Real Estate Tax Base Year." b. LESSEE shall pay to LESSOR on or before 1 December 1999 as additional rent such an amount as will equal the increase, if any, over those real estate taxes attributable to the Leased Premises for the "Real Estate Tax Base Year." The share of the increase of taxes attributable to the Leased Premises which 35 LESSEE is required to pay shall be 6.1% of the increase of such taxes which LESSOR is required to pay for the entire premises of which the Leased Premises are part, including the building. c. In the event that any remodeling or other changes are made in the Leased Premises or elsewhere in the building which affect the amount of taxes, the amounts payable by LESSEE pursuant to the preceding paragraphs will be equitably adjusted upward, if the changes are made in the Leased Premises, or downward if the changes are made elsewhere in the building, to reflect such remodeling or changes. d. LESSOR, upon receipt of each year's tax bill, shall also apportion such tax increase on a 12-month basis, and LESSEE shall pay this amount to LESSOR on a monthly basis beginning 1 January 2000. e. When the actual tax bill is received for a tax year, LESSOR shall adjust the amount due on the next monthly payment under this provision, so that total payments during the 12-month period reflect LESSEE's actual share of the actual tax increase. In the event that the taxes decline from one year to the next, and LESSEE has overpaid its share of the actual tax increase, if the overpayment is less than one month's apportioned share of the newly calculated tax increase, LESSOR shall apply the amount involved to the first month's payment against the following year's tax increase. If the overpayment is more than one month's apportioned share, the excess shall be allowed as a credit against the next month's rent that shall become due. 9. HEAT AND INSURANCE. a. LESSOR shall supply and pay for heat for the Leased Premises during the regular and usual heating season and provide usual fire and liability insurance. LESSEE shall pay as additional rent 6.1% of any increase in cost of heating (due to increase in the cost of fuel) and insuring the building of which the Leased Premises are a part, over and above the cost incurred by LESSOR to heat the Building for the period beginning 1 October 1997 and 30 September 1998 and to insure the building for the period beginning 1 February 1998 and ending 31 January 1999. Such payments of additional rent for heat and insurance shall be due and payable within thirty (30) days of LESSOR's written notification thereof. b. For each year thereafter, LESSOR shall be entitled to bill LESSEE each month thereafter for one-twelfth of the increased costs (an estimated amount based on the prior year s actual cost,) as estimated increased rent. LESSEE will pay this amount promptly. This amount will be recalculated each year after the heat and insurance billings to LESSOR for the year have been received by LESSOR and apportioned to LESSEE. When the billings are received, LESSEE's share of the actual bill will be compared to the total of the 36 estimated increased rent paid during the preceding year and LESSOR shall either bill LESSEE for the additional amount required or shall credit LESSEE's account for the excess paid. If any excess paid is greater than amount due as estimated increased rent for the period beginning at that time, then LESSOR shall promptly pay the difference to LESSEE. 10. WATER. LESSOR shall pay all water charges against the Leased Premises so long as LESSEE does not make any unusual or unreasonable or excessive use of water on the Leased Premises. LESSEE shall not use water for industrial or process purposes unless such use is approved by LESSOR. 11. ELECTRICITY. LESSEE shall pay all charges for electricity used in the Leased Premises. No later than the day LESSEE moves in and actually begins to occupy the entire Leased Premises, or the Commencement Date indicated in Paragraph 2.a. above, whichever occurs first, LESSEE shall have the electrical meter put on LESSEE's account. 12. USE OF PREMISES. LESSEE shall use the Leased Premises only for the following purposes: a. Development, assembly, warehousing, distribution and marketing of telecommunications management systems and related products. b. No auction, fire, bankruptcy or going-out-of business or similar sales may be conducted within the Leased Premises without the written consent of LESSOR. c. LESSEE shall conduct its business solely within the Leased Premises and shall not use the sidewalks, parking areas, or other outside areas adjacent to the Leased Premises for business purposes. d. LESSEE shall not, without the prior written consent of LESSOR: i. paint or place any signs on the premises or anywhere in or on the building or grounds, or ii. place any curtains, blinds, shades, awnings or aerials or flagpoles or the like in the premises or anywhere in or on the building visible from outside the premises. Landlord reserves the right to disapprove of signs, curtains, blinds, shades or awnings on wholly aesthetic grounds or to require LESSEE to install blinds or shades of a uniform building standard as determined by LESSOR at LESSEE's expense. LESSEE shall pay the expenses involved in the erection of any sign or obtaining of any permit required therefor. iii. LESSEE warrants that it shall obtain all necessary permits prior to erecting any such sign and LESSEE shall remove said sign and repair any damages or discoloration at its sole cost on the termination of this Lease. 37 e. LESSEE will not use or store flammable materials on the Leased Premises. f. LESSEE shall be responsible for cleaning its premises and for maintaining them in a clean and orderly fashion. LESSOR shall be responsible for the cleaning of the common areas, including, but not limited to, hallways, stairs, lobbies, landings, elevators, entry ways, building exterior, access ways and parking areas. g. All garbage and refuse generated by LESSEE shall be kept in covered containers within the Leased Premises or in an area designated by LESSOR, and shall be prepared for collection in a neat and reasonable manner. LESSEE shall pay the cost of removal of any of LESSEE's refuse or rubbish, which shall be in a manner approved by LESSOR and at reasonable intervals. h. The plumbing facilities shall not be used for any other purpose than that for which they are constructed. No foreign substances of any kind shall be thrown therein, and the expense of any breakage, stoppage, or damage resulting from violation of this provision by LESSEE or any of its agents, invitees or employees shall be borne by LESSEE. i. LESSEE shall not deface, overload, injure or otherwise damage the premises or emit odor(s), make excessive noise or vibration, or cool or store food on the premises, excepting the routine storage of employee lunches for consumption the same day. j. LESSEE shall not release onto the Leased Premises or into the plumbing facilities any hazardous materials, the release of which is prohibited by any local, state or federal law, ordinance or regulation. Any storage, handling, processing, use, release or discharge of hazardous or controlled materials is totally the responsibility of LESSEE, who hereby indemnifies and holds harmless LESSOR against any claims arising out of such storage, handling, processing, use, release or discharge by LESSEE. k. LESSEE will not carry on any trade or occupation or make any use of the premises which is improper, offensive, or is contrary to any law, ordinance, order or regulation of any public authority or insurance inspection or rating bureau or similar organization having jurisdiction, or which might invalidate any insurance policy of LESSEE's or LESSOR's or any other tenant. LESSEE will promptly comply with any such law, ordinance, regulation or requirement, provided that if LESSEE wishes to contest any such compliance, LESSEE shall post such security with LESSOR as LESSOR shall deem adequate pending such contest. l. Except as provided in Paragraphs 15. and 17. below, LESSEE will not drill or 38 make holes in the stone or brickwork, except for minor work required as part of its business, and the Leased Premises will not be overloaded, damaged or defaced without the written consent of LESSOR, such consent not to be unreasonably withheld. LESSEE shall be fully responsible to LESSOR for any holes it makes in the stone or brickwork. m. LESSEE will observe and comply with, and will cause its employees and agents to observe and comply with the restrictions herein. LESSEE is responsible for monitoring and controlling the conduct of its employees anywhere on LESSOR's premises. n. LESSEE will not stack merchandise higher than eighteen inches (18") below sprinklers. o. LESSEE will not, in any way, use any space within the building that may be vacant, except for the direct passage of personnel between the Leased Premises and elevators or stairways leading out of the building and direct passage of merchandise, supplies and equipment between the freight elevators and the Leased Premises. This paragraph shall not be construed to prevent the short-term (less than two hours) holding of merchandise, supplies and equipment in the common dock area while it is being on- or off-loaded from common carriers or LESSEE's owned or leased vehicles. 13. CONDITION OF PREMISES. LESSEE is fully familiar with the physical condition of the Leased Premises and the Building. LESSOR has made no representation in connection with the condition of the Leased Premises or the Building. LESSEE takes the Leased Premises and the Building in "as is" condition. 14. REPAIRS. a. LESSOR shall at its own expense keep the interior common areas and the exterior of the Leased Premises, including the roof, in tenantable repair, order and condition, and shall be responsible for all structural repairs. LESSEE shall, at its own expense, keep the interior of the Leased Premises in tenantable repair, order and condition, with the exception of damage or loss as a result of fire or other casualty. b. If the elevators or other building components that are of significant benefit to LESSEE break down, LESSOR must repair them as soon as is reasonably possible. In the event of major breakdowns or failures, the repairs must be started, or the planning of the repairs actively started, within five (5) business days after the breakdown or failure occurs, and must be aggressively pursued, during normal business hours, until completed and service or functionality to LESSEE is restored. c. If such breakdown or failure is lengthy, LESSEE agrees and LESSOR will 39 work to coordinate the cooperation between LESSEE and other building tenants to allow for periodic passage through LESSEE's leasehold or other tenants leaseholds, as may be appropriate, to allow LESSEE and the other tenants to conduct their businesses. In no case will the failure or inability to repair or restore building components be considered a breach of this Lease unless it shall continue for thirty (30) or more consecutive days in the event of major repair requirements or sixty (60) or more consecutive days in the event that building components, such as an elevator, must be substantially replaced. 15. FIXTURES AND IMPROVEMENTS. Any improvements or fixtures installed by LESSEE which are affixed to the real estate by nails, screws, or some other detachable means may be removed upon the termination of this Lease, provided all damage or defacement of the premises caused by such removal is repaired by LESSEE to the satisfaction of LESSOR. Any improvements or fixtures not so removable, or which are not removed prior to the termination of this Lease, shall become the property of LESSOR. 16. MECHANICS' LIENS. LESSEE agrees immediately to discharge (either by payment or by filing of the necessary bond in the full amount of the lien, or otherwise) any mechanics', materialmen's or other liens against the Leased Premises and/or LESSOR'S interest therein, which liens may arise out of any payment due for, or purported to be due for, any labor, services, materials, supplies or equipment alleged to have been furnished to or for LESSEE in, upon or about the Leased Premises. LESSEE agrees to give LESSOR prompt notice of the filing of any such liens. 17. ALTERATIONS AND IMPROVEMENTS. LESSEE shall not, without the written consent of LESSOR, make any alterations, or additions to or upon the Leased Premises, except minor alterations which do not materially alter the design or layout of the Leased Premises, or reduce the available usable space, or weaken the structure of the premises or the building in which the premises are located. Any alterations or additions shall be constructed in accordance with all applicable laws and regulations, with the proper permit and in a workmanlike manner. 18. RISK OF LOSS. All property of every kind on the Leased Premises shall be at the sole risk of LESSEE and LESSOR shall not be liable to LESSEE or any other person for any injury, loss, damage, or inconvenience occasioned by any cause whatsoever to said property except the willful or negligent acts or omissions of LESSOR. 19. INDEMNITY. LESSEE agrees to indemnify LESSOR against all injury, loss, damage, liability, or expense arising out of any occurrence upon or about the Leased Premises, except for damage, injury, loss or liability resulting from the sole negligence of LESSOR, its agents or employees. 20. DAMAGE OR DESTRUCTION. a. If, during the term of the Lease, the Leased Premises, or any part thereof, shall 40 be damaged or destroyed by fire, flood, war, or other casualty to an extent that repair or restoration is reasonably estimated to exceed One Hundred Thousand Dollars ($100,000.00) or if the repairs cannot be completed within forty-five (45) days, then either party shall have the right to terminate this Lease by giving written notice of its intention to terminate to the other within forty-five (45) days after such damage or destruction. If neither party so terminates, or if the cost to repair such damage shall be less than One Hundred Thousand Dollars ($100,000.00), then if the damage or destruction results from a hazard covered by the standard fire and extended coverage insurance policy (or such broader coverage as LESSOR actually carries), the premises shall be repaired or restored as soon as reasonably possible by LESSOR. b. If the Leased Premises are rendered wholly or partially untenantable by such damage, regardless of the cost to repair, the rent hereunder shall abate until repair or restoration is completed or the Lease is terminated. c. LESSEE agrees that it shall keep its improvements, fixtures, merchandise and equipment insured against loss or damage by fire with the usual extended coverage endorsements. It is understood and agreed that LESSEE assumes all risk of damage to its own property arising from any cause whatsoever, including, without limitation, loss by theft or otherwise. LESSEE agrees that it will furnish LESSOR with a certification of the amount of insurance carried by LESSEE and an itemization of all improvements made by LESSEE to the realty with the costs thereof. 21. CONDEMNATION. a. In the event that the land and/or Building of which the Leased Premises are a part are wholly or partially taken for any public or quasi-public use by any legally constituted authority, then LESSOR shall have the right to terminate this Lease upon giving written notice of its intention to do so to LESSEE within ninety (90) days of the day of taking. Should LESSOR terminate the Lease under this section, all the rent, including additional rent and charges, as required to be paid by this Lease, shall be paid up to that date with a proportionate refund by LESSOR of any rent paid in advance. 41 b. In the event any portion of the land and/or Building of which the Leased Premises are a part are taken by any such authority for any such use, all compensation awarded or paid upon such a taking shall belong to and be the property of LESSOR, and no legal or equitable rights in or to any part of the award shall belong to or be paid to LESSEE. LESSOR agrees to assist LESSEE in efforts to obtain damages for LESSEE. 22. INSURANCE. LESSEE shall maintain and pay for liability insurance, for the benefit of LESSEE and LESSOR, with LESSOR named either as a co-insured or as an additional insured party on LESSEE'S insurance policy, covering the Leased Premises, and any fixtures or appurtenances therein, in insurance companies qualified to do business in New Hampshire, with coverage in amounts not less than One Million Dollars ($1,000,000.00), with respect to injury or damage to one person; Two Million Dollars ($2,000,000.00), with respect to injury or damage by reason of one occurrence; and Two Hundred Thousand Dollars ($200,000.00), with respect to damage to property. LESSEE agrees to provide LESSOR with copies of all insurance policies. 23. ADDITIONAL INSURANCE. LESSEE will not do anything on the said premises to make void or voidable any insurance upon the said premises or building or render necessary any increased or extra premium for the said insurance. In the event of improper maintenance or any other conduct or other activities on the part of LESSEE, the insurance premiums are increased, LESSEE will pay the additional cost thereof, and in the event the conduct of LESSEE'S business results in an increase in insurance premiums to be paid by LESSOR, LESSEE shall pay to LESSOR the amount of such increase. 24. INSURANCE RIGHTS. Each of LESSOR and LESSEE hereby releases the other (and each person and legal entity claiming through each of them) from any and all liability or responsibility to the other (and each person and legal entity claiming through the other) by way of subrogation or otherwise for any loss or damage to property caused by fire or any of the extended coverage causalities, by sprinkler leakage or otherwise, even if such fire or other casualty or such leakage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible. Each of LESSOR and LESSEE agrees that any insurance policies maintained by them will include such a clause or endorsement so long as the same shall be obtainable without extra cost, or if extra cost shall be charged therefor, so long as the other party pays such extra cost. If extra costs shall be chargeable therefor, each party shall advise the other party thereof and of the amount of the extra cost, and the other party, at its election may pay the same but shall not be obligated to do so. 42 25. SUBLETTING AND ASSIGNMENT. LESSEE shall not assign this Lease or sublet the whole or any portion of the Leased Premises without the consent of LESSOR, in writing, first obtained, which consent can be withheld by LESSOR in its sole discretion. a. Without any limitation of the foregoing, LESSOR reserves the right to withhold its consent if the business of the proposed LESSEE is not, in LESSOR'S sole discretion, compatible with the other tenants or is in conflict with other Lease provisions. b. Further, if, for any proposed assignment or sublease, LESSEE receives rent or other consideration either initially or over the term of the assignment or sublease, in excess of the rent called for hereunder, or in case of the sublease of a portion of the premises, in excess of such rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for hereunder are taken into account, LESSEE shall pay to LESSOR as additional rent hereunder the excess of each such payment of rent or other consideration received by LESSEE promptly after its receipt. c. LESSEE agrees to remain primarily and directly liable on all LESSEE obligations hereunder, notwithstanding any assignment or sublease, or any indulgences, waivers, or extensions of time granted by LESSOR to any assignee, or failure to take action against any assignee, hereby waiving notice of any default by any assignee, and agrees that LESSOR may, at its option, proceed against LESSEE without having taken action against or joined any action against any assignee, except that LESSEE shall have the benefit of indulgences, waivers and extension of time granted to any assignee. d. This Lease may be assigned at any time by LESSOR. 26. PARKING. a. Permanent parking for employees of LESSEE shall be limited to ten (10) assigned parking spaces, located immediately adjacent to the 150 Dow Street building, and thirty (30) assigned parking spaces located in the parking lot east of LESSOR's building at 79-89 Dow Street. b. LESSEE shall be entitled to additional parking, as required, in the lot located between Gold's Gym and Sanel Auto Parts on Dow Street. c. LESSEE'S parking rights are subject to LESSOR'S reasonable rules and regulations. 43 27. SUBORDINATION. This Lease is made subject to the lien of any mortgage now affecting the Leased Premises. LESSEE agrees that it will from time to time, at the request of LESSOR, subordinate this Lease to any mortgage, deed of trust, assignment by LESSOR, or any other security indenture which may hereafter be placed upon the Leased Premises and to any renewal, modification, replacement or extension of such mortgage, deed of trust, assignment or security indenture, and to any and all advances made or to be made thereunder, provided that, however, any such holder of any such mortgage, deed of trust, or any security indenture shall agree to recognize LESSEE'S rights under this Lease, if Lease is not in default under its obligations. 28. QUIET POSSESSION. LESSOR covenants and warrants that LESSOR has full right and lawful authority to enter into this Lease for the full term hereof, and for all extensions herein provided, and that LESSOR is lawfully seized of the entire premises hereby leased and has good title thereto free and clear of all tenancies, liens and encumbrances. LESSOR further covenants and warrants that if LESSEE shall discharge the obligations herein set forth to be performed by LESSEE, then LESSEE shall have and enjoy, during the term and any renewal or extension hereof, the quiet and undisturbed possession of the Demised Premises for the uses herein described, together with all appurtenances thereto. 29. ENTRY, INSPECTION AND MAINTENANCE. LESSEE shall allow LESSOR or its agents during the term, at reasonable times, to enter and view the Leased Premises, and to make repairs and alterations if it should elect to do so; and LESSOR shall have the right to transmit through the Leased Premises to and from other parts of the Building, or to and from any adjoining building, any agency for light, heat, power, or water used in buildings of similar class, and for that purpose to carry through the premises wires, pipes, and other means for so doing, without damaging or substantially altering LESSEE'S normal use of the Leased Premises. LESSEE also agrees to allow LESSOR or its agents to show the Leased Premises and Building to others, such as potential new tenants, insurance company inspectors or investigators, building and/or life-safety code review inspectors, investigators or enforcement personnel, government agency personnel or those with other not-unreasonable purposes, at reasonable times, provided, however, that showing the Leased Premises to potential new tenants shall occur only with twenty four (24) hours advance notice to LESSEE. 30. AUTHORITY TO LEASE. LESSOR covenants and warrants that LESSOR has full right and lawful authority to enter into this Lease for the full term hereof, and for all extensions herein provided, and that LESSOR is lawfully seized of the entire premises hereby leased and has good title thereto free and clear of all tenancies, liens and encumbrances. 44 31. DEFAULT. Each of the following shall be an Event of Default: a. If LESSEE shall fail to make payment of rent or other payments required of LESSEE, when such payments are due, and if LESSEE shall fail to cure such failure within ten (10) business days after written notice of default; or b. If LESSEE shall fail to perform or observe any of the agreements, covenants or conditions contained herein and if LESSEE shall fail to cure such failure within thirty (30) days after receipt of notice from LESSOR of such failure; or c. If the leasehold interest of LESSEE shall be taken on execution or by other process of law which would permit a third party to have possession of the Leased Premises; or d. If LESSEE shall be judicially declared bankrupt or insolvent according to law; or e. If any assignment shall be made of the property of LESSEE for the benefit of creditors; or f. If a receiver, guardian, conservator, trustee in involuntary bankruptcy or other similar officer shall be appointed to take charge of all or any substantial part of LESSEE'S property by a court of competent jurisdiction; or g. If a petition shall be filed for the reorganization of LESSEE under any provisions of the Bankruptcy Act now or hereafter enacted and such proceeding is not dismissed within sixty (60) days after it is begun; or h. If LESSEE shall file a petition for such reorganization, or for arrangements under any provisions of the Bankruptcy Act now or hereafter enacted providing a plan for a debtor to settle, satisfy or extend the time for the payments of debts, then, and in any of the said cases (notwithstanding any consent in a former instance), LESSOR lawfully may, immediately, or at any time thereafter, and without demand or notice, enter into and upon the Leased premises or any part thereof and repossess the same as of its former estate and expel LESSEE and those claiming through or under it and remove its effects (forcibly, if necessary) without being deemed guilty of any manner of trespass and without prejudice to any remedy which might otherwise be used for arrears of rent or preceding breach of covenant. 32. INTEREST ON OVERDUE RENTAL PAYMENT. LESSEE agrees to pay LESSOR, in addition to any other amounts called for herein, interest at the rate of one and one-half percent (1-1/2%) per month on any rental or other payment from the date due hereunder until the date actually received by LESSOR; provided, however, that no interest will be charged on any payments which are not more than ten (10) days late. 45 33. REMEDIES. Upon the occurrence of an Event of Default hereunder, LESSOR may at its option, without notice, either in its own name or as agent of LESSEE, re-let the Leased Premises, or any part thereof, on such terms and for such rent as it may deem expedient or proper, and such re-letting shall not operate as a waiver of any right whatever, which LESSOR would otherwise have to hold LESSEE responsible for the rent previously stated; and in case said premises, or any part thereof shall be re-let as aforesaid, LESSOR shall collect the rent therefor from the person or person to whom the same shall be re-let, and after paying the expenses of such re-letting, and collection, apply what remains from the amount received by it against the amount due or to become due from LESSEE under this Lease; and LESSEE shall pay and discharge all costs, including reasonable attorney's fees and expenses, that shall arise from enforcing covenants, and agreements of this Lease; nevertheless, LESSOR retains the option of recovering as damages a sum, which at the time of termination would represent the difference between the rental value of the Leased Premises and the rent and other payments herein required for the residue of the term, and LESSEE agrees to indemnify LESSOR against any loss of rent and other payments which LESSOR may suffer or incur by reason of such termination during the residue of the said term. No partial payment of rent or any other payments required under this Lease shall be deemed to be in full satisfaction of the amount due unless agreed to in writing by LESSOR. 34. REDELIVERY OF PREMISES. LESSEE shall quietly and peaceably surrender to LESSOR, at the expiration or sooner termination of this Lease, the Leased Premises, and all erections and additions made upon or to the same, and shall leave the Leased Premises in good repair, order and condition in all respects, reasonable use and wear and damage of fire and other casualty not caused by the neglect, default or misuse by LESSEE, only, excepted. Such delivery shall include all keys to the Leased Premises and failure to deliver such keys shall make LESSEE responsible for the expense of lock changes. 35. HOLDOVER. If LESSEE holds over or remains in the possession or occupancy of the Leased Premises after the expiration of the term of this Lease, or after any sooner termination thereof, without any written Lease of the said premises having been made and entered into between LESSOR and LESSEE, such holding over or continued possession or occupancy shall, if the rent is paid by LESSEE and accepted by LESSOR for or during any period of time it so holds over or remains in possession or occupancy, create only a tenancy from month to month at the last monthly rental and upon the terms herein specified which may at any time be terminated by either LESSOR or LESSEE giving to the other party thirty (30) days' notice of such intention to terminate the same. 36. WAIVER. LESSEE covenants with LESSOR that the failure of LESSOR to insist in any one or more instances upon the strict and literal performance of any of the covenants, terms or conditions of this Lease, or to exercise any right of LESSOR herein contained, shall not be construed as a waiver or a relinquishment for the future, of such covenant, term, condition or right, but the same shall continue and remain in 46 full force and effect. The receipt by LESSOR of rent, with knowledge of the breach of any covenant, term or condition hereof, shall not be deemed to be a waiver of such breach, and no waiver by LESSOR of any covenant, term, condition of provision of this Lease, or of the breach there, shall be deemed to have been made by LESSOR, unless expressly acknowledged in writing by LESSOR over its signature. 37. NOTICE. All notices hereunder by LESSOR to LESSEE shall be given in hand or by registered or certified mail, addressed to LESSEE at the Leased Premises or to such other address as LESSEE may from time to time give to LESSOR for this purpose, and all notices by LESSEE to LESSOR shall be given in hand or by registered or certified mail, addressed to 160 Dow Street, Post Office Box 353, Manchester, New Hampshire 03105-0353, or to such other address as LESSOR may from time to time give in writing to LESSEE for this purpose. 38. SUCCESSORS AND ASSIGNS. The respective successors and assigns of LESSOR and LESSEE, subject to the foregoing provisions as to transfers, insolvency or by operation of law or legal process, shall bear the burdens and enjoy the benefits of all of the covenants, terms, conditions, privileges and agreements wherever applicable, contained in or acquired by the provision of this Lease, as if such successors and assigns had been specifically mentioned in each and every case where LESSOR or LESSEE is mentioned, and shall be deemed to be included in each and every one of such covenants , conditions, privileges and agreements, with the exceptions aforesaid. Each LESSOR hereunder shall be liable for the obligations of LESSOR hereunder only during such time as LESSOR shall be LESSOR and with respect to items occurring during such period of ownership. 39. BROKERAGE COMMISSION. LESSEE and LESSOR both represent that they have dealt with no brokers in connection with the consummation of this Lease. 40. INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. 41. APPLICABLE LAW. This Lease shall be governed by the laws of the State of New Hampshire. a. In the event of default on the part of LESSEE under the terms of this Lease, LESSOR shall be entitled to choose the forum LESSOR deems appropriate for purposes of enforcing its rights under this agreement and collecting any sums due LESSOR hereunder. Specifically, LESSOR shall be able to, at LESSOR's option, pursue collection and enforcement in the appropriate District or Superior Court, or LESSOR shall be entitled to pursue binding arbitration at LESSOR's sole determination. 47 b. If LESSOR decides to submit any dispute between the parties pertaining to this Lease to binding arbitration, LESSOR shall still be entitled to prejudgment attachment remedies in District or Superior Court for purposes of securing any future judgment obtained through the arbitration process. Such arbitration proceedings shall take place in Manchester, New Hampshire. LESSOR shall, in the first instance, have the right to select an arbitrator from the American Arbitration Association, with said arbitration to be governed under the rules of the American Arbitration Association. Arbitration proceedings, including the selection of an arbitrator, shall be conducted pursuant to the rules, regulations and procedures in effect as promulgated by the American Arbitration Association. c. LESSOR shall be entitled to all reasonable fees and costs incurred by LESSOR, related to the enforcement and/or collection under the terms of this Lease, regardless of whether or not suit is commenced or arbitration is instituted, including, but not limited to, reasonable attorney's fees. d. In the event that LESSEE initiates an action against LESSOR, whether by suit or by arbitration, LESSEE shall be required to bring such action in the appropriate forum in New Hampshire. 42. MARGINAL HEADINGS. The marginal notes used as headings for the various articles of this Lease, and any Table of Contents or Index which may be attached to this Lease, are used only as a matter of convenience for reference, and are not to be construed as part of this Lease or to be used in determining the intent of the parties to this Lease. 43. MISCELLANEOUS. This Lease is to be construed as a New Hampshire Lease; is to take effect as a sealed instrument; sets forth the entire agreement between the parties; is binding upon and inures to the benefit of the parties hereto and their respective heirs, devisees, executors, administrators, successors and assigns, and may be cancelled, modified, or amended only by written instrument signed by both LESSOR and LESSEE. 48 IN WITNESS WHEREOF, LESSOR has signed and sealed this instrument, and LESSEE has caused this instrument to be signed and sealed on the day and year first above written. In the Presence Of: ONE DOW COURT, INC. _______________________ By: ________________________________ Title: _____________________________ XIOX CORPORATION _______________________ By: ________________________________ Title: _____________________________ 49 EX-13.1 3 1997 ANNUAL REPORT Exhibit 13.1 of 10-KSB for December 31, 1997 XIOX CORPORATION 1997 ANNUAL REPORT 1 Management's Discussion and Analysis of Financial Condition and Results of Operations This Annual Report to Shareholders contains forward-looking information which is based upon current expectations of the Company. Actual results could differ materially for the reasons noted and due to other risks, including but not limited to those discussed under "Certain Risk Factors Which May Impact Future Operating Results and Market Price of Stock" commencing on page 4. The following discussion and analysis should be read in conjunction with the Company's audited financial statements and the notes thereto included herein. Results of Revenues for the fiscal year ended December 31, 1997 Operations decreased by 7% or $399,783 to $5,060,890 in contrast to revenues for the fiscal year ended December 31, 1996 of $5,460,673. The decrease is attributable to lower than expected demand for call accounting and voice mail products. Product costs and operating expenses increased 2% or $113,625 to $5,473,375 in 1997 from $5,359,750 in 1996. Product costs and operating expense comparisons, as a percentage of revenues are summarized as follows: 1997 1996 1995 Revenues 100% 100% 100% Product Costs 41% 45% 52% Research and development 20% 13% 17% Marketing and SG&A 47% 40% 51% (Loss)Income from operations (8%) 2% (20%) Product costs decreased by 14% or $345,968 to $2,083,372 in 1997 versus product costs for 1996 of $2,429,340. As a percentage of revenues, product costs decreased in 1997 to 41% from 45% primarily as a result of a shift in sales to products with lower costs in 1997 as compared to 1996. In 1996, product costs decreased by 30% or $1,061,121 to $2,429,340 in 1996 versus product costs for 1995 of $3,490,461. As a percentage of revenues, product costs decreased in 1996 to 45% from 52% as a result of discontinuance of certain products and reductions in overall discretionary costs. Research and development expenses increased to 20% of revenues in 1997, an increase of $286,193 or 39% from 1996 to 1997 due to a planned increase in spending associated with new product development. In 1996, research and development expenses decreased to 13% of revenues, a decrease of $396,843 or 35% from 1995 to 1996 due to the efforts of the Company to manage expenses and reduce discretionary spending. Marketing, sales and general and administrative expense increased from 40% to 47% of revenues in 1997, an increase of $173,399 or 8%, primarily due to increased labor related costs associated with new product planning, business development and administrative support offset by lower sales expenses due to lower sales volume. Marketing, sales and general and administrative expense decreased from 51% to 40% of revenues in 1996, a decrease of $1,250,707 or 36% due to the Company's efforts to reduce expenses to more closely align with its current business needs. 2 Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Other income, net increased by $448,759 in 1997 primarily due to income recognized from the resolution of a patent interference proceeding in the amount of $425,000 and an increase in investment income of $31,259, from $14,320 in 1996 to $45,579 in 1997. The Company lost $412,484 from operations in 1997. Following five (5) profitable quarters, from June 30, 1996 through June 30, 1997, the Company recorded operating losses in the quarters ending September 30, 1997 and December 31, 1997. These losses were anticipated as the Company increased expenditures related to new product planning and development. Liquidity As of December 31, 1997, Xiox had cash and cash equivalents And of $2,633,860 and net working capital of $3,120,508 compared Capital to cash and cash equivalents of $291,488 and net working capital of $693,485 in 1996. During 1997 the Company expended $237,953 for capital equipment and software. The Company's bank line of credit was renewed in May of 1997 at $1,000,000 and is expected by management to provide adequate capital resources to conduct operations at the level currently anticipated through May of 1998 when the bank line expires. In addition, if working capital needs require, the Company may need to seek additional capital funding. The Company is exploring raising additional funds to support development of a new product line addressing the combined telecom and datacom markets. In connection with this new product line, the Company has committed to fund Xiox Flanders N.V., a 94.9% owned subsidiary, with approximately $550,000 in 1998. Year 2000 The Year 2000 Issue is the result of computer programs being Compliance written using two digits rather than four to define the applicable year. Computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the Year 2000. If the Company's internal systems do not correctly recognize date information when the year changes to 2000, there could be an adverse impact on the Company's operations. The Company is in the process of completing an assessment and plans to modify or replace significant portions of its internal software so that its computer systems will function properly with respect to dates in the Year 2000 and thereafter. The Company has also assessed the capability of its products sold to customers and believes that it has no exposure to contingencies related to the Year 2000 Issues for the products it has sold. The Company's products receive data from other equipment such as PC's and PBX's and can only properly handle year 2000 dates if it receives Year 2000 compliant data. Some systems sold by the Company with computer BIOS manufactured prior to 1996 will need to have the internal clock reset or the BIOS modified in order to ensure proper performance. Management believes that the likelihood of a material adverse impact due to problems with internal systems or products sold to customers is remote and expects that any costs to be incurred to assure Year 2000 capability will not have a material adverse effect on the Company's financial position or results of operations. However, there may be contingencies related to Year 2000 Issues which are unknown to Management at this time which may have material adverse effect on the Company. There can be no assurance that another Company's failure to ensure Year 2000 capability would not have an adverse effect on the Company. 3 Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Certain Risk Xiox operates in a rapidly changing environment that involves Factors a number of risks, some of which are beyond the Company's Which May control. The following discussion highlights some of these Impact risks and the possible impact of these factors on future Future consolidated results of operations and the market price of Operating the Company's stock. Results and Market Price The forward-looking statements included in Management's of Stock Discussion and Analysis of Financial Condition and Results of Operations, which reflect management's best judgment based on factors known, involve risks and uncertainties. In addition, the Company may from time to time make oral forward-looking statements. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including but not limited to those discussed below. Forward-looking information provided by Xiox should be evaluated in the context of these factors. Fluctuations in Quarterly Operating Results 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. Shortfalls in the Company's revenues or earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock. Moreover, the Company's stock price is subject to the volatility generally associated with technology stocks and may also be affected by broader market trends unrelated to performance. Competition The market for the Company's software products is competitive and is characterized by change in technology and user needs and the introduction of new products. In order for the Company to remain competitive, it must rapidly respond to such changes, including the enhancement and upgrading of existing products and the introduction of new products. Most of the Company's competitors and many potential competitors have substantially greater financial, marketing and technology resources than the Company. The Company's major competitors are Telco Research, ISI-Infortext and Nortel (MAT). There can be no assurance that the Company will be able to compete successfully against either current or potential competitors or that competition will not have a material adverse effect on the Company's business and consolidated results of operations and financial condition. Product Concentration Xiox derives a substantial portion of its revenues from sales of new call accounting products, updates and rate table renewals. As such, any factor adversely affecting sales of new call accounting products, updates and rate table renewals, including such factors as market acceptance, product performance and reliability, reputation, price competition and the availability of third-party applications, could have a material adverse effect on the Company's business, consolidated results of operations and financial condition. 4 Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Certain Risk Product Development and Introduction Factors Which May The software products offered by the Company are internally Impact complex and, despite extensive testing and quality control, Future may contain errors or defects ("bugs"), especially when first Operating introduced. Defects or errors could result in corrective Results and releases to the Company's software products, damage to the Market Price Company's reputation, loss of revenues, an increase in of Stock, product returns, or lack of market acceptance of its Continued products, any of which could have a material and adverse effect on the Company's business and consolidated results of operations. The software industry is characterized by rapid technological change as well as changes in customer requirements and preferences. The Company believes that its future results will depend largely upon its ability to offer products that compete favorably with respect to price, reliability, performance, range of useful features, continuing product enhancements, reputation and training. Delays or difficulties, including the discovery of product defects, may result in the delay or cancellation of planned development projects and could have a material and adverse effect on the Company's business and consolidated results of operations. In addition, increased competition in the market for call accounting products could also have a negative impact on the Company's business and consolidated results of operations. In 1997, the Company began a large development effort in a new product line addressing the combined telephony and data markets. The Company will require additional funding to complete this new product development effort. No assurances can be made that the Company will be able to obtain the additional required funding. Dependence on Distribution Channels The Company sells its products primarily through its network of authorized dealers. Xiox's ability to effectively distribute its products depends in part upon the financial and business condition of its distribution network. One customer accounted for 12% of revenue during 1997 while no single customer accounted for more than 10% of the Company's revenues in 1996. The loss of or a significant reduction in business with any one of the Company's major dealers could have a material adverse effect on the Company's business and consolidated results of operations in future periods. 5 XIOX CORPORATION and SUBSIDIARIES Consolidated Balance Sheets December 31, 1997 and 1996
1997 1996 ----------- ----------- Assets Current assets: Cash and cash equivalents $ 2,633,860 291,488 Accounts receivable, net of allowance for doubtful accounts of $141,556 in 1997 and $192,072 in 1996 884,612 1,062,045 Other receivables 433,190 66,412 Inventories 474,865 433,769 Prepaid expenses and other assets 158,311 69,470 ----------- ----------- Total current assets 4,584,838 1,923,184 Property and equipment, net 432,292 358,118 Purchased software, net 42,673 52,930 Notes receivable 100,000 131,138 Deposits and other assets 494,397 20,319 ----------- ----------- $ 5,654,200 2,485,689 ----------- ----------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable 202,648 140,627 Accrued expenses 175,962 212,081 Accrued compensation 118,252 114,380 Purchase deposits 51,231 41,025 Deferred revenue 916,237 721,586 ----------- ----------- Total current liabilities 1,464,330 1,229,699 Commitments and contingencies Minority interest 127,776 -- Stockholders' equity: Preferred stock, $0.01 par value; 1,000,000 shares authorized; None issued and outstanding in 1997 and 1996 -- -- Common stock, $0.01 par value; 10,000,000 shares authorized; 2,932,934 and 2,372,384 shares issued and outstanding in 1997 and 1996, respectively 29,329 23,724 Additional paid-in capital 8,266,576 5,492,345 Note receivable from stockholder (15,938) (27,188) Cumulative translation adjustments (13,175) -- Accumulated deficit (4,204,698) (4,232,891) ----------- ----------- Total stockholders' equity 4,062,094 1,255,990 ----------- ----------- $ 5,654,200 2,485,689 =========== ========= See accompanying notes to consolidated financial statements.
6 XIOX CORPORATION and SUBSIDIARIES Consolidated Statements of Operations Years ended December 31, 1997 and 1996 1997 1996 ----------- ----------- Revenues $ 5,060,890 5,460,673 ----------- ----------- Product costs 2,083,372 2,429,340 Research and development 1,020,145 733,952 Marketing, sales, general and administrative 2,369,857 2,196,458 ----------- ----------- 5,473,374 5,359,750 ----------- ----------- (Loss) income from operations (412,484) 100,923 Other income, net 451,451 2,692 ----------- ----------- Income before income taxes 38,967 103,615 Income taxes 10,774 11,305 ----------- ----------- Net income $ 28,193 92,310 =========== =========== Per Share Information: Basic net income per share $ 0.01 0.04 =========== =========== Number of shares used in basic per share computation 2,652,089 2,370,030 =========== =========== Diluted net income per share $ 0.01 0.04 =========== =========== Number of shares used in diluted per share computation 2,837,804 2,378,645 =========== =========== See accompanying notes to consolidated financial statements. 7 XIOX CORPORATION and SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended December 31, 1997, and 1996
Common Stock Note Receivable Cumulative ----------------------- Paid-in From Translation Accumulated Shares Amount Capital Shareholder Adjustments Deficit Total --------- ---------- --------- ----------- ----------- ---------- --------- Balances, December 31, 1995 2,357,784 $ 23,578 5,465,140 -- -- (4,325,201) 1,163,517 Stock options exercised 14,600 146 27,205 (27,188) -- -- 163 Net income -- -- -- -- -- 92,310 92,310 --------- ---------- --------- ------- ------- ---------- --------- Balances, December 31, 1996 2,372,384 23,724 5,492,345 (27,188) -- (4,232,891) 1,255,990 Common shares issued 574,400 5,744 2,817,911 -- -- -- 2,823,655 Common shares repurchased (15,000) (150) (46,725) -- -- -- (46,875) Stock options exercised 1,150 11 3,045 -- -- -- 3,056 Note receivable payment -- -- -- 11,250 -- -- 11,250 Translation Adjustment -- -- -- -- (13,175) -- (13,175) Net income -- -- -- -- -- 28,193 28,193 --------- ---------- --------- ------- ------- ---------- --------- Balances, December 31, 1997 2,932,934 $ 29,329 8,266,576 (15,938) (13,175) (4,204,698) 4,062,094 --------- ---------- --------- ------- ------- ---------- --------- See accompanying notes to consolidated financial statements
8 XIOX CORPORATION and SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1997 and 1996
1997 1996 ----------- ----------- Cash flow from operating activities: Net income $ 28,193 92,310 Adjustments to reconcile net income to net Cash (used in) provided by operating activities: Depreciation and amortization 174,036 228,662 Gain on settlement of other receivables (15,737) Change in operating assets and liabilities: Accounts receivable, net 177,433 (112,266) Other receivables (366,778) (37,407) Inventories (41,096) (85,539) Prepaid expenses, deposits and others assets (562,919) 6,338 Accounts payable and accrued expenses 29,774 178,754 Purchase deposits 10,206 (190,241) Deferred revenue 194,651 34,272 ----------- ----------- Net cash (used in) provided by operating activities (372,237) 114,883 ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (201,747) (56,633) Acquisition of software (36,206) (11,090) ----------- ----------- Net cash used in investing activities (237,953) (67,723) ----------- ----------- Cash flows from financing activities: Bank line of credit repayments -- (100,000) Proceeds from stock issued to minority interest 127,776 -- Proceeds from sale of common stock 2,837,961 163 ----------- ----------- Net cash provided by (used in) financing activities 2,965,737 (99,837) ----------- ----------- Effect of exchange rate changes on cash (13,175) -- ----------- ----------- (continued)
9 XIOX CORPORATION and SUBSIDIARIES Consolidated Statements of Cash Flows, continued Years ended December 31, 1997 and 1996
1997 1996 ---------- ---------- Net increase (decrease) in cash and cash equivalents 2,342,372 (52,677) Beginning cash and cash equivalents 291,488 344,165 ---------- ---------- Ending cash and cash equivalents $2,633,860 $ 291,488 ========== ========== Supplemental Cash Flow Information: Interest paid $ -- 6,392 ========== ========== Income taxes $ 13,294 2,806 ========== ========== Noncash financing activities: Common stock issued upon exercise of stock options in exchange for note receivable from shareholder $ -- 27,188 ========== ========== Common stock received in settlement of outstanding claims $ 46,875 -- ========== ========== See accompanying notes to consolidated financial statements.
10 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1997 and 1996 Summary of Xiox Corporation (the Company) is a Delaware corporation Significant engaged in developing, producing, and marketing telephone Accounting management and call accounting systems. The Company Policies manufactures and sells its products primarily through distributors to companies located in the United States. Principles of Consolidation The consolidated financial statements of Xiox Corporation include the accounts of its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Software License and Hardware. Revenue is recognized when a product is shipped or upon customer acceptance as stipulated in the sales agreements. Payments received from customers prior to shipment are recorded as purchase deposits. Payments received and due from customers after shipment but prior to acceptance, when applicable, are recorded as deferred revenue. Maintenance and Rate Tariff Table Subscriptions. Maintenance service 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 for the subscription period. Maintenance and rate table subscription revenues are recognized ratably over the period of the maintenance and subscription agreements in accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 91-1, "Software Revenue Recognition." Cash and cash equivalents Cash and cash equivalents include cash on hand or held in banks, amounts due from banks, and short-term investments with remaining maturities of less than three months at date of purchase. Cash equivalents consist primarily high quality money market instruments, commercial paper and certificates of deposit in the amounts of $2,278,616 and $85,098 as of December 31, 1997 and 1996, respectively. Inventories Inventories are stated at the lower of first-in, first-out cost or market. Property and equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to five years. Financial Instruments Cash equivalents, accounts receivable and accounts payable are recorded at fair value which approximates cost as of December 31, 1997 and 1996. 11 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements Summary of Software capitalization Significant Accounting Internal software development costs, which consist of Policies, software updates, are expensed in the year of development. Continued Software updates are a result of internal software development and are released annually for software products. Management believes that the benefit of these updates does not extend beyond one year. Purchased software with a benefit extending beyond one year is capitalized. Purchased software is stated at cost. Amortization is computed on the straight-line basis over the period of benefit, generally three years. Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Stock-based Compensation The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees." In 1996, the Company adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," which require the disclosure of pro forma net income and earnings per share as if the Company adopted the fair value-based method in measuring compensation expense as of the beginning of 1995. Earnings per Share The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, effective for periods ending after December 15, 1997. The Company has adopted the new standard for the year-end and has restated prior period amounts to conform to the new presentation. SFAS No. 128 requires the presentation of basic and diluted 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 outstanding stock options were exercised. In the case of a net loss, it is assumed that no incremental shares would be issued because they would be antidilutive. In addition, certain options are considered antidilutive because the options' exercise price was above the average market price during the period. Antidilutive shares are not included in the computation of diluted earnings per share, in accordance with SFAS No. 128. 12 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements Summary of The shares used in per share computations for the fiscal years Significant ended December 31, 1997 and 1996 are as follows: Accounting Policies, Continued
1997 1996 ---- ---- Weighted average common shares outstanding-basic 2,652,089 2,370,030 Incremental Shares - stock options 79,778 8,615 Contingent Shares 105,937 --------- --------- Shares used in diluted per share computations 2,837,804 2,378,645 --------- ---------
Foreign Currency Translation The functional currency of the Company's foreign subsidiary is the local currency of the country in which it is located. Assets and liabilities are translated at the current exchange rate at the balance sheet date. Expenses are translated using the average exchange rate during the period. Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates. Impairment of Long-Lived Assets In March 1995, SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, was issued. This Statement requires that long-lived assets be evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. The Company adopted SFAS No. 121 on January 1, 1996. The adoption of SFAS No. 121 did not have a material impact on the Company's consolidated results of operations. 13 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements Summary of Recently Adopted Accounting Standards Significant Accounting In October 1997, the AICPA issued SOP 97-2, Software Revenue Policies, Recognition, which supersedes SOP 91-1. The Company will be Continued required to adopt SOP 97-2 for software transactions entered into beginning January 1, 1998, and retroactive application to years prior to adoption is prohibited. SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements (i.e., software products, upgrades/enhancements, post-contract customer support, installation, training, etc.) to be allocated to each element based on the relative fair values of the elements. The fair value of an element must be based on evidence which is specific to the vendor. The revenue allocated to software products (including specified upgrades/enhancements) generally is recognized upon shipment of the products. The revenue allocated to post-contract customer support generally is recognized ratably over the term of the support and revenue allocated to services as they are performed. If a vendor does not have evidence of the fair value for all elements in a multiple-element arrangement, all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. The Company's management anticipates that the adoption of SOP 97-2 will not have a material impact on the Company's consolidated results of operation. Other Other receivables as of December 31 consisted of the Receivables following: 1997 1996 -------- ------ Patent interference settlement $425,000 -- Insurance claims -- 63,106 Other 8,190 3,306 -------- ------ $433,190 66,412 ======== ====== Inventories Inventories consist primarily of purchased hardware products (finished goods). Major classes of inventories as of December 31 consisted of the following: 1997 1996 -------- -------- Purchased parts and components $142,866 85,359 Work in process 52,225 18,749 Finished goods 279,774 329,661 -------- -------- $474,865 433,769 ======== ======== 14 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements Property Property and equipment as of December 31 consisted of the and following: Equipment 1997 1996 ----------- ----------- Office equipment $ 1,277,951 1,075,298 Furniture and fixtures 304,732 305,638 ----------- ----------- 1,582,683 1,380,936 Less accumulated depreciation (1,150,391) (1,022,818) ----------- ----------- $ 432,292 358,118 =========== =========== Purchased Purchased software as of December 31 consisted of the Software following: 1997 1996 --------- --------- Purchased software $ 236,243 200,037 Less accumulated amortization (193,570) (147,107) --------- --------- $ 42,673 52,930 ========= ========= Deposits and Deposits and other assets as of December 31 consisted of the Other Assets following: 1997 1996 -------- ------ Prepaid royalties payments 295,427 -- Other prepaids 198,970 20,319 -------- ------ $494,397 20,319 ======== ====== Deposits and other assets include prepaid royalty payments, which the Company amortizes based on the number of units sold. Bank Line The Company maintains a $1,000,000 line of credit of credit collateralized by eligible accounts receivable. The line bears interest at prime plus 1.25% (9.75% as of December 31, 1997) and expires in May 1998. No amounts were outstanding under the line as of December 31, 1997. 15 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements Lease Future minimum lease payments and related sublease rental Committments receivables with respect to noncancelable operating leases in excess of one year are as follows: Rental Receivable Year ended December 31: Rental Payments under Sublease ----------------------- --------------- -------------- 1998 $ 359,135 30,236 1999 361,305 -- 2000 244,512 -- 2001 90,578 -- 2002 90,578 -- 2003 90,578 -- 2004 90,578 -- 2005 7,548 -- ----------- ------ $ 1,334,812 30,236 =========== ====== Total rent expense incurred on the Company's operating leases was approximately $221,260, net of sublease income of $97,579, for the year ended December 31, 1997, and $211,610, net of sublease income of $84,474 for the year ended December 31, 1996. Future lease obligations are subject to cost of living adjustments beginning February 1, 2000. Taxes The provision for income taxes in 1997 and 1996 consisted entirely of current state income taxes. The provision for income taxes differs from the amounts computed by applying the U.S. Federal tax rate of 34% to the Company's income before income taxes as a result of the following: 1997 1996 -------- ------ Computed tax expense $ 13,249 35,229 State income taxes, net of Federal income tax benefit 3,134 7,461 Other, net (5,609) (31,385) -------- ------ Provision for income taxes $ 10,774 11,305 ======== ====== 16 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements Taxes, The tax effect of temporary differences that give rise to Continued significant portions of the deferred tax assets and liabilities as of December 31, 1997 and 1996, are as follows:
Deferred tax assets: 1997 1996 ----------- ----------- Reserves and accruals for financial reporting purposes not taken for tax purposes $ 495,883 $ 457,376 Research and development costs principally due to capitalization and amortization for tax reporting purposes 329,753 511,477 Net operating loss carryforwards 751,856 646,426 Research and development and investment tax credit carryforwards 211,463 111,512 ----------- ----------- Total gross deferred tax asset 1,788,955 1,726,791 Less valuation allowance (1,766,063) (1,696,695) ----------- ----------- Deferred tax asset, net of allowance 22,892 30,096 ----------- ----------- Deferred tax liabilities: Property and equipment, principally due to differences in depreciation (22,892) (30,096) ----------- ----------- Total gross deferred tax liability (22,892) (30,096) ----------- ----------- Net deferred tax asset $ -- -- ----------- -----------
As of December 31, 1997, the Company has federal and state net operating loss carryforwards of approximately $2,200,000 and $40,000, respectively, expiring during the years 2000 through 2009. As of December 31, 1997, the Company has research and development tax credits and investment tax credits of approximately $170,000, which expire during the years 2005 through 2010. Under IRS Section 382, the Company's future utilization of its net operating loss carryforwards and certain of its general business tax credits for federal and state tax reporting purposes is limited to approximately $94,000 per year for operating losses generated prior to a change in ownership in the year ended December 31, 1989. 17 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements Shareholders In the third quarter of 1997, the Company and Flanders Equity Language Valley ("Flanders") were parties to an agreement providing for the purchase by Flanders of an aggregate of 574,400 shares of the Company's common stock for an aggregate purchase price of $2,872,000 subject to adjustment. On March 25, 1998, the Company issued an additional 211,297 shares of the Company's Common Stock as an adjustment under this agreement. Xiox Flanders N.V. ("Xiox Flanders") was incorporated in Belgium pursuant to this agreement and is owned 94.9% by the Company and 5.1% by Flanders. The Company has committed to fund Xiox Flanders with approximately $550,000 in 1998 and approximately $1,222,000 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. Employee The Company has 1994 and 1984 incentive stock option plans Stock that provide for granting of stock options with exercise Options prices equal to the fair value of the underlying common stock at the date of grant. There are 350,000 shares of common stock currently reserved for issuance under the 1994 plan of which 274,900 have been granted. During 1994, the 1984 Stock Option Plan terminated. Under the plans, incentive options are to be granted to officers and employees, while non-qualified options are to be granted to non-employees. All options under these plans vest at a rate determined by the Board of Directors beginning from the date of grant and expiring up to ten years from the date of grant. A summary of transactions relating to outstanding stock options is as follows:
Shares Options Exercise Available Outstanding Price --------- ----------- ----- Outstanding as of December 31, 1995 91,200 227,482 $1.13 - 5.50 ======== ======== Options granted (166,400) 166,400 2.44 - 3.56 Options exercised -- (14,600) 1.63 - 1.88 Options canceled 97,021 (137,803) 1.44 - 5.50 -------- -------- Outstanding as of December 31, 1996 21,821 241,479 1.13 - 5.50 ======== ======== Additional shares reserved 150,000 -- Options granted (108,300) 108,300 3.19 - 4.75 Options exercised -- (1,150) 2.63 - 2.88 Options canceled 11,429 (11,429) 2.88 - 3.44 -------- -------- Outstanding as of December 31, 1997 74,950 337,200 1.13 - 5.50 ======== ========
18 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements Employee Certain options may be exercised immediately upon grant but Stock are subject to the Xiox Corporation Stock Purchase Agreement, Options, which restricts transfers of the shares until the shares are Continued fully vested. Under the terms of this agreement, the Company may repurchase at the option price any or all of the unvested shares purchased if the employee terminates his employment with the Company prior to vesting. The Company also has the right of first refusal in the event of any proposed disposition of the purchased shares. As of December 31, 1997, no outstanding stock was subject to the Stock Purchase Agreement. Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the Company is required to disclose the effects on the net income and income per share data as if the Company had elected to use the fair value approach to account for its employee stock-based compensation plans. Had compensation cost for the Company's plans been determined consistent with the fair value approach, the Company's net income and income per share for the years ended December 31, 1997 and 1996, would have been as follows:
Year ended Year ended December 31, 1997 December 31, 1996 ----------------- ----------------- Net income (loss): As reported $ 28,193 $ 92,310 Pro forma $ (62,570) $ 51,764 Basic net income (loss) per share: As reported $ 0.01 $ 0.04 Pro forma $ (0.02) $ 0.02 Diluted net income (loss) per share: As reported $ 0.01 $ 0.04 Pro forma $ (0.02) $ 0.02
The effect of applying SFAS No, 123 for disclosing compensation costs may not be representative of the effects on reported results for future years because pro forma results reflect compensation costs only for stock options granted in 1995 through 1997, and does not consider compensation costs for stock options granted prior to January 1, 1995. The fair value of options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997 and 1996: 1997 1996 ---- ---- Risk-free interest rate 6.1% 6.4% Expected life 5 Years 5 Years Expected volatility 54% 60% Dividends None None 19 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements Employee A summary of the status of the Company's stock option during Stock the years then ended is presented below: Options, Continued
December 31, 1997 December 31, 1996 ----------------- ----------------- Weighted- Weighted- Average Average Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- Outstanding at beginning of year 241,479 $ 2.97 227,482 $ 3.28 Granted 108,300 4.53 73,000 3.24 Granted under Stock Repricing -- -- 93,400 3.44 Exercised (1,150) 2.66 (14,600) 1.87 Forfeited (11,429) 3.18 (44,403) 3.54 Forfeited under Stock Repricing -- (93,400) 4.32 ------- ------- Outstanding at end of year 337,200 $ 3.45 241,479 $ 2.97 ======= ======= Options exercisable at year end 136,094 $ 2.65 79,208 $ 1.64 ------- ------- Weighted-average fair value of options granted during the period at exercise price equal to market price at grant date $ 2.65 $ 1.49
The following table summarizes information about stock options outstanding as of December 31 1997: 1997 Options Outstanding
Weighted-average remaining Weighted-average Range of Exercise Prices: contractual life exercise price ------------------------- ---------------- -------------- $1.13 - 1.65 2.7 years $ 1.43 1.65 - 2.20 3.0 1.76 2.20 - 2.75 8.2 2.48 2.75 - 3.30 8.5 3.07 3.30 - 3.85 8.6 3.41 3.85 - 4.95 9.6 4.72 4.95 - 5.50 7.4 5.50
20 XIOX CORPORATION and SUBSIDIARIES Notes to Consolidated Financial Statements Transactions In 1991, the Company loaned $100,000 to an employee in return with Related for a promissory note secured by a second deed of trust. The Parties promissory note bears a stated interest rate of 9% with a due date as amended of 2001. In 1994, the Company paid certain unscheduled liabilities in conjunction with the purchase of certain assets for Instor Systems Corporation, a related party, in return for a $31,138 promissory note at 9% annual interest, which was repaid during 1997. Employee The Company has adopted the Xiox Corporation Employee Profit Benefit Sharing Plan (the Plan). The Plan covers all regular Plans full-time employees excluding officers, who have been employed by the Company continuously for a period of three months (six months if hired after June 30, 1997) during the plan year prior to the period of determination and are employees through the date of distribution. Distributions are determined based on certain arithmetic formulas included in the plan document and are ultimately at the discretion of the Board of Directors. The Company did not make any significant distributions under the Plan during 1997 or 1996. The Company sponsors a defined contribution plan covering substantially all of its employees. Under the plan, employees may elect to contribute up to 20% of their salary not to exceed an annual maximum of approximately $9,500. As the Company has no current plans to participate in a matching contribution program, no such contributions were accrued or expensed during 1997 and 1996. Major The Company sells directly to end-users, original equipment Customers manufacturers (OEMs), and through telephone dealer arrangements. The Company conducts its business within one industry segment. No single customer accounted for more than 10% of revenues during 1996. In 1997, one customer accounted for 12% of the revenue and 19% of accounts receivable as of December 31, 1997. Approximately 30% of the Company's sales are to the hospitality industry and, accordingly, these sales may be subject to economic change affecting this industry. The Company provides for allowances on accounts receivable, and credit losses to date have not been significant. 21 Independent The Board of Directors Auditors' Xiox Corporation and Subsidiaries: Report We have audited the accompanying consolidated balance sheets of Xiox Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Xiox Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Mountain View, California February 13, 1998 22 Stock The Company's common stock is traded on the over-the-counter Trading market on NASDAQ under the symbol XIOX. Xiox completed its Information initial public offering on February 14, 1986. The quarterly high and low bid prices over the past two years were as follows: High Low ---- --- Fiscal 1997 Fourth Quarter 5 4 Third Quarter 5 3 3/4 Second Quarter 5 1/4 3 First Quarter 3 1/4 2 3/4 Fiscal 1996 Fourth Quarter 3 1/2 3 Third Quarter 3 5/8 3 1/8 Second Quarter 4 2 First Quarter 2 1/2 2 1/4 Bid Price Quotations are as reported by the National Association of Security Dealers, Inc. All bid prices reflect interdealer prices, without retail markup, markdown, or commission and may not represent actual transactions. As of December 31, 1997, there were approximately 50 shareholders of record of common stock of the Company. The Company has never paid dividends and has no present plans to do so. On March 23, 1998, the closing bid price was $5.25 per share. 23
DIRECTORS AND OFFICERS CORPORATE OFFICES Atam Lalchandani, Director and Assistant 577 Airport Boulevard, Suite 700 Corporate Secretary Burlingame, CA 94010 Consultant Xiox - New Hampshire Office Robert K. McAfee, Director 150 Dow Street Consultant Manchester, NH 03101 Bernard T. Marren, Director Xiox - Arizona Office Private Investor 8010 East McDowell Road Suite 118 Mark A. Parrish, Jr., Director Scottsdale, AZ 85257 Consultant Xiox Flanders N.V. Philip Vermeulen, Director Industrielaan 31 CEO Flanders Language Valley Management N.V. 8900 Ieper BELGIUM William H. Welling, Director Chairman and Chief Executive Officer Wayne F. Benoit LEGAL COUNSEL Vice President of Business Development Wilson, Sonsini, Goodrich & Rosati Robert W. Boyd 650 Page Mill Road Vice President of Operations Palo Alto, CA 94304 Anthony DiIulio Vice President of Sales & Marketing TRANSFER AGENT Melanie D. Reid Vice President of Finance, Chief Financial Chase Mellon Shareholder Service Officer and Corporate Secretary Los Angeles, CA David Y. Schlossman FORM 10-KSB Vice President of Product Marketing Stockholders will be provided without charge, a copy of the Company's Form 10-KSB Annual Report for 1997 upon written request to: INDEPENDENT ACCOUNTANTS KPMG Peat Marwick LLP Xiox Corporation 500 E. Middlefield Rd. 577 Airport Boulevard, Suite 700 Mountain View, CA 94043 Burlingame, CA 94010 Visit our Web Site at: http://www.xiox.com
24 EX-23.1 4 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Xiox Corporation: We consent to the incorporation by reference in the registration statements (Nos. 33-4989, 33-16019, 33-37686, 33-42433, 33-88996 and 33-39703) on Form S-8 of Xiox Corporation of our report dated February 13, 1998, relating to the consolidated balance sheets of Xiox Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended, which report is incorporated by reference in the December 31, 1997, annual report on Form 10-KSB of Xiox Corporation. /s/ KPMG Peat Marwick LLP ------------------------------- KPMG Peat Marwick LLP March 27, 1998 Mountain View, California EX-27.1 5 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the Company's Consolidated Balance Sheets and Statements of Operations AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS. 0000782995 Xiox Corporation 12-MOS DEC-31-1997 DEC-31-1997 $2,663,860 $0 $1,026,168 $(141,556) $474,865 $4,584,838 $1,818,926 $(1,343,960) $5,654,200 $1,464,330 0 0 0 $29,329 $4,032,765 $5,654,200 $5,060,890 $5,060,890 $2,083,372 $5,473,374 0 0 0 $38,967 $(10,774) 0 0 0 0 $28,193 0.01 0.01
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