EXCELON CORP
10-Q, 2000-11-13
PREPACKAGED SOFTWARE
Previous: VULCAN VENTURES INC, SC 13D/A, 2000-11-13
Next: EXCELON CORP, 10-Q, EX-27, 2000-11-13




================================================================================


                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2000


                         Commission File Number  0-21041
                                                 -------

                               EXCELON CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           Delaware                                               02-0424252
           --------                                               ----------
(State or other jurisdiction of                              (I.R.S.  Employer
incorporation or organization)                               Identification No.)


25 Mall Road, Burlington, MA                                          01803
----------------------------                                          -----
(Address of principal executive offices)                           (Zip Code)


Registrant's telephone number, including area code:  (781) 674-5000
                                                   ------------------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  Registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                        Yes   X               No
                            -----                -----

     The number of shares  outstanding  of the  registrant's  common stock as of
October 31, 2000 was 29,485,124.

================================================================================
<PAGE>


EXCELON CORPORATION

INDEX TO FORM 10-Q

<TABLE>

<S>                                                                                           <C>
PART I - FINANCIAL INFORMATION                                                                 PAGE

Item 1.  Financial Statements

         Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999              3

         Consolidated Statements of Operations for the three and nine
         months ended September 30, 2000 and September 30, 1999                                  4

         Consolidated Statements of Cash Flows for the nine months
         ended September 30, 2000 and September 30, 1999                                         5

         Notes to the Consolidated Financial Statements                                          6

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                                               7

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                              11



PART II - OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders                                      11

Item 6. Exhibits and Reports on Form 8-K                                                         11

Signatures                                                                                       13

</TABLE>

<PAGE>

ITEM 1.  FINANCIAL STATEMENTS


                               EXCELON CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)
<TABLE>
<CAPTION>
                                                                             SEPTEMBER 30,      DECEMBER 31,
                                                                                 2000              1999
                                                                             -------------      ------------
                                                                              (UNAUDITED)
<S>                                                                            <C>                  <C>
Assets
Current assets:
     Cash and cash equivalents                                                 $12,037            $ 13,847
     Marketable securities                                                       9,052               5,327

     Accounts receivable, net of allowance for doubtful                         14,534              13,902
        accounts of  $1,075 and $1,232 at September 30, 2000 and
        December 31, 1999
     Prepaid expenses and other current assets                                   2,614                 946
                                                                              --------            --------
Total current assets                                                            38,237              34,022

Property and equipment, net                                                      5,848               5,169
Marketable securities                                                            1,395               4,589
Capitalized software, net                                                        2,280               2,503
Other assets                                                                     1,101               1,122
                                                                              --------            --------
Total assets                                                                  $ 48,861            $ 47,405
                                                                              ========            ========

Liabilities and Stockholders' Equity

Current liabilities:
     Current portion of capital lease obligations                             $      -            $     17
     Accounts payable                                                            5,193               3,404
     Accrued expenses                                                            4,139               3,898
     Accrued compensation                                                        3,087               2,876
     Deferred revenue                                                            8,266               7,697
                                                                              --------            --------
Total current liabilities                                                       20,685              17,892

Stockholders' equity:
  Preferred stock, $.01 par value; authorized 5,000,000
       shares; no shares issued or outstanding                                       -                   -
  Common stock, $.001 par value; authorized 200,000,000 shares;
       29,478,768 and 28,920,730 shares issued and outstanding
                                                                                    30                  29
  Additional paid-in capital                                                    70,578              66,731
  Accumulated deficit                                                          (38,682)            (35,054)
  Accumulated other comprehensive loss                                          (3,177)             (1,620)
  Advances to stockholders                                                        (573)               (573)
                                                                              --------            --------
Total stockholders' equity                                                      28,176              29,513
                                                                              --------            --------
Total liabilities and stockholders' equity                                    $ 48,861            $ 47,405
                                                                              ========            ========


The accompanying notes are an integral part of the consolidated financial statements.

</TABLE>

                                        3
<PAGE>

                               EXCELON CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                            SEPTEMBER 30,                         SEPTEMBER 30,
                                                        2000            1999                  2000           1999
                                                        ----            ----                  ----           ----
<S>                                                  <C>             <C>                   <C>            <C>
Revenues:
   Software                                           $12,307         $ 9,247               $34,259        $25,858
   Services                                             6,502           6,396                20,623         17,541
                                                      -------         -------               -------        -------
      Total revenues                                   18,809          15,643                54,882         43,399
Cost of revenues:
   Cost of software                                       587           1,012                 1,802          1,899
   Cost of services                                     4,996           3,129                13,408          9,225
                                                      -------         -------               -------        -------
      Total cost of revenues                            5,583           4,141                15,210         11,124

Gross profit                                           13,226          11,502                39,672         32,275
Operating expenses:
   Selling and marketing                               10,591           9,733                29,859         26,759
   Research and development                             3,216           2,593                 9,530          7,588
   General and administrative                           1,684           1,641                 5,026          4,621
   Restructuring charge                                     -             945                     -            945
                                                      -------         -------               -------        -------
      Total operating expenses                         15,491          14,912                44,415         39,913

   Operating loss                                     (2,265)         (3,410)               (4,743)        (7,638)

Other income, net                                         416             255                 1,115            845
                                                      -------         -------               -------        -------

Loss before income taxes                              (1,849)         (3,155)               (3,628)        (6,793)
Provision for income taxes                                  -               -                     -             43
                                                      -------         -------               -------        -------

Net loss                                             $(1,849)        $(3,155)              $(3,628)       $(6,836)
                                                     ========        ========              ========       ========

Loss per share:
Basic                                                 $(0.06)        $ (0.11)               $(0.12)       $ (0.24)
Diluted                                               $(0.06)        $ (0.11)               $(0.12)       $ (0.24)

Weighted average shares outstanding:
Basic                                                  29,423          28,360                29,291         28,228
Diluted                                                29,423          28,360                29,291         28,228




The  accompanying  notes  are an  integral  part of the  consolidated  financial statements.

</TABLE>


                                       4
<PAGE>

                              EXCELON CORPORATION.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                          Nine Months Ended
                                                                             September 30,
                                                                        2000               1999
                                                                       ------             ------
<S>                                                                  <C>                <C>
Cash flows from operating activities:
   Net loss                                                           $(3,628)           $(6,836)
   Adjustments to reconcile net income to net
     cash used for operating activities:
     Depreciation and amortization                                      2,856              2,450
     Amortization of deferred compensation                                432                 69
     Bad debt expense                                                     207                904
     Other                                                                 36                115
Changes in operating assets and liabilities:
     Accounts receivable                                                 (956)               483
     Prepaid expenses and other current assets                         (1,759)              (554)
     Other assets                                                         (66)              (248)
     Accounts payable and accrued expenses                              1,378              1,302
     Deferred revenue                                                     749              1,146
                                                                     --------            -------
Net cash used for operating activities                                   (751)            (1,169)
                                                                     --------            -------

Cash flows from investing activities:
     Capital expenditures                                              (2,572)            (1,718)
     Purchased software                                                  (370)            (1,151)
     Purchases of marketable securities                               (20,392)           (13,048)
     Proceeds from maturities and sales of marketable securities       19,878             11,768
                                                                     --------            -------
Net cash used for investing activities                                 (3,456)            (4,149)
                                                                     --------            -------

Cash flows from financing activities:
     Proceeds from exercise of stock options                            1,874                565
     Purchase of treasury stock                                             -               (251)
     Repayments of capital lease obligations                              (17)                 8
                                                                     --------            -------
Net cash provided by financing activities                               1,857                322
                                                                     --------            -------

Effect of exchange rate changes on cash                                   540                 10
                                                                     --------            -------

Net change in cash and cash equivalents                                (1,810)            (4,986)

Cash and cash equivalents, beginning of period                         13,847             14,846
                                                                     --------            -------
Cash and cash equivalents, end of period                             $ 12,037            $ 9,860
                                                                     ========            =======




The  accompanying  notes  are an  integral  part of the  consolidated  financial statements.

</TABLE>


                                       5
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.  BASIS OF PRESENTATION

The  consolidated   financial   statements   include  the  accounts  of  eXcelon
Corporation  and its wholly owned  subsidiaries.  All  significant  intercompany
transactions  and balances have been  eliminated.  In the opinion of management,
the  accompanying   unaudited  consolidated  financial  statements  contain  all
adjustments,  consisting only of those of a normal recurring  nature,  necessary
for a fair presentation of our financial  position,  results of operations,  and
cash flows at the dates and for the periods indicated. While we believe that the
disclosures presented are adequate to make the information not misleading, these
financial  statements  should  be  read in  conjunction  with  the  consolidated
financial  statements  and related  notes  included in our Annual Report on Form
10-K for the year ended  December 31,  1999.  Certain  information  and footnote
disclosures  normally  included in financial  statements  prepared in accordance
with generally  accepted  accounting  principles  have been condensed or omitted
pursuant to Securities and Exchange  Commission rules and  regulations.  Certain
reclassifications  have been made for consistent  presentation.  We operate in a
single industry segment: computer software and related services.

The  results  for the three and nine  months  ended  September  30, 2000 are not
necessarily  indicative of the results to be expected for the entire fiscal year
ending December 31, 2000.

B.  NET LOSS PER SHARE

Basic   earnings   per  share  is  computed  by  dividing   net  income  by  the
weighted-average  number of common shares  outstanding  for the period.  Diluted
earnings  per  share  is  computed  by  dividing  net  income  by the sum of the
weighted-average  number of common  shares  outstanding  for the period plus the
number of common  shares  issuable  upon the assumed  exercise  of all  dilutive
securities,  such as stock  options.  The following is a calculation of earnings
per share  ("EPS") for the three and nine months  ended  September  30, 2000 and
1999:

<TABLE>
<CAPTION>
                                                         Three Months Ended                  Nine Months Ended
                                                            September 30,                      September 30,
(in thousands, except per share amounts)                 2000              1999             2000              1999
                                                         ----              ----             ----              ----
<S>                                                   <C>              <C>               <C>              <C>
Net loss                                              $ (1,849)         $ (3,155)         $ (3,628)         $ (6,836)
                                                      =========         =========         =========         =========

Weighted average shares outstanding:                    29,423            28,360            29,291            28,228
Stock options (dilutive)                                     -                 -                 -                 -
                                                      ---------         ---------         ---------
Diluted shares                                          29,423            28,360            29,291            28,228
                                                        ======            ======            ======            ======

Basic EPS                                               $(0.06)          $ (0.11)           $(0.12)          $ (0.24)
Diluted EPS                                             $(0.06)          $ (0.11)           $(0.12)          $ (0.24)

</TABLE>

Options to purchase  7,446,140 and 1,647,284 shares of common stock  outstanding
with  weighted-average  exercise  prices of $4.85 and $1.93 for the three  month
periods ended September 30, 2000 and 1999, respectively, and options to purchase
7,146,624 and 3,153,810 shares of common stock outstanding with weighted-average
exercise  prices of $4.77 and $2.95 for the nine month periods  ended  September
2000 and 1999,  respectively,  were excluded from the calculation of diluted net
loss per share as the effect of their inclusion would have been ANTI-DILUTIVE.


                                       6
<PAGE>

C.   COMPREHENSIVE LOSS

The table  below  sets forth  comprehensive  loss as  defined  by  Statement  of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income," for the
three-month  and  nine-month  periods  ended  September  30,  2000  and 1999 (in
thousands):

<TABLE>
<CAPTION>
                                                                  Three Months Ended               Nine Months Ended
                                                                      September 30,                    September 30,
                                                                  2000             1999            2000             1999
                                                                  ----             ----            ----             ----
<S>                                                          <C>              <C>             <C>              <C>
Net loss                                                      $ (1,849)        $ (3,155)       $ (3,628)        $ (6,836)
Other comprehensive income, net of tax:
   Foreign currency translation adjustments                         --              414            (250)             (56)
   Unrealized holding gain (loss) on securities                     29              (15)             35              (68)
                                                              --------         --------        --------         --------
Total other comprehensive income (loss)                             29              399            (215)            (124)
                                                              --------         --------        --------         --------
Comprehensive loss                                            $ (1,820)        $ (2,756)       $ (3,843)        $ (6,960)
                                                              ========         ========        ========         ========
</TABLE>

D.  NEW ACCOUNTING STANDARDS

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial  Statements" (SAB
101),  which among other  guidance,  clarifies  certain  conditions to be met in
order to  recognize  revenue.  In June  2000,  the SEC issued  Staff  Accounting
Bulletin No. 101B which delayed the  implementation  of SAB 101 until the fourth
quarter of fiscal years beginning after December 15, 1999. The implementation of
SAB 101 is not  expected to have a material  effect on the  Company's  financial
position or results or operations.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities" (SFAS 133). This accounting standard which is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000,  requires
that all  derivatives be recognized as either assets or liabilities at estimated
fair value.  In June 2000,  the  Financial  Accounting  Standards  Board  issued
Statement of Financial  Standards  No. 138, "Accounting  for Certain  Derivative
Instruments  and Certain  Hedging  Activities", an amendment  to SFAS 133.  This
accounting  standard amended the accounting and reporting  standards of SFAS No.
133 for certain derivative  instruments and hedging activities.  The adoption of
SFAS 133 as amended is not expected to have a material  effect on the  Company's
financial position or results of operations.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements, which reflect the current views
of  management  with  respect to future  events  that will have an effect on our
future financial performance,  including without limitation statements regarding
future revenue (including revenue from our B2B business) and expense levels, the
impact of changes in accounting  standards,  the hiring of additional  personnel
and adequate  liquidity to meet our capital and operating  requirements  for the
next twelve months.  These  statements  include the words  "expect,"  "believe,"
"anticipate,"  "estimate,"  and similar  expressions.  Such  statements  are not
guarantees of future performance,  and involve substantial risks,  uncertainties
and  assumptions  that could cause our future results to differ  materially from
those  expressed in any  forward-looking  statements.  We disclaim any intent or
obligation to update publicly any forward-looking statements whether in response
to new information, future events or otherwise.  Information about the basis for
those  assumptions and important  factors that could cause our actual results to
differ materially from these forward-looking statements is contained in "Certain
Factors That May Affect Future Results" included in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in our 1999
Annual Report on Form 10-K, which section is incorporated herein by reference.


                                       7
<PAGE>

RESULTS OF OPERATIONS

The following table shows certain consolidated financial data as a percentage of
our total  revenue for the three and nine months  ended  September  30, 2000 and
1999:



                                       Three Months Ended Nine Months Ended
                                            September 30, September 30,

                                     2000        1999        2000         1999
                                     ----        ----        ----         ----

Total revenues:                      100%        100%        100%         100%

Cost of revenues:
  Software                             3           6           3            5
  Services                            27          20          25           21
                                    ----        ----        ----         ----
Total cost of revenues                30          26          28           26

Gross profit                          70          74          72           74

Operating expenses:
  Selling and marketing               56          62          55           62
  Research and development            17          17          17           17
  General and administrative           9          11           9           11
  Restructuring charge                 -           6           -            2
                                    ----        ----        ----         ----
Total operating expenses              82          96          81           92

Operating loss                       (12)        (22)         (9)         (18)

Other income, net                      2           2           2            2
                                    ----        ----        ----         ----

Loss before income taxes             (10)        (20)         (7)         (16)
Provision for income taxes             -           -           -            -
                                    ----        ----        ----         ----
Net loss                             (10)%       (20)%        (7)%        (16)%
                                     =====       =====       =====        =====

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS:

TOTAL  REVENUES.  Our total  revenues  increased  20.2% to $18.8 million for the
three months ended  September  30, 2000 from $15.6  million for the  three-month
period  ended  September  30,  1999.  Total  revenues  for the nine months ended
September 30, 2000  increased  26.5% to $54.9 million from $43.4 million for the
nine-month  period ended September 30, 1999.  These increases were primarily due
to  increased  demand  for our  expanded  line of  business-to-business  ("B2B")
products and services.

SOFTWARE  REVENUES.  Software revenues  increased 33.1% to $12.3 million for the
three months  ended  September  30, 2000 from $9.2  million for the  three-month
period ended  September 30, 1999. For the nine-month  period ended September 30,
2000 software  revenues  increased 32.5% to $34.3 million from $25.9 million for
the nine-month  period ended September 30, 1999.  These increases were primarily
due to increased sales of B2B software, including our B2B Integration Server. We
expect  software  license  revenues  from our B2B business to increase in future
periods. As we continue to place greater focus on our B2B product line, our Data
Management software license revenues may stabilize or decline in future periods.
The timing of closing large-sized software deals could result in fluctuations of
future software license revenues in any given quarter.

                                       8
<PAGE>

SERVICES  REVENUES.  Service  revenues  increased  1.7% to $6.5  million for the
three-month   period  ended  September  30,  2000  from  $6.4  million  for  the
three-month period ended September 30, 1999. For the nine months ended September
30, 2000 service  revenues  increased  17.6% to $20.6 million from $17.5 million
for the nine-month  period ended September 30, 1999.  Service revenues grew at a
slower  rate  than  software   license   revenue,   mainly  because  of  reduced
productivity  of our services  organization  as we  repositioned  it from a Data
Management  consulting  practice to a B2B  consulting  practice.  We expect this
transition to continue through at least the end of the fourth quarter.

REVENUES  FROM  INTERNATIONAL  OPERATIONS.   Revenues  from  operations  of  our
international  subsidiaries  as a percentage of our total revenues  increased to
61.0% for the three months ended  September 30, 2000 compared with 41.0% for the
three-month  period  ended  September  30,  1999.  Revenues  from  international
operations as a percentage of total  revenues for the  nine-month  periods ended
September 30, 2000 and 1999 were 50.5% and 40.6%  respectively.  The increase in
international  revenues as a percent of total  revenues was due to growth in the
Asia Pacific and European regions.

COST  OF  SOFTWARE.  Cost  of  software  decreased  42.0%  to  $587,000  for the
three-month  period ended September 30, 2000 from $1,012,000 for the three-month
period ended September 30, 1999 and decreased as a percent of software  revenues
to 4.8% from 10.9% for the  three-month  periods  ended  September  30, 2000 and
September 30, 1999, respectively.  For the nine months ended September 30, 2000,
cost  of  software  decreased  5.1%,  to  $1,802,000  from  $1,899,000  for  the
nine-month  period  ended  September  30,  1999,  and  decreased as a percent of
software  revenues to 5.3% from 7.3% for the nine-month  periods ended September
30,  2000  and  September  30,  1999,  respectively.  The  decrease  in costs is
primarily  attributable  to a one time write off of technology  purchased in the
nine-month period ending September 30, 1999 as compared to the nine-month period
ending September 30, 2000.

COST OF  SERVICES.  Cost of  services  increased  59.7% to $5.0  million for the
three-month   period  ended  September  30,  2000  from  $3.1  million  for  the
three-month  period  ended  September  30,  1999 and  increased  as a percent of
service revenues to 76.8% from 48.9% for the three-month periods ended September
30,  2000 and  September  30,  1999,  respectively.  For the nine  months  ended
September 30, 2000, cost of services  increased 45.3% to $13.4 million from $9.2
million for the  nine-month  period ended  September 30, 1999 and increased as a
percent of service revenues to 65.0% from 52.6% for the nine-month periods ended
September 30, 2000 and September 30, 1999, respectively. The increase in cost of
services in absolute dollar terms and as a percent of service revenues  reflects
expenses  related to the growth in staffing  necessary  to generate  and support
increased  worldwide  service  revenues and to provide  customer  support to our
installed base,  accompanied by a lower  utilization of the staff because of the
transition  from a  Data  Management  consulting  practice  to a B2B  consulting
practice.

SELLING AND MARKETING.  Selling and marketing  expenses  increased 8.8% to $10.6
million for the three months ended  September 30, 2000 from $9.7 million for the
three months ended  September  30, 1999 and  decreased as a percentage  of total
revenues to 56.3% from 62.2% for the  three-month  periods  ended  September 30,
2000 and  September  19,  1999,  respectively.  Selling and  marketing  expenses
increased  11.6% to $29.9  million for the nine months ended  September 30, 2000
from $26.8 million for the nine months ended September 30, 1999 and decreased to
54.4% from 61.7% of total  revenues for the nine-month  periods ended  September
30, 2000 and  September  30, 1999,  respectively.  The increase in dollar amount
primarily reflects the cost of hiring additional sales and marketing  personnel,
the development of expanded sales and distribution  channels, and an increase in
promotional  activities and marketing  programs,  primarily  relating to our B2B
products and services.  We expect selling and marketing  expenses to continue to
increase in absolute  dollars in future periods,  but to decline as a percentage
of revenues over the next several quarters.

RESEARCH AND DEVELOPMENT.  Research and development  expenses increased 24.0% to
$3.2 million for the three months ended September 30, 2000 from $2.6 million for
the three months ended September 30, 1999 and increased as a percentage of total
revenues to 17.1% from 16.6% for the three months ended  September  30, 2000 and
September 30, 1999,  respectively.  Research and development  expenses increased
25.6% to $9.5  million for the nine months  ended  September  30, 2000 from $7.6
million for the nine months ended September 30, 1999 and decreased to 17.4% from
17.5% of total  revenues  for the  nine  months  ended  September  30,  2000 and
September  30, 1999,  respectively.  The increase in dollar amount was primarily
due to increased  staffing  associated  with the development of our B2B products
and  services.  We expect  research  and  development  expenses  to  continue to
increase in absolute dollars in future periods,  but to continue to decline as a
percentage of revenues for the next several quarters.

                                       9
<PAGE>

GENERAL AND ADMINISTRATIVE.  General and administrative  expenses increased 2.6%
to $1.7 million for the three months ended  September 30, 2000 from $1.6 million
for the three months ended  September  30, 1999 and decreased as a percentage of
revenue to 9.0% from 10.5% for the three  months  ended  September  30, 2000 and
September 30, 1999, respectively.  General and administrative expenses increased
8.8% to $5.0  million for the nine  months  ended  September  30, 2000 from $4.6
million for the nine months ended  September 30, 1999 and decreased to 9.2% from
10.6% of total  revenues  for the  nine  months  ended  September  30,  2000 and
September  30,  1999,  respectively.  The  increase  is  primarily  due  to  the
additional  professional  services required to support the overall operations of
the  business.  We expect  general  and  administrative  expenses to continue to
increase in absolute dollars in future periods,  but to continue to decline as a
percentage of revenues for the next several quarters.

OTHER  INCOME.  Other income  increased  63.1% to $416,000  for the  three-month
period ended September 30, 2000 from $255,000 for the  three-month  period ended
September  30,  1999.  Other  income  increased  31.8% to $1.1  million  for the
nine-month  period ended  September  30, 2000 from  $845,000 for the  nine-month
period  ended  September  30,  1999.  The  increase  was  largely  the result of
increased cash balances and higher rates of return on our cash and investments.

PROVISION  FOR INCOME  TAXES.  No  provision  for income  taxes were made in the
three-month  and nine-month  periods  ending  September 30, 2000, due to the net
losses we incurred in both periods.


LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2000, our principal sources of liquidity included $21.1 million
of cash  and cash  equivalents  and  short-term  investments.  We are  currently
negotiating  to renew our $2.0  million  revolving  line of credit with  Silicon
Valley Bank which  expired on September  29, 2000.  While we expect to have this
renewal of our $2.0 million  revolving  line of credit in place by January 2001,
there can be no  assurance  that this will  occur.  A separate  letter of credit
issued by Silicon  Valley Bank in the amount of $325,000 was  outstanding  as of
September 30, 2000.

Net cash used for  operating  activities  was $0.7  million  for the nine months
ended September 30, 2000 compared to $1.2 million used for the nine months ended
September 30, 1999. The reduction of the net use of cash is primarily attributed
to a decrease in the Company's net loss,  offset by an increase in cash used for
working capital needs.

Our  investing  activities  used $3.5  million of cash for the nine months ended
September 30, 2000, as compared to $4.2 million used by investing activities for
the nine-month  period ended  September 30, 1999. The decline in the use of cash
is mainly due to a decrease in the amount of net investments purchased.  The use
of cash from investment activities was primarily  attributable to investments in
capital assets of $2.6 million for the nine months ended  September 30, 2000, as
compared to  investments  of $1.7 million in capital  assets for the nine months
ended September 30, 1999.

Our financing  activities  provided net cash of $1.9 million for the nine months
ended  September  30,  2000,  as  compared to $0.3  million of cash  provided by
financing  activities in the same period in 1999.  The increase in cash provided
was due to $1.9  million in cash from  stock  option  exercises  during the nine
months ended  September  30, 2000 compared to $0.6 million of the same period in
1999.

We believe that our current cash, cash  equivalents,  marketable  securities and
funds generated from operations, if any, will provide adequate liquidity to meet
our capital and operating requirements for the next twelve months.

EURO CONVERSION

On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing  sovereign  currencies
and the Euro,  making the Euro their  common  legal  currency on that date.  The
legacy  currencies  will remain legal tender in the  participating  countries as
denominations  of the Euro  between  January  1, 1999 and  January  1, 2002 (the
"transition period").

                                       10
<PAGE>

During the transition  period,  public and private parties may pay for goods and
services using either the Euro or the participating country's legacy currency on
a "no compulsion,  no prohibition"  basis.  However,  conversion rates no longer
will be  computed  directly  from one legacy  currency to  another.  Instead,  a
triangular  process  will  apply  whereby  an amount  denominated  in one legacy
currency will first be converted into the Euro.  The resultant  Euro-denominated
amount will then be converted into the second legacy currency.

We have evaluated the business implications of conversion to the Euro, including
technical adaptation of information  technology and other systems to accommodate
Euro-denominated   transactions,   long-term  competitive  implications  of  the
conversions and the effect on market risk with respect to financial  instruments
and do not expect a material impact on our operations.

NEW ACCOUNTING STANDARDS

In December  1999, the  Securities  and Exchange  Commission  (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial  Statements" (SAB
101),  which among other  guidance,  clarifies  certain  conditions to be met in
order to  recognize  revenue.  In June  2000,  the SEC issued  Staff  Accounting
Bulletin No. 101B which delayed the  implementation  of SAB 101 until the fourth
quarter of fiscal years beginning after December 15, 1999. The implementation of
SAB 101 is not  expected to have a material  effect on the  Company's  financial
position or results or operations.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities" (SFAS 133). This accounting standard which is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000,  requires
that all  derivatives be recognized as either assets or liabilities at estimated
fair value.  In June 2000,  the  Financial  Accounting  Standards  Board  issued
Statement of Financial  Standards  No. 138, "Accounting  for Certain  Derivative
Instruments  and Certain  Hedging  Activities", an amendment  to SFAS 133.  This
accounting  standard amended the accounting and reporting  standards of SFAS No.
133 for certain derivative  instruments and hedging activities.  The adoption of
SFAS 133 as amended is not expected to have a material  effect on the  Company's
financial position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant  changes in our market risk exposure as described
in  Management's  Discussion and Analysis of Financial  Condition and Results of
Operations  included in our 1999 Annual Report on Form 10-K which description is
incorporated herein by reference.


Part II: OTHER INFORMATION

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security  holders during the three months
ended September 30, 2000.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)    Exhibits

EXHIBIT NUMBER      DESCRIPTION

*3.3                Amended and Restated Certificate of Incorporation
*3.5                Amended and Restated By-laws of the Company
27.1                Financial Data Schedule (filed herewith)

* This exhibit is  incorporated by reference to the similarly  numbered  exhibit
  filed as part of the Company's Registration Statement on Form S-1,  Securities
  and Exchange Commission File No. 333-05241.


                                       11
<PAGE>



(b)   Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended September 30, 2000.







                                       12
<PAGE>

SIGNATURES


Pursuant to the  requirements  of the Securities  Exchange Act of 1934,  eXcelon
Corporation  has duly caused this Quarterly  Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized.



                                       EXCELON CORPORATION
                                       (Registrant)



November 13, 2000                      By: /s/ Robert N. Goldman
                                          --------------------------------------
                                          President and Chief Executive Officer



November 13, 2000                      By: /s/ Lacey P. Brandt
                                          --------------------------------------
                                          Chief Financial Officer





                                       13



© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission