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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Commission File Number 0-21041
EXCELON CORPORATION
(Formerly Object Design, Inc.)
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(Exact name of registrant as specified in its charter)
Delaware 02-0424252
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 Mall Road, Burlington, MA 01803
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 674-5000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.001
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Securities registered pursuant to Section 12(g) of the Act: None
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. _________
The aggregate market value of voting stock held by non-affiliates of the
Registrant, based on the closing price of the Common Stock on February 28, 2000
as reported by the NASDAQ National Market, was approximately $533,628,606. For
purposes of the foregoing calculation, the Company has assumed that each
director, executive officer and holder of 10% or more of the voting stock of the
Registrant is an affiliate. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The Registrant had 29,128,162 shares of Common Stock outstanding as of February
28, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of our Definitive Proxy Statement for our 2000 Annual Meeting
of Stockholders are incorporated by reference into Part III of this Annual
Report on Form 10-K. Exhibit index is located on page 34.
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PART I
ITEM 1. BUSINESS
OVERVIEW
eXcelon Corporation (formerly Object Design, Inc.) is a leading provider of
software products and services used for building and deploying
business-to-business ("B2B") software applications that enable companies to
engage in dynamic B2B commerce across the Internet ("e-business"). We have two
major product lines: our Data Server line of data management software products,
and our recently expanded Dynamic B2B Solutions product line for building B2B
applications. During 1999, more than 90% of our total revenues were derived from
sales of Data Server product licenses and related services.
In the first quarter of 1999, we introduced our first B2B product called
eXcelon, an eXtensible Markup Language ("XML")-based application development
platform for building and deploying dynamic electronic commerce applications.
With its related suite of XML development tools, this product was designed to
enable companies to create dynamic, high-value electronic partnerships that can
accommodate the rapid pace of change in the B2B commerce environment. Over the
course of 1999, we have increasingly shifted our focus to our Dynamic B2B
Solutions product line, and in January 2000 we changed our company name from
Object Design, Inc. to eXcelon Corporation to better reflect this new business
focus.
We believe that our Dynamic B2B Solutions will be the foundation for creating a
new class of applications for B2B integration and collaboration, enabling
corporations to leverage a wide range of business partners to create sustainable
competitive advantage. Our B2B software enables companies to establish direct
links and business process integration with their customers, suppliers,
partners, and electronic B2B marketplaces, and to broaden and coordinate
interactions and information exchange between a wide variety of partners, both
tactical and strategic. Our software is designed to coordinate the interactions,
interoperability, and connectivity between one or many business partners, by
supporting a broad range of existing and emerging B2B communications standards
including XML, traditional electronic data interchange, or EDI, and XML-based
B2B frameworks, such as RosettaNet, Microsoft's BizTalk, Acord, fpML, and cXML.
In addition to our software offerings, we offer eXcelon eSolutions, a
comprehensive suite of business and technical consulting services to assist our
customers in planning and implementing dynamic B2B applications. eSolutions also
includes a set of vertical industry frameworks and application modules for quick
and cost-effective creation of B2B solutions in specific vertical markets. One
such framework is built around the XML-based Acord standard used in the
insurance industry.
We believe that our Dynamic B2B Solutions provide our customers with:
IMPROVED EFFICIENCIES AND OPPORTUNITIES FOR COST REDUCTION. Our solutions enable
companies to define and automate their business processes and practices in a way
that best leverages their partners, creating opportunities to outsource non-core
business functions, engage in collaborative forecasting with suppliers for
better inventory control, automate collections, and streamline product launches
into the sales channel. Our solutions also enable companies to broaden their
trading networks, creating opportunities for more competitive bidding for
services, materials, and supplies, automated access to Internet procurement
systems ensuring lowest cost buying, and better customer service via more
responsive and motivated partners in local markets.
NEW REVENUE OPPORTUNITIES. Our solutions enable companies to gain increased
market share by bringing products and value-added services to market more
quickly. For example, a manufacturer can link its customers' procurement system
directly to its ordering system, or list its products on one or many eMarkets,
which in turn may be linked to the same ordering system. Our solutions provide a
platform for rich and real-time business information exchange. With this type of
exchange, a manufacturer can quickly change and deploy new kinds of service
contracts, by first outsourcing specialized options to a broader set of business
partners, and then communicating this new service option quickly and efficiently
to the supply channel.
PRODUCTS & SERVICES
We operate in a single industry segment (computer software and related services)
within which we have two major product lines. Our Dynamic B2B product line
encompasses our solutions for addressing the B2B market - our new core business.
Our Data Server product line includes the products we sell primarily into the
telecommunications and embedded independent software vendor ("ISV") markets.
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DATA SERVER PRODUCTS
Our Data Server products and services include ObjectStore and Javlin. Our Data
Server products run on industry standard hardware, and adhere to Internet-based
industry standards for communications, programming interfaces, and data
exchange.
OBJECTSTORE
Our ObjectStore product is our object database management system. ObjectStore is
used extensively in the telecommunications industry in network management
applications, in e-business applications as the engine of high-speed Websites,
and as an OEM data management system embedded in hundreds of package software
applications. ObjectStore is available for C++ and Java. One of the attributes
that makes ObjectStore different from other databases is its patented
Cache-Forward architecture. This architecture maximizes application performance
while reducing network traffic, thus enabling applications to scale up to serve
large volumes of users without congesting the network.
JAVLIN
Javlin, our Enterprise Java Beans ("EJB") Data Server, is a Java data server
designed for e-business. Javlin accelerates Java applications and EJB
application server performance by providing distributed caching and persistent
data management in the middle tier. Javlin provides a middle tier solution for
complex data access and integration requirements in a Java environment.
DYNAMIC B2B PRODUCTS AND SERVICES
Our Dynamic B2B products and services include eXcelon B2B Integration Server,
eXcelon Portal Server (originally released in the first quarter of 1999 under
the product name eXcelon) and eXcelon eSolutions. Our Dynamic B2B products run
on industry standard hardware, and adhere to Internet-based industry standards
for communications, programming interfaces, and data exchange.
eXcelon B2B INTEGRATION SERVER
Our eXcelon B2B Integration Server enables users to expand their partner and
trading networks, to integrate their new and existing business processes with
these business partners and eMarkets and to establish high value business
relationships that are built for change. The functional components of the
eXcelon B2B Integration Server include the following:
B2B TRANSLATOR: provides interoperability between existing and emerging
XML-based B2B standards, and extensions to those standards. Companies will be
able to broaden their trading networks and simultaneously connect with partners,
suppliers, resellers, and eMarkets regardless of the B2B standard or protocol
they use. Accordingly, companies can more easily establish Web-based
relationships with their business partners regardless of size or location due to
the limited information technology investment required on the part of such
trading partners.
BUSINESS PROCESS WORKFLOW ENGINE: enables companies with the ability to
include partners in a unified business process workflow. Workflow is represented
using a business document metaphor, so that information can be shared with
internal systems and external business partners. Interactions between partners
can be tracked, audited and dynamically changed based upon internal and external
partner events. This capability is critical for Internet B2B transactions to
ensure the completion of business transactions that could span days, weeks or
even months.
ENTERPRISE APPLICATION ADAPTERS: provide adapters for enterprise
applications including SAP, Baan, PeopleSoft and J.D. Edwards, as well as for
more than 70 data formats, including Oracle, Informix, DB2, Cobol and Excel.
eXcelon PORTAL SERVER
Our eXcelon Portal Server enables companies to build and deploy vertical
eMarkets and trading hubs for reaching new markets, expanding and automating
trading channels, and facilitating collaboration between businesses. The eXcelon
Portal Server permits content to be aggregated from a wide variety of sources,
including external partner catalogs or business content, or existing enterprise
systems. This content can be personalized and delivered to devices,
applications, and browsers. The eXcelon Portal Server also coordinates business
transactions and can be combined with the eXcelon B2B Integration Server to
provide connectivity and business process integration.
The eXcelon Portal Server comes with a suite of tools for development and
deployment, including the following:
Explorer-- for inspecting and organizing content
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Stylus-- a "what you see is what you get" XSL editor for
creating eXtensible Style Sheets; personalization and
presentation options are defined with this tool
Studio-- for defining a catalog or auction application framework.
eXcelon eSOLUTIONS
eXcelon eSolutions is a comprehensive suite of business and technical consulting
services for evaluating, designing, and deploying an overall B2B solution. These
services are designed to provide a proper and methodical approach to defining
and building B2B solutions.
eXcelon eSolutions also include vertical industry frameworks for the insurance,
retail, telecommunications and manufacturing industries. Each framework
leverages common components for extending EDI using XML, and for connecting to
industry specific eMarkets and trading hubs. These frameworks are among the
first available in what will be an ongoing program through which eXcelon
Corporation will provide B2B frameworks for selected vertical industries.
COMPETITION
The markets in which we compete are intensely competitive, rapidly changing, and
are likely to see more entrants and new technologies. While none of our
competitors or potential competitors currently offers a product set that is
identical to our Dynamic B2B Solutions, we do expect competition from software
vendors with B2B solutions or product lines such as WebMethods, Inc., BEA
Systems, Inc., Vitria Technology, Inc., IBM and OnDisplay, Inc. We also expect
to see competition from existing EDI and electronic application interchange
vendors as they move their solutions towards the problems of integrating across
organizations.
Competition for our Data Server product line is from companies offering a
variety of database solutions, including: object databases available from
Computer Associates, Gemstone, Poet and Versant; relational databases available
from Computer Associates, IBM, Informix, Microsoft, Oracle and Sybase;
extended-relational and object-relational databases available from IBM, Informix
and Oracle; object-to-relational middleware mapping tools such as the Java Blend
product by Sun Microsystems; and other specialized databases such as on-line
analytical processing databases.
We expect additional competition from existing competitors and from a number of
other companies that may enter our existing and future markets. The additional
competition could adversely affect our business, results of operations and
financial condition. Some of our current and potential competitors have
substantially greater financial, marketing and technical resources than we have.
PRODUCT DEVELOPMENT
We believe that our future will depend in large part on our ability to maintain
our technology leadership and to develop products having advanced features and
functionality. We have made substantial investments in research and development,
primarily through internal development. Our research and development
organization is divided into teams consisting of development engineers, quality
assurance, testing and porting engineers, and technical writers. Product
definition is based on a consolidation of requirements from existing and
prospective customers and from our technical support, product management and
engineering groups. As of December 31, 1999, there were 77 employees on our
research and development staff. Research and development expenditures during
1999, 1998, and 1997 were $10.3 million, $8.6 million and $7.7 million,
respectively, and represented 17%, 14% and 16% of our total revenues,
respectively. We expect to continue committing significant resources to research
and development in the future. All research and development expenditures are
charged to operations as incurred.
SERVICES
TRAINING AND CONSULTING. We hold training courses at our various locations
around the world or at customer sites. We also provide fee-based consulting
services to our customers in the form of project-based on-site services designed
to provide assistance at key points in a customer's product development cycle.
SUPPORT SERVICES. Maintenance and support contracts are offered with the initial
software license and typically are renewable on an annual basis. Maintenance and
support fees are set as a fixed percentage of the current list price of the
product. Support services include maintenance of our software products in
accordance with specifications contained in the user's guide for such products
and access to technical support personnel.
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SALES AND MARKETING
We employ a multi-channel sales and marketing strategy, using direct sales,
systems integrators, ISV's, distributors and other channel partners to address
our global market.
DIRECT SALES. We rely principally on direct sales of our products. Our direct
sales force is organized in teams consisting of field sales representatives and
technical sales support representatives. As of December 31, 1999, our direct
sales force included 103 employees in 20 locations worldwide. We plan to expand
our direct sales force through aggressive recruitment of qualified individuals.
CHANNEL PARTNER PROGRAMS. We have partnered with a variety of systems
integrators, independent software vendors and resellers that can complement our
direct sales force and broaden the worldwide penetration of our products.
INTERNATIONAL DISTRIBUTORS. In certain international markets, we use third party
distributors and resellers that are supported by our sales organization.
Approximately 2.5%, 2.3% and 4.2% of our total revenues were derived from sales
to international distributors in 1999, 1998 and 1997, respectively.
In support of our sales and marketing efforts, we conduct sales training
courses, targeted marketing programs including direct mail, trade shows, public
relations, advertising and seminars, and ongoing customer and third party
communications programs. We also seek to stimulate interest in our products and
services through speaking engagements, white papers, technical notes and other
publications. We maintain a Web site at http://www.exceloncorp.com where
potential customers can obtain information about our products.
CUSTOMERS
Our customers represent a broad spectrum of enterprises within diverse
industries, including high technology, financial services, manufacturing,
telecommunications, insurance, retail and B2B marketplaces. No customer
accounted for 10% or more of total revenues during the years of 1999, 1998 and
1997.
BACKLOG
We maintain no material backlog because business, typically, is booked and
shipped in the same quarter.
PROPRIETARY RIGHTS
We rely primarily on a combination of trade secret, copyright, patent, and
trademark law and contractual provisions to protect our proprietary rights in
our software products. These protections may not be adequate in certain
circumstances. As of March 2000, we have two issued patents, expiring between
2011 and 2015, covering our cache forward architecture and other aspects of
software technology. Competitors may independently develop technologies that are
substantially equivalent or superior to our technology. In addition, patent,
copyright, trademark and trade secret protection for our products may be
unavailable or unreliable in certain foreign countries. As the number of
software products in the industry and the number of software patents increase,
we believe that software developers may become increasingly subject to
infringement claims.
While no significant claims of this type have been asserted against us, there
can be no assurance that such claims will not be asserted against us with
respect to existing or future products or that, we would prevail against any
such claims that were asserted. If a lawsuit of this type is filed, it could
result in significant expense to us and divert the efforts of our technical and
management personnel, whether or not we ultimately prevail. While we believe
that our products do not infringe other parties' patents, copyrights, trade
secrets, trademarks and other proprietary rights, it cannot be certain that our
products are not doing so. Infringement of valid third party patents,
copyrights, trade secrets, trademarks and other proprietary rights could have an
adverse effect on our business and results of operations. With respect to an
increasing number of products offered, we rely on "Shrink-wrap" and "Click-wrap"
licenses not signed by the licensee to protect our proprietary rights.
"Shrink-wrap" and/or "Click-wrap" licenses may be unenforceable under the laws
of certain jurisdictions.
EMPLOYEES
As of December 31, 1999, we employed 313 full-time employees, including 77 in
research and development, 120 in sales and marketing, 85 in professional
services and customer support, and 31 in finance and administration. None of our
employees are represented by a labor union, and we consider our employee
relations to be good.
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ITEM 2. PROPERTIES
Our corporate headquarters are located in Burlington, Massachusetts, consisting
of approximately 60,000 square feet of office space under a lease expiring in
February 2003. We also lease sales offices in 14 locations worldwide. We believe
that our existing facilities and offices and additional space available to us
are adequate to meet our requirements over the next twelve months.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this Annual Report on Form 10-K, we are not a party to any
legal proceedings the outcome of which, in the opinion of management, would have
a material adverse effect on our results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the three months
ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Common Stock trades on the Nasdaq Stock Market ("NASDAQ") under the symbol
"EXLN." The following table sets forth, for the periods indicated, the high and
low sale prices for the Common Stock as reported by NASDAQ.
1999 High Low
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First Quarter $10.50 $5.00
Second Quarter 5.44 2.78
Third Quarter 5.13 2.50
Fourth Quarter 15.47 3.31
1998 High Low
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First Quarter $8.56 $4.00
Second Quarter 8.44 4.63
Third Quarter 8.56 5.00
Fourth Quarter 7.75 3.75
At December 31, 1999, there were 171 holders of record of our Common Stock. This
number does not include beneficial owners for whom shares were held in a
"nominee" or "street" name. We believe that there are at least 400 beneficial
owners of our Common Stock. We have never paid cash dividends on our Common
Stock. The current policy of our Board of Directors is to retain all earnings
for our continued growth.
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected historical consolidated
financial data, which should be read in conjunction with our consolidated
financial statements and related notes included elsewhere herein.
Selected Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 60,810 $ 62,358 $ 47,265 $ 38,339 $ 32,706
Operating income (loss) (8,218) 4,380 (436) 1,240 (10,406)
Net income (loss ) (7,144) 4,823 800 520 (10,282)
Earnings (loss) per share
Basic (0.25) 0.17 0.03 0.03 (4.59)
Diluted (0.25) 0.17 0.03 0.02 (4.59)
Balance Sheet Data:
Working capital $ 16,130 $ 25,897 $ 23,968 $ 24,225 $ (990)
Total assets 47,405 48,992 38,878 38,461 17,154
Long-term obligations - 18 236 120 476
Total stockholders' equity (deficit) 29,513 34,751 28,819 28,233 (32,756)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
eXcelon Corporation is a leading provider of software products and services used
for building and deploying B2B software applications that enable companies to
engage in Dynamic B2B commerce across the Internet. We have two major product
lines: our Data Server line of data management software products, and our
recently expanded Dynamic B2B Solutions product line for building B2B
applications. Our Dynamic B2B Solutions product line encompasses our solutions
for addressing the B2B market - our new core business. Our Data Server product
line augments the Dynamic B2B Solutions product line and represents the products
we sell primarily into the telecommunications and embedded ISV markets. Our
products are marketed and sold worldwide through our direct sales force, systems
integrators, independent software vendors, international distributors and other
channel partners.
We expect to increase our sales and marketing, research and development and
general and administrative expenses as we develop and expand our new Dynamic B2B
Solutions line of products and services. Because our B2B products and services
are in the early phase of market acceptance, we do not expect to generate
sufficient B2B revenues in 2000 to cover all such expenses. Accordingly, we
expect to incur a loss in 2000.
Our revenues are derived from sales of licenses of our Data Server and Dynamic
B2B Solutions software, professional services, and maintenance. Our Dynamic B2B
Solutions product line was introduced in 1999. More than 90% of our 1999
revenues were derived from our Data Server product line. We generally license
our software products on a perpetual basis. License fees are generally billed
upon shipment. Maintenance is generally billed annually in advance. We offer our
eXcelon eSolutions and our implementation and other professional services
primarily on a time and materials basis. We offer training on a fixed fee basis.
We recognize revenue in accordance with the provisions of AICPA Statement of
Position 97-2 "Software Revenue Recognition." Revenue from software license fees
is recognized when there is evidence of an arrangement, the product has been
delivered, fees are fixed and determinable, and collection of the related
receivable is deemed probable by management. Revenue from sales through
distributors is recorded net of distributor commissions. Maintenance revenue,
including those bundled with the initial license fee, are deferred and
recognized ratably over the service period, generally one-year. Consulting and
training service revenue is recognized as the services are performed.
Our cost of software revenues includes primarily royalties to third parties for
software used in our software. Our cost of services revenues primarily includes
salaries and related expenses of our consulting and technical support personnel,
and an allocation of overhead and recruitment costs.
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The following table sets forth certain revenue and cost data as a percentage of
our total revenues for each of the three years ended December 31,1999.
1999 1998 1997
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Revenues:
Software 60% 71% 71%
Services 40 28 24
Related party software and services - 1 5
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Total revenues 100% 100% 100%
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Cost of revenues:
Cost of software 4 2 3
Cost of services 21 16 18
Cost of related party software and services - 1 1
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Total cost of services 25 19 22
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Gross profit 75 81 78
Operating expenses:
Selling and marketing 60 51 53
Research and development 17 14 16
General and administrative 10 9 10
Restructuring 2 - -
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Total operating expenses 89 74 79
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Operating income (loss) (14) 7 (1)
Other income, net 2 2 3
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Income (loss) before income taxes (12) 9 2
Provision for income taxes - 1 -
--------- --------- -------
Net income (loss) (12)% 8% 2%
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1999 COMPARED TO 1998
SOFTWARE REVENUES. Software revenues decreased 16.8%, to $36.6 million in 1999
from $44.0 million in 1998. The decrease was primarily due to decreased volume
of Data Server software licenses offset partially by an increase in sales of our
new Dynamic B2B Solutions product line. We expect software license revenues from
our Dynamic B2B Solutions business to increase in future periods. As we continue
to place greater focus on our Dynamic B2B Solutions product line, our Data
Server 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 quarter.
SERVICES REVENUES. Services revenues increased 34.3%, to $24.2 million in 1999
from $18.0 million in 1998. The increase is due to higher demand for our
consulting services related to customer deployments of our software and higher
maintenance revenues, reflecting continued growth in our installed base of Data
Server products. We plan to hire additional consulting personnel during 2000 to
accommodate projected additional growth for our consulting services. As a
result, we expect that our services revenues will grow in absolute dollars in
future periods, but may fluctuate as a percentage of total revenues.
RELATED PARTY REVENUES AND COST OF RELATED PARTY REVENUES. Related party
revenues and associated cost of related party revenues were not material in
1999. In 1998, related party revenues and associated cost of revenues were
derived from services provided to IBM. IBM ceased to be a related party in 1999.
REVENUES FROM INTERNATIONAL OPERATIONS. Revenues from the operations of our
international subsidiaries decreased $1.0 million in 1999 as compared to 1998.
International revenues as a percentage of total revenues were 38.5% in 1999
compared with 39.2% in 1998. The decrease in dollar amount of our international
revenues is approximately commensurate with the year-over-year decrease in our
total revenues.
COST OF SOFTWARE REVENUES. Cost of software revenues increased 48.3%, to $2.4
million in 1999 from $1.6 million in 1998, and increased as a percentage of
software revenues to 6.5% from 3.6% for such years, respectively. The increase
in absolute dollars and as a percentage of software revenues is due to
additional purchases of technology from third parties in 1999 for inclusion in
our new Dynamic B2B Solutions product line, as well as the write-off in 1999 of
certain previously purchased technologies.
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COST OF SERVICES REVENUES. Cost of services revenues increased 25.4%, to $12.9
million in 1999 from $10.3 million in 1998 and decreased as a percentage of
services revenues to 53.5% from 57.3% for such years, respectively. The increase
in dollar amount reflects the growth in staffing necessary to generate and
support increased worldwide service revenues and provide customer support to our
growing installed base. The decrease in cost of services as a percentage of
service revenues is primarily due to higher average utilization of consulting
personnel in 1999. We expect cost of services revenues to continue to grow in
absolute dollars, and it may increase as a percentage of services revenues in
future periods as we invest in expanding our services organization in
anticipation of future growth.
SELLING AND MARKETING EXPENSE. Selling and marketing expense increased 15.3%, to
$36.4 million in 1999 from $31.6 million in 1998, and increased as a percentage
of total revenues to 59.9% from 50.7% for such years, respectively. The increase
in dollar amount and as a percentage of total revenues resulted primarily from
the hiring of additional marketing personnel and increased spending on marketing
programs to launch our new Dynamic B2B Solutions product line. We plan to expand
our sales force and incur higher levels of marketing investments throughout the
next year and, as a result, expect selling and marketing expense to continue to
increase in future periods.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased
19.1%, to $10.3 million in 1999 from $8.6 million in 1998, and increased as a
percentage of total revenues to 16.9% in 1999 from 13.9% for 1998. The increase
was due principally to the addition of personnel, depreciation of capital
equipment and related overhead for the development of new Dynamic B2B Solutions
products and enhancement to existing Data Server products. We expect research
and development expense to increase in future periods as we continue to expand
and enhance our Dynamic B2B Solutions product line.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased
7.7%, to $6.1 million in 1999 from $5.6 million in 1998, and increased as a
percentage of total revenues to 10.0% in 1999 compared to 9.0% in 1998. The
increase is reflective of the increased staffing, investments in information
technology, professional expenses and other costs associated with our expanding
operations. We expect general and administrative expense to increase in future
periods.
RESTRUCTURING. In 1999, we recorded a restructuring charge in the amount of
$945,000, in connection with repositioning the company for future growth. The
charge is composed of severance costs for eleven employees, closure costs of
some office space, and cancellation costs of certain marketing initiatives.
OTHER INCOME. Other income increased 14.2%, to $1.1 million in 1999 from $1.0
million in 1998. The increase was largely the result of overall higher cash
balances as well as some movement to longer-term investments that yield a higher
rate of return.
PROVISION FOR INCOME TAXES. In 1999, we paid only certain foreign income taxes
due to our overall net loss. Our effective tax rate for 1998 was 10%. The
effective tax rate in 1998 reflects an alternative minimum tax provision for
federal taxes and certain state and foreign taxes. The effective tax rate is
lower than the statutory rate principally due to the utilization of net
operating loss carryforwards.
1998 COMPARED TO 1997
SOFTWARE REVENUES. Software revenues increased 31.2%, to $44.0 million in 1998
from $33.6 million in 1997. The increase was primarily due to increased volume
of object database software licenses.
SERVICES REVENUES. Services revenues increased 57.6%, to $18.0 million in 1998
from $11.4 million in 1997. The higher services revenue included increased
consulting revenues relating to customer deployments and higher billable
utilization of consulting personnel in 1998, as well as increased maintenance
revenues, reflecting growth in our installed base. Growing demand for our
consulting services has led us to increase the number of our consulting
personnel.
RELATED PARTY SOFTWARE AND SERVICES REVENUES. Revenues from related parties
decreased to $0.3 million in 1998 from $2.3 million in 1997. The decrease was
primarily due to the fact that a large software purchase by IBM in the first
quarter of 1997 that was not repeated in 1998 and to the discontinuation in 1997
of a joint development project with IBM.
REVENUES FROM INTERNATIONAL OPERATIONS. Revenues from the operations of our
international subsidiaries increased $8.9 million in 1998 as compared to 1997
and also increased as a percentage of our total revenues, to 39.2% in 1998
compared with 32.9% in 1997. The increase is due to increased volume of object
database software licenses and is attributable to the expansion of our
international direct sales force and increased services revenue reflecting
growth in our international installed base.
COST OF SOFTWARE REVENUES. Cost of software revenues increased 10.9%, to $1.6
million in 1998 from $1.4 million in 1997, and decreased as a percentage of
9
<PAGE>
software revenues to 3.6% from 4.3% for such years, respectively. The decrease
as a percentage of software revenues reflect lower royalty costs in 1998, due in
part to a change in revenue mix toward sales of object database and other
products that bear lower or no third-party royalties.
COST OF SERVICES REVENUES. Cost of services revenues increased 23.3%, to $10.3
million in 1998 from $8.4 million in 1997 and decreased as a percentage of
services revenues to 57.3% from 73.2% for such years, respectively. The increase
in dollar amount reflects the growth in staffing necessary to generate and
support increased worldwide service revenues and provide customer support to our
growing installed base. The decrease in cost of services as a percentage of
service revenues is primarily due to higher average utilization of consulting
personnel in 1998.
COST OF RELATED PARTY SOFTWARE AND SERVICES REVENUES. The cost of related party
software and services revenues declined 39.9%, to $0.2 million in 1998 from $0.4
million in 1997, and increased as a percentage of related party software and
services revenues to 68.5% from 15.4% in such years, respectively. The increased
cost as a percentage of revenues was attributable to a shift in the mix of
revenues in 1998 from higher margin software revenues to lower margin
maintenance revenues.
SELLING AND MARKETING EXPENSE. Selling and marketing expense increased 25.2%, to
$31.6 million in 1998 from $25.2 million in 1997, and decreased as a percentage
of total revenues to 50.7% from 53.4% for such years, respectively. The increase
in dollar amount resulted primarily from continued efforts to expand and retain
our sales force and increased marketing investment, including increased
expenditures on salaries, recruiting fees, marketing programs, travel and other
related expenses, as well as higher sales commissions associated with higher
revenues.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased
12.0%, to $8.6 million in 1998 from $7.7 million in 1997, but decreased as a
percentage of total revenues to 13.9% from 16.3% for 1997. The expense increase
was due principally to the addition of personnel, depreciation of capital
equipment and related overhead for enhancements to existing products and the
development of new products.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased
22.3%, to $5.6 million in 1998 from $4.6 million in 1997, but decreased as a
percentage of total revenues to 9.0% in 1998 compared to 9.7% in 1997. The
increase in dollar amount is reflective of the increased staffing, investments
in information technology, professional expenses and other costs associated with
our expanding operations.
OTHER INCOME. Other income decreased 26.6%, to $1.0 million in 1998 from $1.3
million in 1997. The decrease was largely the result of lower rates of return on
cash and investments.
PROVISION FOR INCOME TAXES. Our effective tax rate of 10.0% and 10.8% for 1998
and 1997, respectively, reflects an alternative minimum tax provision for
federal taxes and certain foreign and state taxes. The effective tax rate in
both years is lower than the statutory rate principally due to the utilization
of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, our principal sources of liquidity included $19.2 million
of cash, cash equivalents and short-term marketable securities, $4.6 million of
long-term marketable securities, and a $2.0 million revolving line of credit
with Silicon Valley Bank entered into in September 1999. Availability under the
line of credit is based on a formula of eligible accounts receivable, subject to
compliance with certain covenants. Borrowings are collateralized by our assets,
excluding intellectual property, and bear interest at the bank's prime rate. At
December 31, 1999, no borrowings were outstanding, and we were in compliance
with the bank's covenants. A letter of credit in the amount of $450,000 under
the line of credit was outstanding at that date. The line of credit expires in
September 2000, and we expect to renew the line of credit on terms similar to
the existing agreement.
Our operating activities provided net cash of $1.7 million and $10.1 million in
1999 and 1998, respectively. The decrease was primarily the result of a net loss
of $7.1 million in 1999 compared to net income of $4.8 million in 1998, offset
in part by improved cash management and higher non-cash depreciation and
amortization expense.
Our investing activities used net cash of $4.3 million and $12.2 million in 1999
and 1998, respectively. The decrease was attributable primarily to the net
purchase of $150,000 of marketable securities in 1999, compared to the net
purchase of $7.2 million of marketable securities in 1998, and a decrease in
purchased technology to $1.2 million in 1999 from $2.7 million in 1998.
10
<PAGE>
Our financing activities provided net cash of $1.7 million and $933,000 for the
years ended December 31, 1999 and 1998, respectively. The increase was due to an
increase in proceeds from stock option exercises to $2.0 million in 1999 from
$1.0 million in 1998 and the absence of repayment of shareholder advances in
1999.
We believe that our current cash, cash equivalents, marketable securities, bank
line of credit 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").
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 issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. We have
not yet completed our evaluation of the impact of the adoption of this new
standard; however, it is not expected to have a material impact on our financial
position and results of operations.
In December 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions"("SOP 98-9"), which addresses
software revenue recognition as it applies to certain multiple-element
arrangements. SOP 98-9 also amends SOP 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2," to extend the deferral of application of certain
provisions of SOP 97-2 through fiscal years beginning on or before March 15,
1999. All other provisions of SOP 98-9 are effective for transactions entered
into in fiscal years beginning after March 15, 1999. We will comply with the
requirements of this SOP as they become effective and do not expect that our
revenues and earnings will be materially affected.
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for fiscal years
beginning after June 15, 2000. SFAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair values. Changes in fair values of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, depending on the type of hedge transaction. We have
not yet completed our evaluation of the impact of the adoption of this new
standard; however, it is not expected to have a material impact on our financial
position and results of operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by us, statements made by our employees
or information included in our filings with the Securities and Exchange
Commission may contain statements which are not historical facts but which are
"forward looking statements" which involve risks and uncertainties. The words
"expect", "anticipate", "internal", "plan", "believe," "seek", "estimate" and
similar statements are intended to identify such forward looking statements. In
particular, statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" relating to our future shipments, revenue
and expense levels and profitability, as well as the sufficiency of capital to
meet working capital and capital expenditure requirements, may be
forward-looking statements. Our disclosures in Item 7A, " Quantitative and
Qualitative Disclosures About Market Risk," also constitute forward-looking
statements. This Report also contains other forward-looking statements,
including without limitation statements regarding: the market opportunity for
the Dynamic B2B software, our competitors, the stability of our Data Server
11
<PAGE>
business, the capabilities of our Dynamic B2B Solutions product line, the
adequacy of our existing facilities to meet our requirements over the next
twelve months, adequate liquidity to meet our capital and operating requirements
for the next twelve months. Such statements are not guarantees of future
performance, but are based on assumptions and expectations of our management at
the time such statements are made, and involve certain risks, uncertainties and
assumptions that could cause our future results to differ materially from those
expressed in any forward-looking statements. The Company disclaims any intent or
obligation to update publicly any forward-looking statements whether in response
to new information, future events or otherwise.
The majority of our revenues to date have been derived from our Data Server line
of object-oriented products and related services. Future revenues from this
product line will depend to a substantial degree on the emergence and widespread
adoption of object-oriented programming as a methodology for developing and
deploying multi-user business applications. There can be no assurance that
object-oriented programming will become, and remain, an accepted methodology for
developing and deploying enterprise-wide business applications or that our
object-oriented database products and services will achieve or maintain market
acceptance.
We expect to increase our sales and marketing, research and development and
general and administrative expenses as we develop and expand our new Dynamic B2B
Solutions line of products and services. Because our B2B products and services
are in the early phase of market acceptance, we do not expect to generate
sufficient B2B revenues in 2000 to cover all such expenses. Accordingly, we
expect to incur a loss in 2000. We believe that our current cash, cash
equivalents, marketable securities and bank line of credit will provide adequate
liquidity to meet our capital and operating requirements for the next twelve
months. The time for which we believe our capital is sufficient is an estimate.
The actual time period may differ materially as a result of a number of factors,
risks and uncertainties. We may need to raise additional funds in the future
through public or private debt or equity financing in order to develop new
products or services, acquire complementary businesses or technologies or
respond to competitive pressures. Additional financing we may need in the future
may not be available on terms favorable to us, if at all. If adequate funds are
not available or are not available on acceptable terms, we may not be able to
take advantage of opportunities, develop new products or services or otherwise
respond to unanticipated competitive pressures. In such case, our business,
operating results and financial condition could be harmed.
Our new Dynamic B2B Solutions product line is currently based in large part upon
XML, or eXtensible Markup Language, an emerging standard for sharing data over
the Internet. While we anticipate that XML will achieve broad market acceptance
in the near future, it is possible that a competing standard perceived to be
superior could replace XML, in which case the market may not accept an XML-based
product. If a new standard were perceived to be superior, our software might not
be compatible with the new standard or we might not be able to develop a product
using this standard in a timely manner. Consequently, a failure of XML-based
products to achieve broad market acceptance or the introduction of a competing
standard perceived to be superior in the market could harm our business.
The market for B2B e-commerce solutions is rapidly changing and intensely
competitive. We expect competition to intensify as the number of entrants and
new technologies increases. We may not be able to compete successfully against
current or future competitors. The competitive pressures facing us may harm our
business, operating results and financial condition.
Our current and potential competitors include, among others, large software
vendors, companies and trading networks that develop their own
business-to-business integration e-commerce solutions, vendors, vendors of
proprietary enterprise application integration, or EAI, solutions and
application server vendors who have added XML capabilities to their products. In
addition, our customers and companies with whom we currently have strategic
relationships may become competitors in the future. Many of our competitors and
potential competitors have more experience developing Internet-based software,
larger technical staffs, larger customer bases, more established distribution
channels, greater brand recognition and greater financial, marketing and other
resources than we do. Our competitors may be able to develop products and
services that are superior to our software and services, that achieve greater
customer acceptance or that have significantly improved functionality as
compared to our existing software and future products and services. In addition,
negotiating and maintaining favorable customer and strategic relationships is
critical to our business. Our competitors may be able to negotiate strategic
relationships on more favorable terms than we are able to negotiate. Many of our
competitors may also have well-established relationships with our existing and
prospective customers. Increased competition may result in reduced margins, loss
of sales or decreased market share, which in turn could harm our business,
operating results and financial condition.
We depend on product innovation and new product releases to remain competitive.
Any delay in the release of products or failure of released products to meet the
market expectation of functionality and features could undermine our competitive
position. Furthermore, certain of our competitors are significantly larger and
are expending greater amounts on research and development and sales and
marketing than we are. The result could be new competitive product introductions
that could limit the salability of our products or put pressure on sales prices.
12
<PAGE>
Our future success depends upon our ability to attract and retain highly skilled
technical, managerial, sales and marketing personnel. We assume that we will
continue to be able to attract and retain such personnel. While we have not
experienced any significant difficulty in hiring qualified personnel to date,
competition for such personnel in the high technology industry is intense. We
experience attrition, and this cannot be predicted. The failure to recruit and
retain qualified personnel, however, could have a material adverse effect on our
future operating results.
Our software is complex and may contain known and undetected errors or
performance problems. Many serious defects are frequently found during the
period immediately following introduction of new software or enhancements to
existing software. Although we attempt to resolve all errors that we believe
would be considered serious by our customers, our software is not error-free.
Undetected errors or performance problems may be discovered in the future. Our
customers may perceive such errors to be serious. This could result in lost
revenue or delays in customer acceptance and would be detrimental to our
reputation, which could harm our business, operating results and financial
condition.
Because of the complexity of our software, internal quality assurance testing
and customer testing may reveal product performance issues or desirable feature
enhancements that could lead us to postpone the release of new versions of our
software. In addition, the reallocation of resources associated with any
postponement could cause delays in the development and release of future
enhancements to our currently available software. We may not be able to
successfully complete the development of future enhancements in a timely and
efficient manner. Any such failure or delay could harm our operating results.
Our market is characterized by rapidly changing technology, evolving industry
standards and frequent new product announcements. To be successful, we must
adapt to our rapidly changing market by continually improving the performance,
features and reliability of our software and services. We could incur
substantial costs to modify our software, services or infrastructure in order to
adapt to these changes. Our business could be harmed if we incur significant
costs without adequate results, or if we are unable to adapt rapidly to these
changes.
The market for Internet-based, business-to-business integration software is
relatively new and is evolving rapidly. Our future revenues and any future
profits depend upon the widespread acceptance and use of the Internet as an
effective medium for business-to-business commerce. The failure of the Internet
to continue to develop as a commercial or business medium could harm our
business, operating results and financial condition. The acceptance and use of
the Internet for business-to-business commerce could be limited by a number of
factors, such as the growth and use of the Internet in general, the relative
ease of conducting business on the Internet, the efficiencies and improvements
that conducting commerce on the Internet provides, concerns about transaction
security and taxation of transactions on the Internet.
We typically receive the majority of our revenue in the last month of each
quarter with a concentration of revenue in the latter half of such month. This
pattern, common to many software companies, makes it difficult to forecast
accurately, increasing the possibility of missing a quarterly revenue or profit
target. Any inability to obtain orders in large volume or to make shipments in
the period immediately preceding the end of any particular quarter may cause the
results for that quarter to fall short of our revenue targets. Any failure to
meet our quarterly revenue or earnings targets could adversely impact the market
price of our stock. A significant portion of our revenues is derived from sales
by our international subsidiaries and to distributors outside the United States.
There can be no assurance, however, that we will be able to maintain or increase
international market demand for our products. As a result of the foregoing and
other factors, we may experience material fluctuations in future operating
results on a quarterly or annual basis which could materially and adversely
affect our business, financial condition, operating results and stock price.
Market prices for securities of software companies have generally been volatile.
In particular, the market price of our stock has been and may continue to be
subject to significant fluctuations and may also be affected by broader market
trends unrelated to our company's performance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We face exposure to certain market risks, primarily adverse movements in foreign
currency exchange rates and changes in interest rates. We have not invested in
derivative instruments or derivative commodity instruments. We believe that the
fair value of other financial instruments reflected in our consolidated balance
sheets does not represent a significant market risk due to the nature of these
instruments and their short-term maturities. We also do not believe that our
future earnings, fair values and/or cash flows are subject to risk of material
near term loss due to changes in market rates or prices that we consider to be
reasonably possible in the near term. However, our exposure to market risk may
change over time as our business practices evolve, and could in the future
materially adversely effect our financial condition and results of operations.
Our primary exposure has been related to local currency revenue and operating
expenses in Europe and the Asia/Pacific region.
13
<PAGE>
FINANCIAL RISK MANAGEMENT
The carrying amounts reflected in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, and accounts payable approximate fair
value at the balance sheet date due to the short maturities of these
instruments.
Our exposure to market rate risk for changes in interest rates relates primarily
to our investment portfolio. We have not used derivative financial instruments
in our investment portfolio. Information about our investment portfolio is set
forth in Note C of Notes to the Consolidated Financial Statements included in
Item 8 of this Annual Report on Form 10-K and is incorporated herein by
reference.
We maintain investment portfolio holdings of various issuers, types, and
maturities. These securities are classified as available for sale, and
consequently, are recorded on the balance sheet at fair value with unrealized
gains or losses included in stockholders' equity. To date, we have not
experienced material losses on our investments. We place our investments with
high quality issuers and, by policy, limit the amount of credit exposure to any
one issuer. Given the short maturities and investment grade quality of the
portfolio holdings at December 31, 1999, a sharp rise in interest rates should
not have a material adverse impact on the fair value of our investment
portfolio.
FOREIGN CURRENCY RISK
Fluctuations in exchange rates can adversely effect our results of operations
and financial position. The financial statements of our international
subsidiaries, all of whose functional currencies are the local currency, are
translated using exchange rates in effect at the end of the period for assets
and liabilities and average exchange rates during the period for results of
operations. Foreign currency translation adjustments are recorded as a separate
component of stockholders' equity, and also are included in reporting
comprehensive income. We also engage in transactions denominated in foreign
currencies. Gains and losses from these transactions, which to date have been
immaterial, are reflected in the results of operations. The impact of future
exchange rate fluctuations on our results of operations and financial condition
cannot accurately be predicted. We do not currently engage in foreign currency
hedging activities.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following statements are filed as part of this Annual Report on Form 10-K:
Item Page No.
- - ---- --------
Report of Independent Accountants 16
Consolidated Balance Sheets as of December 31, 1999 and 1998 17
Consolidated Statements of Operations for the three
years ended December 31, 1999, 1998 and 1997 18
Consolidated Statements of Cash Flows for the three
years ended December 31, 1999, 1998 and 1997 19
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1999, 1998 and 1997 20
Notes to Consolidated Financial Statements 21
Report of Independent Accountants on Financial
Statement Schedule 31
Schedule II - Valuation and Qualifying Accounts 32
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of eXcelon Corporation (formerly
Object Design, Inc.):
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity, and cash flows
present fairly, in all material respects, the financial position of eXcelon
Corporation and its subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 2000
16
<PAGE>
eXcelon Corporation
(formerly Object Design, Inc.)
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
------------------------------
December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 13,847 $ 14,846
Short-term investments 5,327 8,745
Accounts receivable, net of allowance for doubtful
accounts of $1,232 in 1999 and $1,199 in 1998 13,902 15,885
Prepaid expenses and other current assets 946 644
--------------- ---------------
Total current assets 34,022 40,120
Property and equipment, net 5,169 4,216
Marketable securities 4,589 1,020
Purchased software, net 2,503 2,751
Other assets 1,122 885
--------------- ---------------
Total assets $ 47,405 $ 48,992
--------------- ---------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of capital lease obligations $ 17 $ 13
Accounts payable 3,404 2,900
Accrued expenses 3,898 2,281
Accrued compensation 2,876 3,596
Deferred revenue 7,697 5,433
--------------- ---------------
Total current liabilities 17,892 14,223
Long-term capital lease obligations - 18
Commitments and contingencies (Note E) - -
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000 shares; no shares issued or outstanding - -
Common stock, $.001 par value; authorized 200,000 shares;
28,921 and 28,049 shares issued and outstanding in 1999
and 1998, respectively 29 28
Additional paid-in capital 66,731 64,977
Treasury stock, at cost, 40 shares in 1998 - (251)
Accumulated deficit (35,054) (27,910)
Accumulated other comprehensive loss (1,620) (1,406)
Advances to stockholders (573) (687)
--------------- ---------------
Total stockholders' equity 29,513 34,751
--------------- ---------------
Total liabilities and stockholders' equity $ 47,405 $ 48,992
--------------- ---------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
17
<PAGE>
eXcelon Corporation
(formerly Object Design, Inc.)
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
1999 1998 1997
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Software $ 36,623 $44,040 $33,560
Services 24,187 18,010 11,425
Related party software and services - 308 2,280
- - ----------------------------------------------------------------------------------------------------------------------
Total revenues 60,810 62,358 47,265
Cost of revenues:
Cost of software 2,380 1,605 1,447
Cost of services 12,931 10,311 8,365
Cost of related party software and services - 211 351
- - ----------------------------------------------------------------------------------------------------------------------
Total cost of revenues 15,311 12,127 10,163
Gross profit 45,499 50,231 37,102
Operating expenses:
Selling and marketing 36,426 31,589 25,223
Research and development 10,292 8,643 7,719
General and administrative 6,054 5,619 4,596
Restructuring 945 - -
- - ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 53,717 45,851 37,538
- - ----------------------------------------------------------------------------------------------------------------------
Operating income (loss) (8,218) 4,380 (436)
Other income, net 1,117 978 1,333
- - ----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (7,101) 5,358 897
Provision for income taxes 43 535 97
- - ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $(7,144) $ 4,823 $ 800
- - ----------------------------------------------------------------------------------------------------------------------
Net income (loss) per share - (note A)
Net income (loss) per share - basic $(0.25) $ 0.17 $ 0.03
Weighted average number of
common shares outstanding - basic 28,362 27,756 27,050
- - ----------------------------------------------------------------------------------------------------------------------
Net income (loss) per share - diluted $(0.25) $ 0.17 $ 0.03
Weighted average number of common and common equivalent
shares outstanding - diluted 28,362 29,064 29,242
- - ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
18
<PAGE>
eXcelon Corporation
(formerly Object Design, Inc.)
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
1999 1998 1997
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,144) $ 4,823 $ 800
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 3,513 2,144 2,098
Bad debt expense 1,007 899 648
Other 276 106 105
Changes in operating assets and liabilities:
Accounts receivable 679 (2,196) (3,472)
Prepaids and other current assets (200) 145 (213)
Other assets (286) (7) (101)
Accounts payable and accrued expenses 1,415 2,857 41
Deferred revenue 2,344 1,369 (95)
- - ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 1,604 10,140 (189)
- - ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (3,027) (2,354) (2,532)
Purchased software (1,151) (2,675) (202)
Purchases of marketable securities (13,048) (12,527) (5,801)
Proceeds from maturities and sales of
marketable securities 12,898 5,323 14,324
Purchase of minority interest - - (83)
- - ------------------------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by investing activities (4,328) (12,233) 5,706
- - ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 2,025 1,048 911
Repayment of advances to stockholders - 200 -
Purchase of treasury stock (247) (251) -
Principal payments on long-term borrowings (13) (64) (95)
- - ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,765 933 816
- - ------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (40) (339) (940)
Net change in cash and cash equivalents (999) (1,499) 5,393
Cash and cash equivalents, beginning of year 14,846 16,345 10,952
- - ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 13,847 $ 14,846 $ 16,345
- - ------------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $ 6 $ 5 $ 36
Income taxes paid 95 153 91
- - ------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of non-cash transactions:
Equipment purchased under capital leases
$ - $ - $ 272
- - ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
19
<PAGE>
eXcelon Corporation
(formerly Object Design, Inc.)
Consolidated Statements of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Treasury Accumulated Comprehensive Advances to Comprehensive
Stock Capital Stock Deficit Income(Loss) Stockholders Total Income (Loss)
----- ------- ------ ------- ------------ ------------ ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $27 $62,837 $ - $(33,533) $(211) $(887) $28,233
Exercise of stock options 911 911
Amortization of unearned compensation 91 91
Net unrealized loss on marketable securities $(15) (15) (15)
Foreign currency translation adjustment (1,201) (1,201) (1,201)
Net income 800 800 800
-----------
Comprehensive loss $ (416)
--------------------------------------------------------------------------- -----------
Balance at December 31, 1997 $ 27 $63,839 $ - $(32,733) $(1,427) $(887) $28,819
---------------------------------------------------------------------------
Exercise of stock options 1 1,048 1,049
Amortization of unearned compensation 90 90
Repayment stockholder loan 200 200
Net unrealized loss on marketable securities 12 12 12
Foreign currency translation adjustment 9 9 9
Purchase of treasury stock shares (251) (251)
Net income 4,823 4,823 4,823
-----------
Comprehensive income $ 4,844
--------------------------------------------------------------------------- -----------
Balance at December 31, 1998 $ 28 $64,977 $(251) $(27,910) $(1,406) $(687) $34,751
---------------------------------------------------------------------------
Purchase of treasury stock shares (247) (247)
Exercise of stock options 1 1,526 498 2,025
Amortization of unearned compensation 228 228
Forgiveness of stockholder loan 114 114
Net unrealized loss on marketable securities (67) (67) (67)
Foreign currency translation adjustment (147) (147) (147)
Net loss (7,144) (7,144) (7,144)
-----------
Comprehensive loss $(7,358)
--------------------------------------------------------------------------- -----------
Balance at December 31, 1999 $ 29 $66,731 $ - $(35,054) $(1,620) $(573) $29,513
---------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
20
<PAGE>
eXcelon Corporation
(formerly Object Design, Inc.)
Notes to Consolidated Financial Statements
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
eXcelon Corporation (formerly Object Design, Inc.) is a leading provider of
software infrastructure and services for building and deploying
business-to-business solutions that are built for change, or Dynamic B2B
Solutions. Our solutions enable companies to broaden their trading network and
integrate their business processes more closely with suppliers, customers, and
partners through real-time exchange and coordination of business information,
content, and transactions. Our products are marketed and sold worldwide through
our direct sales force, systems integrators, independent software vendors,
international distributors and other channel partners. We operate in a single
industry segment: computer software and related services. In January 2000, we
changed our legal name from Object Design, Inc to eXcelon Corporation.
BASIS OF PRESENTATION
The consolidated financial statements include the parent company and its wholly
owned subsidiaries, including those operating outside the United States. All
significant intercompany balances and transactions have been eliminated in the
financial statements. Certain reclassifications have been made for consistent
presentation. We prepare our financial statements under accounting principles
generally accepted in the United States that require management to make
estimates and assumptions that affect the amounts reported and the related
disclosures. Actual results could differ from these estimates.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
Our cash is invested in debt instruments of financial institutions, government
entities, corporations, and money market funds. We have established guidelines
relative to credit ratings, diversification and maturities that are intended to
maintain low investment risk and liquidity. Cash equivalents include highly
liquid investments with maturity periods of three months or less when purchased.
Short-term investments include those investments with maturities in excess of
three months but less than one year. Marketable securities are those with
maturities in excess of one year. Cash equivalents and short-term and marketable
securities are classified as available for sale and reported at fair value with
unrealized gains and losses included in stockholders' equity. We have not had
any significant realized losses related to our investments.
PROPERTY AND EQUIPMENT
Our property and equipment are stated at cost. We provide for depreciation using
the straight-line method over the estimated useful lives of the assets as
follows:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
Computer equipment 3-4 years
Purchased computer software 4 years
Office equipment 4 years
Furniture and fixtures 5 years
Leasehold improvements Shorter of lease term or estimated useful life.
Maintenance and repairs are charged to expense as incurred. Upon retirement or
sale, the cost of the asset disposed of and the related accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or
charged to income.
REVENUE RECOGNITION
Our revenue is recognized in accordance with the provisions of AICPA Statement
of Position 97-2 "Software Revenue Recognition." Revenue from software license
fees is recognized when there is evidence of an arrangement, the product has
been delivered, fees are fixed and determinable, and collection of the related
receivable is deemed probable by management. Revenue from sales through
distributors is recorded net of distributor commissions. Maintenance revenue,
including those bundled with the initial license fee, are deferred and
recognized ratably over the service period, generally one-year. Consulting and
training service revenue is recognized as the services are performed.
21
<PAGE>
CONCURRENT TRANSACTIONS
We occasionally enter into concurrent transactions in which our software
licenses are exchanged for products or services. These transactions are recorded
at the estimated fair market value of the product or service received and/or
software license value. In 1998, we purchased from our customers $2.5 million of
technology that will be incorporated in our products. These customers purchased
products from us that accounted for $2.0 million of software license revenues
during the year. Management believes that these transactions were entered into
under normal commercial terms and reflect the fair value of the technology
received and the software licensed.
FOREIGN CURRENCY
For our foreign operations, the functional currency is the local currency.
Assets and liabilities are translated at rates in effect at the balance sheet
date and translation adjustments are recorded in stockholders' equity. We
translate statement of operations amounts at average rates for the period.
Transaction gains and losses are recorded in other expense in the statement of
operations.
CONCENTRATIONS OF CREDIT RISK
The amounts reflected in the consolidated balance sheets for cash and cash
equivalents, accounts receivable, and accounts payable approximate their fair
value due to their short maturities. Financial instruments that potentially
subject us to concentration of credit risk consist primarily of investments and
trade receivables. Our cash, cash equivalents, and investments are held with
financial institutions with high credit standings. We sell to a broad base of
customers representing various geographic locations and industries. We perform
ongoing credit evaluations of our customers, but do not require collateral or
other security to support our customer receivables. We maintain reserves for
potential credit losses, and such losses have been within our expectations.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Research and development expenditures are charged to operations as incurred. We
consider that technological feasibility has been established once a working
model of a product has been produced and tested. To date, we have not
capitalized software development costs after technological feasibility has been
established since costs incurred subsequent to the establishment of
technological feasibility have not been material.
INCOME TAXES
Our income tax expense includes applicable U.S. and international income taxes.
Certain items of income and expense are not reported in tax returns and
financial statements in the same year. The tax effects of these differences are
reported as deferred tax assets and liabilities. Deferred tax assets are
recognized, net of valuation allowances, for the estimated future tax effects of
deductible temporary differences and tax operating loss and credit
carryforwards. Changes in deferred tax assets and liabilities are recorded in
the provision for income taxes. We have recorded a valuation allowance against
the net deferred tax assets, based upon the available evidence, that it is more
likely than not that some or all of the deferred tax assets will not be
realized. We evaluate the recoverability of the deferred tax assets and the
level of the valuation allowance on a quarterly basis. At such time as it is
determined that it is more likely than not that deferred tax assets are
realizable, the valuation allowance will be appropriately reduced.
PURCHASED SOFTWARE
Purchased software includes the cost of purchased third party software, net of
accumulated amortization. Amortization is provided using the straight-line
method over periods ranging from two to five years. Accumulated amortization
amounted to $1,868,000 and $469,000 at December 31, 1999 and 1998, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
We periodically evaluate the recoverability of our long-lived assets. This
evaluation consists of comparison of the carrying value of the assets with the
assets' expected future cash flows, not discounted and without interest costs.
Estimates of expected future cash flows represent management's best estimate
based on reasonable and supportable assumptions and projections. If the expected
future cash flows, not discounted and without interest charges, exceed the
carrying value of the asset, no impairment is recognized. Impairment losses are
measured as the difference between the carrying value of long-lived assets and
the fair value, based on discounted future cash flows of the related asset.
22
<PAGE>
STOCK-BASED COMPENSATION
We measure compensation expense for our employee stock-based compensation using
the intrinsic value method and provide pro forma disclosures of net income
(loss) as if the fair value method had been applied in measuring compensation
expense. Under the intrinsic value method of accounting for stock-based
compensation, when the exercise price of options granted to employees is less
than the fair value of the underlying stock on the grant date, compensation
expense is recognized over the applicable vesting period.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) by
the weighted-average number of common shares outstanding for the period. Diluted
income (loss) per share is computed by dividing net income (loss) 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
potential common shares, such as stock options. The following is a calculation
of basic and diluted net income (loss) per share:
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
BASIC NET INCOME (LOSS) PER SHARE 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $ (7,144) $ 4,823 $800
Weighted average common shares outstanding 28,362 27,756 27,050
Basic net income (loss) per share $ (0.25) $ 0.17 $ 0.03
Diluted net income (loss) per share
Net income (loss) $ (7,144) $ 4,823 $800
Weighted average common shares outstanding 28,362 27,756 27,050
Stock options (dilutive) - 1,308 2,192
--------- ----- -----
Total shares 28,362 29,064 29,242
Diluted net income (loss) per share $ (0.25) $ 0.17 $ 0.03
</TABLE>
Options to purchase 3,977,643, 1,800,941 and 364,894 shares of Common Stock were
outstanding during 1999, 1998 and 1997, respectively, but were not included in
the computations of diluted earnings per share as the inclusion of these shares
would have been anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. We have
not yet completed our evaluation of the impact of the adoption of this new
standard; however, it is not expected to have a material impact on our financial
position and results of operations.
In December 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9"), which addresses
software revenue recognition as it applies to certain multiple-element
arrangements. SOP 98-9 also amends SOP 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2," to extend the deferral of application of certain
provisions of SOP 97-2 through fiscal years beginning on or before March 15,
1999. All other provisions of SOP 98-9 are effective for transactions entered
into in fiscal years beginning after March 15, 1999. We will comply with the
requirements of this SOP as they become effective and do not expect that our
revenues and earnings will be materially affected.
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for fiscal years
23
<PAGE>
beginning after June 15, 2000. SFAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair values. Changes in fair values of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, depending on the type of hedge transaction. We have
not yet completed our evaluation of the impact of the adoption of this new
standard; however, it is not expected to have a material impact on our financial
position and results of operations.
B. PROPERTY AND EQUIPMENT:
Our property and equipment consisted of the following, in thousands:
December 31,
1999 1998
---- ----
Computer and computer-related equipment $ 9,224 $ 8,357
Office equipment and furniture 1,391 1,390
Purchased computer software 2,149 2,197
Leasehold improvements 1,738 914
Automobiles 65 67
------- ------
14,567 12,925
Less accumulated depreciation and amortization (9,398) (8,709)
-------- -------
$ 5,169 $ 4,216
======== =======
At December 31, 1999 and 1998, property and equipment included $65,000 and
$67,000 of automobiles under capital leases. Accumulated amortization of
automobiles under capital leases at December 31, 1999 and 1998 totaled $65,000
and $44,000 respectively. Depreciation expense was $2,063,000, $1,897,000 and
$2,098,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
C. MARKETABLE SECURITIES:
The fair values of our investments have been determined through information
obtained from market sources and management estimates. We use the specific
identification cost method to determine the gross realized gains and losses on
the sale of our securities. Realized gains and losses on the sale of investments
were immaterial for all periods presented in the consolidated financial
statements. Net unrealized gains and losses are recorded as other equity in
stockholders' equity. Marketable securities held as available for sale can be
summarized as follows, in thousands:
<TABLE>
<CAPTION>
Gross Gross
December 31, 1999 Amortized Estimated Unrealized Unrealized
Cost Fair Value Gains Losses
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Government obligations $ 1,685 $ 1,685 $ -- $ -
Corporate obligations 9,451 9,389 - (62)
Other 2,755 2,755 - -
----- ----- ---- ------
Total Investments $ 13,891 $ 13,829 $ - $( 62)
======== ======== === ======
Amounts included in:
Cash and cash equivalents $ 3,913 $ 3,913 $ -- $ -
Short-term investments 5,331 5,327 -- (4)
Marketable securities, non-current 4,647 4,589 -- (58)
----- ----- ---- ------
Total $ 13,891 $ 13,829 $ - $( 62)
======== ======== === ======
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
December 31, 1998 Amortized Estimated Unrealized Unrealized
Cost Fair Value Gains Losses
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government obligations $ 750 $ 750 $ -- $ -
Other government obligations 2,725 2,725 - -
Corporate obligations 10,740 10,744 5 (1)
Other 2,300 2,300 - -
----- ----- --- -----
Total Investments $ 16,515 $ 16,519 $ 5 $ (1)
======== ======== === =====
Amounts included in:
Cash and cash equivalents $ 6,754 $ 6,754 $ -- $ -
Short-term investments 8,744 8,745 2 (1)
Marketable securities, non-current 1,017 1,020 3 -
----- ----- ---- -----
Total $ 16,515 $ 16,519 $ 5 $ (1)
======== ======== === =====
</TABLE>
At December 31, 1999, the contractual maturities of our short-term investments
available for sale range from over 3 months to 12 months. At December 31, 1999,
our non-current marketable securities available for sale have contractual
maturities through May 2001.
D. CREDIT AGREEMENT
We have a $2 million bank line of credit expiring in September 2000.
Availability under the line of credit is based on a formula of eligible accounts
receivable, subject to compliance with minimum adjusted quick ratio and minimum
tangible net worth covenants. Borrowings would be collateralized by our assets,
excluding intellectual property, and bear interest at the bank's prime rate. The
line of credit prohibits payments of cash dividends on our Common Stock. At
December 31, 1999, no borrowings were outstanding, and we were in compliance
with the bank's covenants. A letter of credit in the amount of $450,000 under
the line of credit was outstanding at that date.
E. COMMITMENTS AND CONTINGENCIES
CAPITAL AND OPERATING LEASES
We lease office facilities and certain equipment under operating leases expiring
at various dates through 2005. In addition to rent, certain leases require us to
pay directly for taxes, insurance, maintenance, and other operating expenses.
Rent expense under operating leases was approximately $3.8 million, $3.4 million
and $2.3 million for the years ended December 31, 1999, 1998 and 1997,
respectively. At December 31, 1999 our future minimum lease payments under
capital and operating leases are as follows, in thousands:
Capital Operating
Leases Leases
2000 $ 17 $ 2,533
2001 - 2,150
2002 - 2,067
2003 - 703
2004 - 216
2005 - 19
------- ---------
Total future minimum lease payments 17 $ 7,688
=========
Less amount representing interest -
-------
Present value of net future minimum lease payments 17
Less current portion of capital lease obligations 17
-------
Long-term portion of capital lease obligations $ -
=======
F. STOCKHOLDERS' EQUITY:
PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of Preferred Stock, $.01 par
value, containing rights and terms to be determined by our Board of Directors
without the need for further shareholder approval. As of December 31, 1999 and
1998, there were no issued or outstanding shares of Preferred Stock.
25
<PAGE>
STOCK REPURCHASE PROGRAM
In November 1998, our Board of Directors authorized a stock repurchase program
whereby we could purchase up to 2,000,000 shares of our Common Stock to meet
requirements of our employee stock option and stock purchase plans. No minimum
number or value of shares to be repurchased has been fixed nor has a time limit
as to the duration of the program been established. During the years ended
December 31, 1999 and 1998, we repurchased 37,000 and 39,700 shares of our
Common Stock at a cost of $247,000 and $251,000, respectively. All such
repurchased shares were subsequently reissued through employee stock option
exercises during 1999.
EMPLOYEE STOCK PURCHASE PLAN
We offer an employee stock purchase plan for all eligible employees. Under the
plan up to 500,000 shares of our Common Stock may be purchased at 85% of the
lower of the fair market value of the stock on the first day or the last day of
each six-month offering period. Employees may elect to have up to 6% of their
base pay withheld and applied toward the purchase of shares in each offering, up
to a maximum of $25,000 withheld in any year. In 1999 and 1998, we issued
157,267 and 104,835 shares at average purchase prices of $3.09 and $4.40,
respectively. At December 31, 1999, 132,748 shares were reserved for future
issuance under the plan.
STOCK OPTION PLANS
We have four stock option plans, including two stock option plans currently in
effect under which future grants may be issued. In total for all plans,
16,182,000 shares have been authorized for grant. Our 1996 Incentive and
Nonqualified Stock Option Plan ("1996 Plan") authorizes grants of options to
purchase up to 3,100,000 shares. The 1996 Plan provides for authorized shares to
increase by 300,000 shares annually up to a maximum of 3,700,000 shares. Our
1997 Nonqualified Stock Option Plan ("1997 Plan") authorizes the grant to
employees of the Company of nonqualified options to purchase up to 4,500,000
shares. Stock options generally have a maximum term of ten years and vest over
periods ranging from one to five years. At December 31, 1999, total authorized
but unissued shares under our stock option plans were 7,978,930, of which
1,130,626 options were available for grant.
In October 1998, our Board of Directors approved a one-for-one stock option
exchange program that provided employees the opportunity to exchange stock
options previously granted for new options with a current market price and new
vesting period. Executive officers and directors were not eligible to
participate in the program. The new options were priced at $3.94 based upon the
closing price of our stock as reported by NASDAQ on October 28, 1998, vest in
equal annual installments over four years from October 28, 1998 and expire on
October 28, 2008. A total of 1.3 million shares with exercise prices ranging
from $5.19 to $16.50 per share were exchanged under the program. The exchange of
such options is presented in the following table as both cancellations and
subsequent grants for the year ended December 31, 1998.
Stock option activity for the years ended December 31, 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
- - -----------------------------------------------------------------------------------------------------------------
Number Weighted Number Weighted Number Weighted
Of Average Of Average of Average
Options Exercise Price Options Exercise Options Exercise Price
------- -------------- ------- Price ------- --------------
--------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of year 4,675,344 $ 4.16 3,813,144 $ 3.84 3,266,991 $ 1.90
Granted 5,111,050 4.74 3,548,150 5.35 1,923,500 7.01
Cancelled (2,186,151) 5.74 (2,148,214) 6.34 (710,177) 0.63
Exercised (751,939) 2.04 (537,736) 0.98 (667,170) 7.00
--------- --------- ---------
Outstanding at
end of year 6,848,304 $ 4.32 4,675,344 $ 4.16 3,813,144 $ 3.84
========= ========= =========
Exercisable 1,698,629 $ 3.57 1,234,433 $ 2.66 1,151,686 $ 1.37
========= ========= =========
</TABLE>
26
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- - -------------------------------------------------------- ------------------------------------------------
Weighted Avg. Weighted
Range of Exercise Number of Shares Remaining Avg. Number Weighted Avg.
Prices Outstanding Contract Life Exercise Price Exercisable Exercise Price
- - ------ ----------- ---- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $0.01 88,463 5.92 $ 0.01 60,403 $ 0.01
0.02 - 1.00 477,814 8.10 0.82 173,664 0.51
1.01 - 2.00 344,192 6.24 2.00 314,530 2.00
2.53 - 2.75 1,686,000 9.67 2.74 400,000 2.75
3.00 - 3.93 1,469,303 8.90 3.79 197,880 3.81
3.94 - 6.44 1,463,614 8.86 5.31 302,858 5.53
$ 6.50 - $12.13 1,318,918 8.97 8.01 249,294 7.25
--------- ---------
Total 6,848,304 8.87 $ 4.32 1,698,629 $ 3.57
</TABLE>
VALUATION OF STOCK PLANS
As permitted by Statement of Financial Accounting Standards No. 123 ("SFAS
123"), we have chosen to continue to account for our stock-based compensation
plans using the intrinsic value method. Accordingly, we have recognized
compensation expense only for options granted with exercise prices less than
fair market value on the dates of grant. An aggregate of 450,000 options were
granted to employees below fair market value during 1997 and 1999, resulting in
compensation expense of $228,000, $90,000 and $91,000 in 1999, 1998 and 1997,
respectively. Pursuant to SFAS 123, had the fair value method of accounting
using the Black-Scholes pricing model been applied to our stock plans, the pro
forma impact would have been as follows, in thousands except per share amounts:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
As Reported
Net income $(7,144) $4,823 $800
Net income per share - basic (0.25) 0.17 0.03
Net income per share - diluted (0.25) 0.17 0.03
Pro Forma
Net income (12,635) 2,466 403
Net income per share - basic (0.45) 0.09 0.01
Net income per share - diluted (0.45) 0.08 0.01
The fair value of these options at the date of grant was estimated using the
following assumptions:
1999 1998 1997
---- ---- ----
Risk free interest rate 6.7% 5.5% 6.5%
Dividend yield 0% 0% 0%
Expected volatility 108% 80% 75%
Expected life 5 years 5 years 5 years
</TABLE>
The weighted average fair value of the options granted at fair market value
during 1999, 1998 and 1997 was $4.02, $3.37 and $3.99 per share, respectively.
The weighted average fair value of the options granted with exercise prices
below fair market value during 1999 and 1997 was $4.40 and $6.10 per share,
respectively. In 1999 the fair market value of the employee stock purchase plan
was estimated using the following assumptions: 4.63% weighted average risk free
rate, 0% dividend yeild, 100% volatility and a six month expected life. The
weighted average fair value of the purchase rights for 1999 was $1.57 per share.
The pro forma effect of applying SFAS 123 for prior years is not necessarily
representative of the pro forma effect to be expected in future years.
ADVANCES TO STOCKHOLDERS
In 1996, options to purchase 2,760,000 shares of our Common Stock issued to two
officers in December 1995 were accelerated, and the officers exercised these
options in exchange for cash of $2,760 and full recourse promissory notes in the
amount of $687,000. The promissory notes bear interest at 7.0% and are due on
the earlier of April 1, 2001 or upon termination of employment. In 1999, in
connection with the employment termination of one officer, we agreed to forgive
his promissory note in the principal amount of $115,000, plus accrued interest
of $6,000, totaling $121,000, which was included in a restructuring charge (Note
G).
27
<PAGE>
G. RESTRUCTURING CHARGE:
In September 1999, we recorded a restructuring charge in the amount of $945,000
in connection with a company re-positioning. The charge was composed of the
following, in thousands:
Severance $ 811
Office closure 64
Marketing program cancellation 70
-----
Total $ 945
=====
The severance cost relates to eleven involuntarily terminated employees. Prior
to their termination, seven employees had been included in sales expense, two
had been included in cost of services, one had been included in general and
administrative expense, and one had been included in marketing expense. All
affected employees were terminated in 1999. During 1999, cash payments in
settlement of associated obligations amounted to $831,000. The remaining
liability of $114,000 at December 31, 1999 is included in accrued expenses and
is scheduled to be settled in 2000 through cash payments under one of the
employment severance agreements.
H. INCOME TAXES:
Our income (loss) before income taxes is as follows, in thousands:
Year Ended December 31,
--------------------------------------
1999 1998 1997
--------------------------------------
Domestic $(4,936) $ 6,958 $ 2,190
Foreign (2,165) (1,600) (1,293)
------ ------ ------
$(7,101) $ 5,358 $ 897
======== ======= =======
Our provision for income taxes consists of the following, in thousands:
Year Ended December 31,
-----------------------------------------
1999 1998 1997
-----------------------------------------
Foreign $ 43 $ 1 $ (2)
Federal - 486 75
State - 48 24
-----------------------------------------
$ 43 $ 535 $ 97
=========================================
The following is a reconciliation between the U.S. federal statutory rate and
our effective tax rate:
---------------------------------
Year Ended December 31,
---------------------------------
1999 1998 1997
---------------------------------
U.S. federal statutory rate (34.0)% 34.0% 34.0%
State taxes, net of federal benefit - 1.0 1.8
Foreign tax difference from U.S. rate 2.3 (1.6) (8.0)
Non-deductible expenses 1.0 3.1 10.8
Previously unbenefitted net operating
loss carryforwards - (34.3) (102.8)
Change in valuation allowance 30.1 7.8 75.0
---------------------------------
(0.6)% 10.0% 10.8%
=================================
The significant temporary differences that create deferred tax assets and
liabilities are shown below, in thousands.
December 31,
--------------------------
1999 1998
--------------------------
Deferred tax assets:
Net operating loss carryforwards $ 12,919 $ 11,422
Tax credit carryforwards 3,511 2,866
Reserves not currently deductible 825 840
Other 156 148
Depreciation and amortization 210 210
--------------------------
17,621 15,486
Valuation allowance (17,621) (15,486)
--------------------------
Net deferred tax assets $ - $ -
==========================
28
<PAGE>
As of December 31, 1999, we had federal net operating loss ("NOL") and research
and experimentation credit carryforwards of approximately $28,500,000 and
$2,600,000, respectively, which may be available to offset future federal income
tax liabilities and expire at various dates through 2019. We have recorded a
deferred tax asset of approximately $1,400,000 reflecting the benefit of
deductions from the exercise of stock options. This deferred asset has been
fully reserved until it is more likely than not that the benefit from the
exercise of stock options will be realized. The benefit from this $1,400,000
deferred tax asset will be recorded as a credit to additional paid-in capital
when realized. As required by Statement of Financial Accounting Standards No.
109, we have evaluated the positive and negative evidence bearing upon the
realization of its deferred tax assets, which are comprised principally of net
operating loss and research and experimentation credit carryforwards. We have
determined that it is more likely than not that the benefits of federal and
state deferred tax assets will not be recognized and, as a result, a valuation
allowance of approximately $17,621,000 has been established at December 31,
1999.
Ownership changes, as defined in the Internal Revenue Code, may have limited the
amount of net operating loss carryforwards that can be utilized annually to
offset future taxable income. Subsequent ownership changes could further affect
the limitation in future years.
As of December 31, 1999, our foreign subsidiaries had NOL carryforwards of
approximately $6,700,000, which expire over various periods.
I. 401(K) PLAN:
We sponsor a defined contribution plan under Section 401(k) of the Internal
Revenue Code. This plan covers all eligible (as defined) employees. Through
1999, we have made no matching contributions to the plan. Beginning in 2000, we
will match 50% of the first 6% of eligible employees' contributions up to an
annual maximum of $2,000 per employee.
J. RELATED PARTY TRANSACTIONS:
In 1998 and 1997, related party revenues derived from a stockholder,
International Business Machines Corporation ("IBM"), amounted to $308,000 and
$2,280,000, respectively. IBM ceased to be a related party in 1999.
K. GEOGRAPHIC DATA:
Sales and marketing operations outside the United States are conducted
principally through foreign sales subsidiaries in Europe and Asia/Pacific.
Financial information, summarized by geographic area, is as follows, in
thousands:
Year ended December 31,
1999 1998 1997
---- ---- ----
REVENUES
North America $ 37,399 $ 37,939 $ 31,714
United Kingdom 10,761 10,448 5,733
Rest of Europe 4,356 7,395 5,486
Asia Pacific 8,294 6,576 4,332
------- -------- --------
Total Revenues $ 60,810 $ 62,358 $ 47,265
======== ======== ========
IDENTIFIABLE ASSETS
North America $ 47,298 $ 49,758 $ 48,723
United Kingdom 4,843 4,321 5,786
Rest of Europe 1,860 4,254 3,496
Asia Pacific 3,192 4,960 4,628
Eliminations (9,788) (14,301) (23,755)
------- -------- --------
Total identifiable assets $ 47,405 $ 48,992 $ 38,878
======= ======== ========
OPERATING INCOME (LOSS)
North America $(6,039) $ 6,021 $ 870
United Kingdom (42) (294) (159)
Rest of Europe (1,669) (1,009) (995)
Asia Pacific (468) (338) (152)
-------- -------- --------
Total operating income (loss) $(8,218) $ 4,380 $ (436)
======== ======= ========
29
<PAGE>
L. LEGAL PROCEEDINGS
We are also subject to various legal proceedings and claims that arise in the
ordinary course of business. We currently believe that resolving these matters
will not have a material adverse impact on our consolidated financial
statements.
M. QUARTERLY RESULTS OF OPERATIONS:
(unaudited and in thousands, except per share amounts)
1999 First Second Third Fourth
- - ---- Quarter Quarter Quarter Quarter
------- ------- ------- -------
Revenue $13,108 $14,647 $15,643 $17,412
Gross profit 9,705 11,067 11,502 13,225
Operating income (loss) (2,274) (1,954) (3,410) (580)
Net income (2,009) (1,671) (3,155) (309)
Net income per share - basic (0.07) (0.06) (0.11) (0.01)
Net income per share - diluted (0.07) (0.06) (0.11) (0.01)
1998 First Second Third Fourth
- - ---- Quarter Quarter Quarter Quarter
------- ------- ------- -------
Revenue $13,026 $15,602 $16,628 $17,102
Gross profit 10,057 12,531 13,571 14,072
Operating income (loss) (172) 919 1,807 1,826
Net income 25 1,034 1,867 1,897
Net income per share - basic 0.00 0.04 0.07 0.07
Net income per share - diluted 0.00 0.04 0.06 0.06
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of eXcelon Corporation (formerly Object Design, Inc.):
Our audits of the consolidated financial statements referred to in our report
dated February 2, 2000 of eXcelon Corporation also included an audit of the
financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, the financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 2000
31
<PAGE>
eXcelon Corporation
(Formerly Object Design, Inc.)
Schedule II-Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance
Beginning Costs and Other End of
of Period Expenses Accounts Period
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful accounts $ 1,199 $ 1,007 $ (974) $1,232
Year ended December 31, 1998
Allowance for doubtful accounts 800 899 (500) 1,199
Year ended December 31, 1997
Allowance for doubtful accounts 823 648 (671) 800
</TABLE>
32
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Directors and Executive Officers"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in our Definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on May 24,
2000, which is expected to be filed with the Securities and Exchange Commission
not later than 120 days after the end of our fiscal year ended December 31, 1999
(the "Definitive Proxy Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Remuneration of Executive Officers
and Directors" in the Definitive Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Definitive Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions" in the
Definitive Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
(1) FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
Report of Independent Accountants on Financial Statement Schedule
All other schedules are omitted because the required information is either
inapplicable or presented in the Consolidated Financial Statements.
33
<PAGE>
(3) Exhibits
(a) Exhibits
*3.3 Amended and Restated Certificate of Incorporation
*3.5 Amended and Restated By-Laws of the Company
*4.1 Specimen certificate for Common Stock of the Company
*10.1* 1989 Incentive and Nonqualified Stock Option Plan
*10.2* 1995 Nonqualified Stock Option Plan
*10.3* 1996 Incentive and Nonqualified Stock Option Plan
*10.4* 1996 Employee Stock Purchase Plan
*10.12 Lease dated September 15, 1993 between the Company and 25 Mall Road
Trust
*10.13 First Amendment to Lease dated June 28, 1994 between the Company and
25 Mall Road Trust
*10.14 Second Amendment to Lease dated March 1, 1996 between the Company
and 25 Mall Road Trust
*10.15* Employment Agreement dated December 21, 1995 between the Company and
Robert N. Goldman, as amended by Amendment to Employment Agreement
dated May, 1996
*10.16* Employment Agreement dated December 21, 1995 between the Company and
Justin J. Perreault, as amended by Employment Agreement dated May,
1996
##10.17* Executive Employment Agreement dated November 19, 1998 between the
Company and Lacey Brandt
##10.18* Executive Employment Agreement dated November 19, 1998 between the
Company and Kirk Bowman
##10.19* Executive Employment Agreement dated November 19, 1998 between the
Company and Brian Otis
##10.20* Executive Employment Agreement dated November 19, 1998 between the
Company and Lawrence Alston
*10.21 Sixth Amended and Restated Stockholders' Agreement dated February
13, 1996, among the Company and certain of its stockholders
*10.22 Amended and Restated IBM Stockholders' Agreement dated May 14, 1993
among the Company, International Business Machines Corporation
("IBM") and certain other stockholders of the Company, as amended by
a Second Amendment dated March 31, 1994, by a Third Amendment dated
June 10, 1994 and by a Fourth Amendment dated February 14, 1996
*10.23 Amended and Restated Registration Rights Agreement dated June 29,
1990 among the Company and certain of its stockholders, as amended
by Amendment No. 1 dated October 1, 1990, by Amendment No. 2 dated
July 29, 1991, by Amendment No. 3 dated March 12, 1992, by Amendment
No. 4 dated April 12, 1993, by Amendment No. 5 dated May 14, 1993,
by Amendment No. 6 dated March 31, 1994 and by Amendment No. 7 dated
February 13, 1996
*10.25 Internal Use and Substrate Agreement dated April 10, 1993 between
the Company and IBM
*10.26 Break-Up Agreement dated April 10, 1993 between the Company and IBM
*10.27 Escrow Agreement dated April 10, 1993 between the Company and IBM
*10.28 Master Agreement dated April 10, 1993 between the Company and IBM
*10.29 First Amended and Restated Agreement Regarding Confidential
Information dated February 11, 1993 between Company and IBM
**10.30 Loan and Security Agreement dated December 17, 1996 between the
Company and Bank of Boston, as amended
**10.31 $2,000,000 Revolving Note dated December 17, 1996 payable by the
Company to Bank of Boston, as amended
#10.32* 1997 Nonqualified Stock Option Plan
#10.33 Third Amendment to Lease dated March 1, 1996 between the Company and
25 Mall Road Trust
##10.34 Third Amendment to the Loan and Security Agreement and Second
Amendment to the Revolving Note dated December 17, 1996 between the
Company and Bank Boston
##10.35 Fourth Amendment to the Loan and Security Agreement and Third
Amendment to the Revolving Note dated December 17, 1996 between the
Company and Bank Boston
##10.36* Executive Employment Agreement dated November 19, 1998 between the
Company and Robert N. Goldman
##10.37* Executive Employment Agreement dated November 19, 1998 between the
Company and Justin J. Perreault
##10.38* Amended and Restated Executive Employment Agreement dated February
23, 1999 between the Company and Justin J. Perreault
##10.39* Amended and Restated Executive Employment Agreement dated February
23, 1999 between the Company and Robert N. Goldman
+10.40 Fourth Amendment to Lease dated March 1, 1996 between the Company
and 25 Mall Road Trust
++10.41* Separation Agreement and General Release dated September 1, 1999
between the Company and Justin J. Perreault
++10.42* Separation Agreement and General Release dated September 1, 1999
between the Company and Kirk Bowman
++10.43* Amended and Restated Executive Employment Agreement dated September
2, 1999 between the Company and Robert N. Goldman
++10.44* Executive Employment Agreement dated September 1, 1999 between the
Company and Ross Hinchcliffe
34
<PAGE>
++10.45* Executive Employment Agreement dated September 1, 1999 between the
Company and Satish Maripuri
++10.46* Executive Employment Agreement dated May 19, 1999 between the
Company and Daniel E. O'Connor
++10.47 Asset Purchase Agreement dated September 30, 1999 between the
Company and Transformis LLC
++10.48 Loan and Security Agreement dated September 30, 1999 between the
Company and Silicon Valley Bank
21.1 List of Subsidiaries of the Company (filed herewith)
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
27.1 Financial Data Schedule (filed herewith)
* Before an exhibit number: This exhibit is incorporated by reference to the
similarly numbered exhibit filed as part of our Registration Statement on Form
S-1, Securities and Exchange Commission File No. 333-05241.
** Before an exhibit number: This exhibit is incorporated by reference to the
similarly numbered exhibit to our Annual Report on Form 10-K for the year ended
December 31, 1996.
# Before an exhibit number: This exhibit is incorporated by reference to the
similarly numbered exhibit to our Annual Report on Form 10-K for the year ended
December 31, 1997.
# # Before an exhibit number: This exhibit is incorporated by reference to the
similarly numbered exhibit to our Annual Report on Form 10-K for the year ended
December 31, 1998.
+ Before an exhibit number: This exhibit is incorporated by reference to the
similarly numbered exhibit to our Quarterly Report on Form 10-Q for the period
ended June 30, 1999.
++ Before an exhibit number: This exhibit is incorporated by reference to the
similarly numbered exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 1999.
* After an exhibit number: Management contracts and compensatory arrangements.
(b) REPORTS ON FORM 8-K
The Company did not file any Report on Form 8-K during the three months ended
December 31, 1999.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EXCELON CORPORATION
(Formerly Object Design, Inc.)
Date: March 30, 2000 /s/ Robert N. Goldman
-------------------------------------
Robert N. Goldman
President and Chief Executive Officer
Date: March 30, 2000 /s/ Lacey Brandt
-------------------------------
Lacey Brandt
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Robert N. Goldman President and Chief
- - -------------------------- Executive Officer
Robert N. Goldman (Principal Executive
Officer) March 30, 2000
/s/ Lacey Brandt Chief Financial
- - -------------------------- Officer (Principal
Lacey Brandt Financial and Accounting
Officer) March 30, 2000
/s/Gerald Bay Director March 30, 2000
- - --------------------------
Gerald Bay
/s/Arthur Marks Director March 30, 2000
- - --------------------------
Arthur Marks
/s/ Kevin Burns Director March 30, 2000
- - --------------------------
Kevin Burns
/s/ David Litwack Director March 30, 2000
- - --------------------------
David Litwack
36
Exhibit 21.1
SUBSIDIARIES OF EXCELON CORPORATION (FORMERLY OBJECT DESIGN, INC.)
The following listing includes our legal subsidiaries existing at December 31,
1999:
Name Jurisdiction of Incorporation
- - ---- ------------------------------
Object Design Security Corporation Massachusetts
Object Design Japan Co., Ltd. Japan
Object Design (U.K.) Limited United Kingdom
Object Design S.A.R.L. France
Object Design GmbH Germany
Object Design Pty., Ltd Australia
Object Design Italia S.R.L. Italy
Object Design, N.V. Belgium
Object Design, B.V. Netherlands
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (files no. 333-14741, 333-31521, 333-66219, 333-83645 and
333-93141) of eXcelon Corporation (formerly Object Design, Inc.) of our reports
dated February 2, 2000 relating to the financial statements and financial
statement schedule, which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
eXcelon Corporation
(Formerly Object Design, Inc.)
Financial Data Schedule
Exhibit 27.1
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,847
<SECURITIES> 5,327
<RECEIVABLES> 15,134
<ALLOWANCES> 1,232
<INVENTORY> 0
<CURRENT-ASSETS> 34,022
<PP&E> 14,567
<DEPRECIATION> 9,398
<TOTAL-ASSETS> 47,405
<CURRENT-LIABILITIES> 17,892
<BONDS> 0
0
0
<COMMON> 29
<OTHER-SE> 29,484
<TOTAL-LIABILITY-AND-EQUITY> 47,405
<SALES> 36,623
<TOTAL-REVENUES> 60,810
<CGS> 2,380
<TOTAL-COSTS> 15,311
<OTHER-EXPENSES> 53,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,101)
<INCOME-TAX> 43
<INCOME-CONTINUING> (7,144)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,144)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
