<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
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 0-23560
XCELLENET, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1749705
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 CONCOURSE PARKWAY, SUITE 850
ATLANTA, GA 30328
(Address of principal executive offices) (Zip Code)
(770) 804-8100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 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.
Common Stock, $.01 par value - 7,220,407 shares as of July 31, 1996
An Exhibit Index is located on page 7 of 9 sequentially numbered pages.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Revenues
Software license fees $ 7,381 $ 7,002 $ 14,312 $ 13,853
Services 2,745 2,037 5,264 3,859
- -------------------------------------------------------------------------------------------------
10,126 9,039 19,576 17,712
- -------------------------------------------------------------------------------------------------
Costs and expenses
Costs of license fees and services 1,380 969 2,588 2,044
Sales and marketing 5,471 3,759 9,839 7,260
Product development 1,561 1,315 2,902 2,504
General and administrative 1,393 1,562 2,882 2,931
- -------------------------------------------------------------------------------------------------
9,805 7,605 18,211 14,739
- -------------------------------------------------------------------------------------------------
Operating income 321 1,434 1,365 2,973
Other income, net 265 334 553 638
- -------------------------------------------------------------------------------------------------
Income before income taxes 586 1,768 1,918 3,611
Provision for income taxes 223 654 689 1,369
- -------------------------------------------------------------------------------------------------
Net income $ 363 $ 1,114 $ 1,229 $ 2,242
- -------------------------------------------------------------------------------------------------
Net income per share $ 0.05 $ 0.13 $ 0.16 $ 0.26
- -------------------------------------------------------------------------------------------------
Shares used in per share computations 7,883 8,602 7,866 8,612
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Unaudited
June 30, December 31,
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 8,679 $ 9,304
Short-term investments 8,683 9,115
Receivables,net of $325 allowance for doubtful accounts 9,681 8,091
Prepaid expenses and other current assets 1,357 714
Income tax receivable 352 522
- ---------------------------------------------------------------------------------------------------------------
28,752 27,746
- ---------------------------------------------------------------------------------------------------------------
Furniture, fixtures, and equipment, net of $4,661 and $4,975 accumulated depreciation 5,179 4,885
Capitalized software development costs, net of $1,160 and $922 accumulated amortization 1,458 767
Long-term investment 229 --
Other noncurrent assets 154 63
- ---------------------------------------------------------------------------------------------------------------
$ 35,772 $ 33,461
- ---------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities $ 3,650 $ 2,778
Noncurrent liabilities 861 834
Stockholders' equity 31,261 29,849
- ---------------------------------------------------------------------------------------------------------------
$ 35,772 $ 33,461
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
2
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 1,229 $ 2,242
- --------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in trade receivables (1,590) (1,971)
(Increase) decrease in prepaid expenses and other current assets (643) 3
Decrease in income taxes receivable 170 779
Depreciation and amortization 1,465 1,112
Increase (decrease) in current liabilities 872 (155)
Increase in noncurrent liabilities 27 46
- --------------------------------------------------------------------------------------------
Total adjustments 301 (186)
- --------------------------------------------------------------------------------------------
Net cash used for operating activities 1,530 2,056
- --------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Decrease (increase) in short-term investments 432 (6,733)
Purchases of furniture, fixtures, and equipment, net (1,521) (1,910)
Additions to capitalized software development costs (929) (43)
Increase in long-term investments (229) --
Other (145) 9
- --------------------------------------------------------------------------------------------
Net cash used for investing activities (2,392) (8,677)
- --------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock, net of related costs 317 191
Income tax benefits related to exercise of stock options -- 480
Other (80) 7
- --------------------------------------------------------------------------------------------
Net cash provided by financing activities 237 678
- --------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (625) (5,943)
Cash and cash equivalents, beginning of period 9,304 12,735
- --------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 8,679 $ 6,792
- --------------------------------------------------------------------------------------------
Supplemental Disclosures
Interest paid $ -- $ --
Income taxes paid $ 798 $ 734
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. In the Company's opinion, the accompanying consolidated interim financial
statements include all adjustments, consisting only of normal, recurring
adjustments, necessary to present fairly the Company's consolidated results
of operations, condensed financial position and condensed cash flows for the
periods indicated. The results of operations for interim periods are not
necessarily indicative of results expected for the entire year. The interim
financial statements should be read in conjunction with the audited
consolidated financial statements as of December 31, 1995 and the notes
thereto included in the Company's annual report incorporated by reference
into the Company's Form 10-K for the year ended December 31, 1995 filed with
the Securities and Exchange Commission. Certain prior year amounts have been
re-classified to conform with the current year presentations.
2. Net income per share is computed using the weighted average number of shares
of common stock outstanding plus common equivalent shares. Common equivalent
shares from stock options have been included in the computation when
dilutive. The difference between primary and fully diluted earnings per
share is not material for the periods presented, and therefore fully diluted
net income per share has not been presented.
3. The Company expenses the production costs of advertising at the time
incurred, except for direct-response advertising, which is capitalized and
amortized over its expected period of future benefits. Direct-response
advertising consists primarily of advertisements in business, financial,and
software magazines and newspapers. The cost of each advertisement is
amortized over the four-month period following the issuance of the
publication in which it appears. Advertising expenditures totaled $516,000
and $75,000 in the three months ended June 30, 1996 and 1995, and $1,175,000
and $88,000 for the six months ended June 30, 1996 and 1995, respectively.
Advertising expense was $480,000 and $75,000 for the three months ended
June 30, 1996 and 1995, and $902,000 and $88,000 for the six months ended
June 30, 1996 and 1995, respectively. Unamortized advertising costs included
in prepaid expenses were $273,000 and $0 at June 30, 1996 and 1995.
3
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS:
Revenues. Total revenues increased 12% to $10,126,000 and 11% to $19,576,000 in
- --------
the three and six months ended June 30, 1996 as compared to the same periods in
1995. Revenues from license fees increased 5% to $7,381,000 and 3% to
$14,312,000 in the three and six months ended June 30, 1996 as compared to the
same periods in 1995. The Company believes the slowing growth rate of license
fees compared to prior periods is affected by market confusion regarding the
role of RemoteWare in addressing enterprise information systems requirements for
remote and mobile workers versus the roles of the Internet, remote LAN access
and groupware products. License fees from new customers decreased as a
percentage of total license fees to 44% from 53% and to 39% from 46% for the
three and six months ended June 30, 1996 as compared to the same periods in
1995. There were 93 new customers added in the second quarter of 1996 as
compared to 89 in the prior year period, and the average deal size of new
customers decreased to $35,000 from $42,000 in the second quarter of 1996 as
compared to 1995. Average deal size varies as a function of product mix (OS/2
versus NT server-based product), number of clients included in the sale, whether
the sale was direct or through a partner, and product packaging. The decrease in
revenues from new customers was offset by increased license fees from the
installed customer base in the three and six months ended June 30, 1996 as
compared to the prior year periods.
Revenues from services increased 35% to $2,745,000 and 36% to $5,264,000 in the
three and six months ended June 30, 1996 as compared to the same periods in
1995. The increase in service revenues is attributable to the growth in the
Company's installed base of customers and their participation in the Company's
software support and maintenance program called the RemoteCare Assurance Plan.
Costs of license fees and services. Costs of license fees and services increased
- -----------------------------------
42% to $1,380,000 and 27% to $2,588,000 in the three and six months ended June
30,1996 as compared to the same periods in 1995. Costs of license fees and
services increased as a percentage of revenues to 14% from 11% and to 13% from
12% in the three and six months ended June 30, 1996 as compared to the prior
year periods. The increase in cost of license fees and services is primarily due
to additional personnel expenses in product support and field services to
support the growing customer base.
Sales and marketing. Sales and marketing expenses increased 46% to $5,471,000
- --------------------
and 36% to $9,839,000 in the three and six months ended June 30, 1996 as
compared to the same periods in 1995. Sales and marketing expenses increased as
a percentage of revenues to 54% from 42% and to 50% from 41% for the three and
six months ended June 30,1996 as compared to the prior year periods. The
increase in expenses was due to higher advertising and personnel costs. During
the first quarter of 1996, the Company launched a national print media
advertising campaign to further increase market awareness for RemoteWare. The
advertising campaign is currently scheduled to continue throughout 1996. In
addition, the Company increased marketing programs in Europe to bolster market
awareness for the U.K., French and German operations.
Product development. Product development expenditures (expenses plus capitalized
- --------------------
software development costs) increased 52% to $2,060,000 and 50% to $3,831,000
for the three and six months ended June 30, 1996 as compared to the same periods
in 1995. The increase in product development expenditures was primarily due to
additional personnel costs (including outside contractor costs) for development
of RemoteWare on both the OS/2 and the Microsoft Windows NT operating systems.
Capitalized software development costs were $499,000 and $43,000 for the three
months ended June 30, 1996 and 1995, respectively, and $929,000 and $43,000 for
the six months ended June 30, 1996 and 1995. The increase in capitalized
software development costs reflects investments in the 3.0 and 3.1 versions of
the NT products and the development of an OS/2-based replication agent for Lotus
Notes. Net product development expenses (product development expenditures less
capitalized software) increased 19% to $1,561,000 and 16% to $2,902,000 for the
three and six months ended June 30, 1996 as compared to the same periods in
1995. Net product development expenses as a percentage of revenues remained
constant at 15% for the three months ended June 30, 1996 and 1995 and increased
to 15% from 14% for the six months ended June 30, 1996 as compared to the same
period in 1995.
4
<PAGE>
The following table summarizes product development expenditures:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product development expenditures $ 2,060 $ 1,358 $ 3,831 $ 2,547
Less: Capitalized software
development costs 499 43 929 43
--------------------- ------------------
Net product development expenses $ 1,561 $ 1,315 $ 2,902 $ 2,504
As a percentage of revenues:
Gross product development
expenditures 20% 15% 20% 14%
Net product development
expenses 15% 15% 15% 14%
Capitalized product development
rate 24% 3% 24% 2%
</TABLE>
General and administrative. General and administrative expenses decreased 11% to
$1,393,000 and 2% to $2,882,000 in the three and six months ended June 30, 1996
as compared to the same periods in 1995. General and administrative expenses
decreased as a percentage of revenues to 14% from 17% and to 15% from 17% for
the three and six months ended June 30, 1996 as compared to the prior year
periods. Expenses were reduced as a result of efficiencies in administrative
operations and lower costs for outside legal and accounting services.
Other income and expense. Other income, primarily interest income, decreased 21%
to $265,000 and 13% to $553,000 in the three and six months ended June 30, 1996
as compared to the same periods in 1995 due primarily to lower cash balances as
a result of the Company's repurchase of $8,000,000 of its common stock in the
fourth quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 1996, the Company had cash, cash equivalents, and short-term
investments of $17,362,000 and working capital of $25,102,000. During the first
six months of 1996, the Company generated $1,530,000 of cash from operating
activities, purchased capital equipment of $1,521,000 and capitalized software
development costs of $929,000.
The Company believes cash flows from operations and existing cash and short-term
investments will be sufficient to meet its cash requirements over at least the
next two years.
5
<PAGE>
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re computation of per share earnings
27 Article 5 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the
quarter ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XcelleNet, Inc.
(Registrant)
Date: August 13, 1996 By: /s/ SIDNEY V. SACK
--------------------------
Sidney V. Sack
Chief Financial Officer
(Principal Financial and
Authorized Officer)
6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description Page
- ------- ------------------- ----
<S> <C> <C>
11 Statement re computation of per share 8
earnings
27 Article 5 Financial Data Schedule 9
</TABLE>
7
<PAGE>
EXHIBIT 11
XCELLENET, INC. AND SUBSIDIARIES
Computation of Earnings Per Share of Common Stock
For the Three and Six Months Ended June 30, 1996 and 1995
(amounts in thousands, except per share)
<TABLE>
<CAPTION> For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------- ---------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding 7,204 7,482 7,167 7,386
Add - Shares of common stock assumed issued upon exercise of
stock options using the "treasury stock" method as it
applies to the computation of primary earnings per share 679 1,120 699 1,226
------- ------- ------- -------
Number of common and common equivalent shares outstanding 7,883 8,602 7,866 8,612
Add - Additional shares of common stock assumed issued upon
exercise of stock options using the "treasury stock" method as it
applies to the computation of fully diluted earnings per share -- -- -- --
------- ------- ------- -------
Number of common and common equivalent shares outstanding
assuming full dilution 7,883 8,602 7,866 8,612
======= ======= ======= =======
Net income $363 $1,114 $1,229 $2,242
======= ======= ======= =======
Earnings per share:
Primary $0.05 $0.13 $0.16 $0.26
======= ======= ======= =======
Fully diluted $0.05 $0.13 $0.16 $0.26
======= ======= ======= =======
</TABLE>
A single presentation of primary earnings per share is made on the Consolidated
Statements of Operations because the effect of assuming full dilution is
insignificant in each period presented.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,679
<SECURITIES> 8,683
<RECEIVABLES> 10,006
<ALLOWANCES> 325
<INVENTORY> 0
<CURRENT-ASSETS> 28,752
<PP&E> 9,840
<DEPRECIATION> 4,661
<TOTAL-ASSETS> 35,772
<CURRENT-LIABILITIES> 3,650
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 31,186
<TOTAL-LIABILITY-AND-EQUITY> 35,772
<SALES> 7,381
<TOTAL-REVENUES> 10,126
<CGS> 1,380
<TOTAL-COSTS> 1,380
<OTHER-EXPENSES> 8,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 586
<INCOME-TAX> 223
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 363
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
