SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED March 31, 1998 .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ________ TO ________.
Commission file number 0-28892
XLConnect Solutions, Inc.
-------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2832796
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
411 Eagleview Boulevard, Exton, PA 19341
(Address of principal executive offices) (Zip Code)
(610) 458-5500
(Registrant's telephone number, including area code)
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 ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 16,684,100 shares of Common
Stock, par value $0.01 per share were outstanding on May 15, 1998.
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XLConnect Solutions, Inc. and Subsidiary
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 3
Consolidated Statements of Income for the Three
Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports Filed on Form 8-K 12
SIGNATURES 14
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<CAPTION>
Part I. Financial Information
Item 1. Consolidated Statements
XLConnect Solutions, Inc. and Subsidiary
Consolidated Balance Sheets
(In thousands, except share-related data)
March 31, December 31,
1998 1997
------------ ------------
(unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 21,274 $ 17,232
Trade accounts receivable, less allowance of $1,363 at
March 31, 1998 and $1,154 at December 31, 1997 31,986 27,607
Deferred tax asset 1,013 967
Prepayments and other current assets 948 1,143
------------ ------------
Total current assets 55,221 46,949
Property and equipment, net of accumulated depreciation 8,822 7,497
Intangible asset, net of accumulated amortization 23,769 24,111
Other long-term assets 1,543 1,363
------------ ------------
Total assets $ 89,355 $ 79,920
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,177 $ 3,006
Accrued expenses 7,605 7,583
State income taxes 1,082 841
Deferred income and other 1,134 1,090
Due to Parent 7,349 4,235
------------ ------------
Total current liabilities 19,347 16,755
------------ ------------
Long-term liabilities:
Long-term debt 10,243 5,139
------------ ------------
Total liabilities 29,590 21,894
------------ ------------
Commitments and contingencies ( Notes 4, 5 and 7)
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
no shares issued and outstanding as of March 31, 1998
and December 31, 1997 - -
Common stock, $.01 par value, 100,000,000 shares authorized;
16,684,100 and 16,683,125 shares issued and outstanding as
of March 31, 1998 and December 31, 1997 166 166
Additional paid-in capital 51,299 50,844
Retained earnings 8,300 7,016
------------ ------------
Total shareholders' equity 59,765 58,026
------------ ------------
Total liabilities and shareholders' equity $ 89,355 $ 79,920
============ ============
</TABLE>
See accompanying notes to unaudited Consolidated Financial Statements
PAGE
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XLConnect Solutions, Inc. and Subsidiary
Consolidated Statements of Income
(In thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
1998 1997
-------- --------
Revenues $33,366 $33,075
Cost of revenues 21,292 23,074
-------- --------
Gross profit 12,074 10,001
Operating expenses:
Selling and marketing 4,123 2,858
General and administrative 4,625 4,603
Depreciation and amortization 1,069 1,027
-------- --------
9,817 8,488
-------- --------
Income from operations 2,257 1,513
Other income (expense), net:
Interest 163 25
Other (16) -
-------- --------
147 25
-------- --------
Income before income taxes 2,404 1,538
Provision for income taxes 1,120 771
-------- --------
Net income $ 1,284 $ 767
======== ========
Basic earnings per share $ 0.08 $ 0.05
Diluted earnings per share $ 0.07 $ 0.05
See accompanying notes to unaudited Consolidated Financial Statements
PAGE
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<TABLE>
<CAPTION>
XLConnect Solutions, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Three Months Ended
March 31,
-------------------
1998 1997
-------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,284 $ 767
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,069 1,027
Gain on disposal of property and equipment (5) -
Provision for allowance on trade accounts receivable 181 84
Amortization of debt discount 43 -
Deferred income taxes (91) (56)
Changes in assets and liabilities:
Trade accounts receivable (4,560) (5,838)
Prepayments and other current assets 195 195
Other long-term assets (135) (376)
Due to parent 3,114 (1,043)
Accounts payable (829) (501)
Accrued expenses 263 3,348
Deferred income and other 44 (190)
-------- --------
Net cash provided by (used in) operating activities 573 (2,583)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (2,047) (242)
-------- --------
Net cash used in investing activities (2,047) (242)
-------- --------
Cash flows from financing activities:
Borrowings of long-term debt 5,500 877
Proceeds from exercise of stock options 16 -
Payment of initial public offering costs - (74)
-------- --------
Net cash provided by financing activities 5,516 803
-------- --------
Net change in cash and cash equivalents 4,042 (2,022)
Cash and cash equivalents-beginning of period 17,232 3,467
-------- --------
Cash and cash equivalents-end of period $21,274 $ 1,445
======== ========
</TABLE>
See accompanying notes to unaudited Consolidated Financial Statements
PAGE
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XLConnect Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(unaudited)
Note 1. Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of
XLConnect Solutions, Inc. ("the Company" or "XLConnect") and its wholly-
owned subsidiary. All material transactions between entities included in
these financial statements have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and use assumptions
that affect certain reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
This information is unaudited but, in the opinion of management, reflects all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position and operating results for the interim
periods presented. These financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The Company's operations are subject to certain risks and uncertainties
including, among others, actual or prospective competition by entities with
greater financial resources, experience and market presence than the Company,
risks associated with growth, and risks associated with technology and
regulatory matters.
Note 2. Merger Transaction
On March 4, 1998, Intelligent Electronics, Inc. ("IE"), the Company's 80%
shareholder, and the Company entered into an Agreement and Plan of Merger
with Xerox Corporation ("Xerox") whereby Xerox will acquire all of the
outstanding shares of capital stock of IE in exchange for $7.60 per share and
all of the outstanding shares of capital stock of the Company not owned by IE
in exchange for $20.00 per share through the merger of acquisition subsidiaries
of Xerox with and into each of IE and the Company (together, the "Mergers").
The closing of the Mergers is subject to shareholder approval and other
customary terms and conditions. There can be no assurance that the Mergers
will be completed. After the closing of the Mergers, currently anticipated to
occur on May 20, 1998, the Company will be an indirect wholly-owned subsidiary
of Xerox.
Note 3. Revenue and Cost Recognition
Revenues from internetworking and applications development service contracts
are primarily recognized as services are provided to the client and billed on
a time and materials basis, and to a lesser extent, are recognized on the
percentage-of-completion basis for fixed price contracts. Costs are recognized
as incurred. Revenues associated with managed service contracts are recorded
ratably over the service period of the contract while costs are also recognized
as incurred. Revenues and costs from telecommunications services are
recognized on the basis of client usage or pursuant to a fixed rate. During
1997, the Company transitioned its telecommunication services to a sales agent
model in which revenues are recognized at time of sale. Revenues from
proprietary software license agreements are recognized upon delivery of the
license, provided there are no significant performance obligations remaining.
Funds received through IE from vendors for training, capital expenditures and
marketing programs are accounted for either as revenues or as a reduction of
cost of revenues, capitalized costs or selling and marketing expenses according
to the nature of the program when earned. The Company received allocations of
IE's total vendor funding related to the businesses of the Company in the
amounts of $315 for both the three months ended March 31, 1998 and 1997.
Effective July 1, 1997, the Company began recognizing a fee of $225 per month
from IE for managing its operations (see Note 5).
PAGE
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XLConnect Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(unaudited)
Note 4. Debt and Lease Obligations
As of March 26, 1997 the Company and IBM Credit Corporation ("IBMCC") entered
into a credit agreement providing the Company with a Credit Facility in the
amount of $25,000, subject to a collateral-based formula, which is secured by
all of the assets of the Company and its subsidiary (the XLC Credit
Facility). Interest is payable at LIBOR plus 1.5% decreasing to 1.2%,
depending upon the amount of outstanding borrowings. No amounts were outstand-
ing under the XLC Credit Facility as of March 31, 1998. Various customary
restrictive covenants must be observed. Concurrent with establishing the XLC
Credit Facility, the Company and IE have amended their Intercompany Debt
Agreement whereby IE will reimburse the Company for the difference between
LIBOR plus 0.75% and the interest rate paid by the Company to IBMCC and for
other direct expenses that the Company would not have been required to incur
if it had entered into an unsecured credit facility. On February 28, 1997,
the Company entered into a transaction with a third party whereby the third
party agreed to provide an unsecured loan of up to $11,000 (the Loan) to be
used for specific business purposes. The Company borrowed $5,500 available
under the first traunch during 1997 and borrowed the remaining amount on
March 2, 1998. Interest is payable at an initial annual rate of 4% for the
first two years and adjusts to 5% and then 6% for the remaining term.
Principal payments of $750 will be made quarterly beginning in August 1999
with a final payment of $1,250 due on August 28, 2002. In connection with the
Loan, the Company issued to the third party a warrant to purchase up to 325,000
shares of its Common Stock, which became exercisable on February 28, 1998 at a
per share exercise price of $6.65 and expires on February 27, 2007. The third
party has agreed not to exercise the warrant prior to the earlier of the
closing of the Mergers or June 30, 1998. The Company assigned a value of $874
to the warrant using an option pricing model and recorded the amount as a
discount on the Loan and additional paid-in capital. After considering the
effect of the additional interest associated with the issuance of the warrant
and the resultant discounting of the Loan, the effective interest rate is 7.5%.
$43 of the discount was amortized during the three months ended March 31, 1998
and reflected in other income and expense.
Note 5. Related Party Transactions
The Company and IE have entered into a number of agreements for the purpose of
defining certain relationships between them. As a result of IE's approximate
80% ownership interest in the Company, the terms of such agreements were not,
and the terms of any future amendments to those agreements may not be, the
result of arms-length negotiation. These agreements include the Services
Agreement, the Space Sharing Agreement, the Tax Allocation Agreement, the
Indemnification Agreement, the Amended and Restated Intercompany Debt
Agreement, an agreement providing for mutual indemnities arising from the sale
by IE of the majority of its direct computer product business to GE Capital
Information Technology Solutions, Inc., the Stock Registration and Option
Agreement and the Service Agreement for telecommunication services. Summaries
of these agreements are set forth in the Notes to Consolidated Financial
Statements of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and are hereby incorporated by reference herein. These
summaries are qualified in all material respects by the terms and conditions
of the agreements.
The "Due to Parent" balance of $7,349 at March 31, 1998 represents the net
payable to IE for the services provided by IE to XLConnect under the Services,
Space Sharing and Tax Allocation Agreements as well as amounts received by
XLConnect from shared customers of IE and XLConnect for product sold by IE.
These amounts have been paid in full subsequent to March 31, 1998.
PAGE
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XLConnect Solutions, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(unaudited)
Note 6. Supplemental Cash Flow Information
Non-cash financing activities of $437 for the three months ended March 31, 1998
related to the discounting of the second traunch of the Loan as a result of
issuing detachable warrants (see Note 4). The Company made cash payments for
interest of $56 for the three months ended March 31, 1998; no payments were
made during the three months ended March 31, 1997. No income tax payments
were made during the three months ended March 31, 1998 and 1997.
Note 7. Contingencies
The Company continuously evaluates contingencies based upon the best available
evidence. Management believes that allowances for loss have been provided to
the extent necessary and that its assessment of contingencies is reasonable.
PAGE
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997.
The following table sets forth the components of revenues of the Company for
the periods presented:
Three Months
Ended March 31,
--------------------------------------
1998 1997
--------------------------------------
% of % of
Amount Revenue Amount Revenue
----------------- -----------------
Revenues:
Internetworking $ 11,142 33.4 % $ 10,186 30.8 %
Applications development 5,937 17.8 5,388 16.3
Managed services 14,657 43.9 12,215 36.9
Telecommunications and
other fees 1,630 4.9 5,286 16.0
----------------- -----------------
Total Revenues $ 33,366 100.0 % $ 33,075 100.0 %
================= =================
_________________
Revenues. Revenues increased 0.9% for the quarter ended March 31, 1998 to
$33.4 million from $33.1 million for the quarter ended March 31, 1997. The
increase was attributable to growth in the Company's core service areas
combined with fees received from IE of $675,000 for management responsibilities
assumed by the Company in connection with the completion of IE's restructuring
resulting from the sale of its indirect computer product business and the
majority of its direct computer product business in July 1997. Offsetting
these increases were the sale of specified managed service contracts which
included the Company's largest account, General Electric Aircraft Engines, and
the decrease in telecommunications services sold to IE as a result of its
dispositions. Pro forma revenues, assuming the Company had sold the managed
service contracts and IE had disposed of its indirect computer product
business and the majority of its direct computer product business as of
January 1, 1997, increased 17.1% for the quarter ended March 31, 1998 to $33.4
million from $28.5 million for the quarter ended March 31, 1997.
Cost of Revenues. Cost of revenues decreased 7.7% for the quarter ended
March 31, 1998 to $21.3 million from $23.1 million for the quarter ended March
31, 1997. Cost of revenues as a percentage of revenues decreased to 63.8% for
the quarter ended March 31, 1998 from 69.8% for the quarter ended March 31,
1997. This improvement is primarily due to the sale of the specified managed
service contracts, which were lower margin, and improved utilization of
technical personnel.
Selling and Marketing. Selling and marketing expenses increased 44.3% for the
quarter ended March 31, 1998 to $4.1 million from $2.9 million for the quarter
ended March 31, 1997 and increased as a percentage of revenues to 12.4% for the
quarter ended March 31, 1998 from 8.6% for the quarter ended March 31, 1997.
The increase resulted from the continued development of the Company's direct
sales force.
General and Administrative. General and administrative expenses remained
relatively constant at $4.6 million for the quarters ended March 31, 1998 and
1997, and remained at 13.9% as a percentage of revenues for the quarters ended
March 31, 1998 and 1997.
Depreciation and Amortization. Depreciation and amortization increased 4.1% for
the quarter ended March 31, 1998 to $1.1 million from $1.0 million for the
quarter ended March 31, 1997 and increased as a percentage of revenues to 3.2%
for the quarter ended March 31, 1998 from 3.1% for the quarter ended March 31,
1997. The increase was due to more capital additions being made than assets
becoming fully depreciated during the quarter ended March 31, 1998, partially
offset by the lower amortization due to the write-off of goodwill specifically
associated with the sale of the specified managed service contracts in July
1997.
Income from Operations. Income from operations increased 49.2% for the quarter
ended March 31, 1998 to $2.3 million from $1.5 million for the quarter ended
March 31, 1997 and increased as a percentage of revenues to 6.8% for the
quarter ended March 31, 1998 from 4.6% for the quarter ended March 31, 1997
due to the increase in gross margin percentage and for the reasons stated
above.
Other Income, Net. The Company recognized other income of $147,000 for the
quarter ended March 31, 1998 in contrast to other income of $25,000 for the
quarter ended March 31, 1997. The increase in other income is due to investing
the proceeds from the third party loan in short-term securities which generated
interest income.
Provision for Income Taxes. Provision for income taxes increased 45.3% for the
quarter ended March 31, 1998 to $1.1 million from $771,000 for the quarter
ended March 31, 1997. The effective income tax rate decreased to 46.6% for
the quarter ended March 31, 1998 from 50.1% for the quarter ended March 31,
1997. The increase in income taxes and the decrease in the effective tax rate
is a result of greater income before taxes which exceeded the effects of the
write-off of non-deductible goodwill associated with the sale of the specified
managed service contracts.
Quarterly Results and Seasonality
The Company's quarterly results may vary depending upon a number of factors,
including, among others, the following: changes in the levels of revenues
derived from internetworking, applications development, managed services and
telecommunication fees and other services; the size and timing of significant
projects; changes in the mix of employee and subcontractor technicians; the
number of business days in a period and the closing of client facilities for
holidays and other reasons; cost overruns on fixed-price contracts; the
potential for increased expenditures and the loss of sales generation activity
resulting from the sale of the majority of the direct computer sales business
of IE with which XLConnect shared facilities and related expenses, employee
benefits, insurance policies and other services and has relied on significantly
for sales leads; the timing of new service offerings by the Company or its
competitors; new branch office openings by the Company; the loss of senior
management or key technical personnel; changes in pricing policies by the
Company or its competitors; market acceptance of new and enhanced services
offered by the Company or its competitors; changes in operating expenses; the
availability of qualified technical personnel; disruptions in sources of supply
of computer, telecommunications and related products and services; the effect
of acquisitions; and industry and general economic factors. In addition, the
Company believes that its business is subject to some seasonality, and that
weaker sales may be experienced during the fourth and first quarters due to
fewer business days and by some clients' decisions at year end to postpone
large internetworking and applications development projects until the
following year when capital budgets are renewed.
Effects of Inflation
The Company believes it has not been adversely affected by inflation during the
past year.
Liquidity and Capital Resources
The Company's operating activities provided cash of $573,000 for the quarter
ended March 31, 1998 primarily as a result of the Company not paying IE for
services provided by IE under the Services, Space Sharing and Tax Allocation
Agreements, and not transmitting cash to IE that the Company had received from
shared customers of IE and XLConnect for products sold by IE, until after the
close of the period. Offsetting this increase was an increase in working
capital, primarily accounts receivable resulting from the growth in revenues.
The Company believes that it may use cash from operations through the end of
the year because of continued revenue growth in the Company's business and the
associated use of working capital in connection with this growth.
The Company's investing activities used cash of $2.0 million for the three
months ended March 31, 1998 for capital expenditures necessary to support the
continued growth of technical service and administrative personnel.
The Company's financing activities provided cash of $5.5 million for the three
months ended March 31, 1998 resulting from borrowings under the Loan provided
by a third party.
During 1998, the Company anticipates making approximately $6.5 million in
capital expenditures, expected to be funded from operations, cash balances and
available external financing sources. These expenditures are expected to
include additional purchases of computers to support the technical staff. The
Company has no current plans for any additional material capital expenditures
through December 31, 1998.
The Company believes that its cash flows from operations, cash balances, funds
available from the XLC Credit Facility and the use of operating or capital
leases, will be sufficient to satisfy its working capital needs and planned
growth through the end of the year.
Forward Looking Statements
The matters discussed in this Form 10-Q that are forward-looking statements
within the meaning of the federal securities laws are based on current
management expectations that involve risks and uncertainties that could cause
actual results to differ materially from expected results. Potential risks and
uncertainties, the occurrence of one or more of which could have a material
adverse effect on the Company, include, without limitation: risks related to
the impact on the Company of the sale by IE of its indirect computer sales
business and the majority of its direct computer sales operations; the risks of
any substantial legal proceedings that could be instituted in the future; the
factors described herein under "Quarterly Results and Seasonality"; and the
risk factors described generally in the Company's Prospectus dated October 17,
1996 filed with the Securities and Exchange Commission in connection with the
IPO.
PAGE
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Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
2.1 -- Asset Purchase Agreement between GE Capital Information
Technology Solutions Acquisition Corp. and IE and certain of
its subsidiaries dated as of July 1, 1997 (7)
2.2 -- First Amendment to Asset Purchase Agreement between GE Capital
Information Technology Solutions Acquisition Corp. and IE and
certain of its subsidiaries dated as of July 18, 1997 (7)
2.3 -- Agreement between the Company, IE and certain of its
subsidiaries dated as of July 18, 1997 relating to allocation
of purchase price and indemnities (7)
2.4 -- Agreement and Plan of Merger dated as of March 4, 1998 among
Xerox Corporation, TDC Subsidiary Corporation, TDC Two
Subsidiary Corporation, Intelligent Electronics, Inc., and
XLConnect Solutions, Inc. (10)
2.5 -- Second Amendment to Asset Purchase Agreement between GE
Capital Information Technology Solutions Acquisition Corp. and
IE and certain of its subsidiaries dated as of February 6,
1998 (10)
3.1 -- Articles of Incorporation of the Company, as amended (2)
3.2 -- By-Laws of the Company (1)
4.1 -- Specimen Stock Certificate (4)
10.1 -- Contribution Agreement between IE, TFN, the Future Now, Inc.
of Arkansas and the Company dated as of May 31, 1996 (2)
10.2 -- 1996 Long-Term Incentive Plan (including form of option
agreement) (2)
10.3 -- Amended and Restated Services Agreement between the Company, IE
and XLSource, Inc. dated as of September 30, 1997 (9)
10.4 -- Space Sharing Agreement between the Company, IE and TFN, with
respect to the Company's principal executive offices and branch
offices dated as of May 31, 1996 (5)
10.5 -- Tax Allocation Agreement between the Company, IE and IE's other
subsidiaries effective as of January 29, 1995 (5)
10.6 -- Stock Registration and Option Agreement between the Company, IE
and The Future Now, Inc. of Arkansas dated as of May 31, 1996,
and Amendment No. 1 thereto dated as of February 28, 1997 (9)
10.7 -- Indemnification Agreement between the Company and IE dated as of
October 22, 1996 (5)
10.8 -- Offer Letters for Executive Officers of the Company (2)
10.9 -- Amended Credit Agreement between IBMCC and IE and the Company
terminating the $20 million Sub-facility and Credit Agreement
between IBMCC and the Company dated as of March 26, 1997 (6)
10.10 -- Amended and Restated Intercompany Debt Agreement dated as of
March 26, 1997 by and between IE and the Company (8)
10.11 -- Services Agreement for Telecommunications Services by and
between XLConnect Service, Inc. (a wholly-owned subsidiary of
the Company Formerly named IntelliCom Solutions, Inc.) and IE
dated as of January 1, 1996 (5)
10.12 -- Services Practice Agreement between Microsoft Corporation and
the Company dated as of February 28, 1997 (6)
27.1 -- Financial Data Schedule (submitted electronically only to
Securities and Exchange Commission)
_____________________
(1) Incorporated by reference herein from the Company's Registration
Statement on Form S-1 (No. 333-08735) filed on July 24, 1996.
(2) Incorporated by reference herein from Amendment No. 1 to the
Company's Registration Statement on Form S-1 filed on September 16,
1996.
(3) Incorporated by reference herein from Amendment No. 2 to the
Company's Registration Statement on Form S-1 filed on October 3,
1996.
(4) Incorporated by reference herein from Amendment No. 3 to the
Company's Registration Statement on Form S-1 filed on October 15,
1996.
(5) Incorporated by reference herein from the Company's Quarterly Report
on Form 10-Q filed on December 2, 1996.
(6) Incorporated by reference herein from the Company's Quarterly Report
on Form 10-Q filed on May 15, 1997. The Company has requested and
received confidential treatment for portions of Exhibit 10.12.
(7) Incorporated by reference herein from the Company's Current Report on
Form 8-K filed on August 1, 1997.
(8) Incorporated by reference herein from the Company's Quarterly Report
on Form 10-Q filed on August 14, 1997.
(9) Incorporated by reference herein from the Company's Quarterly Report
on Form 10-Q/A filed on February 6, 1998.
(10) Incorporated by reference herein from the Company's Annual Report on
Form 10-K filed on March 31, 1998.
(b) Reports filed on Form 8-K.
A report on Form 8-K was filed with the Securities and Exchange Commission
on March 11, 1998 to report the execution of the Agreement and Plan of
Merger with Xerox Corporation.
PAGE
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XLConnect Solutions, Inc.
/s/ Timothy W. Wallace
-----------------------------
Timothy W. Wallace
President and
Chief Operating Officer
/s/ Stephanie D. Cohen
-----------------------------
Stephanie D. Cohen
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
Date: May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001018525
<NAME> XLCONNECT SOLUTIONS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 21,274
<SECURITIES> 0
<RECEIVABLES> 31,986
<ALLOWANCES> 1,363
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<CURRENT-ASSETS> 55,221
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<SALES> 33,366
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