<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 SEPTEMBER 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 - 7,354,750 shares as of November 4, 1996
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
(Descriptions to come)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Descriptions to come)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
Unaudited
September 30, December 31,
1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,565 $ 9,304
Short-term investments 7,620 9,115
Receivables, net of $325 allowance for doubtful accounts 9,334 8,091
Prepaid expenses and other current assets 1,405 714
Income tax receivable 550 522
- --------------------------------------------------------------------------------------------------------
27,474 27,746
- --------------------------------------------------------------------------------------------------------
Furniture, fixtures, and equipment, net of $5,301 and $4,975
accumulated depreciation 5,020 4,885
Capitalized software development costs, net of $1,303 and $922
accumulated amortization 2,126 767
Long-term investment 229 --
Other noncurrent assets 182 63
- --------------------------------------------------------------------------------------------------------
$35,031 $33,461
- --------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities $ 3,061 $ 2,778
Noncurrent liabilities 858 834
Stockholders' equity 31,112 29,849
- --------------------------------------------------------------------------------------------------------
$35,031 $33,461
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Software license fees $ 6,133 $ 4,918 $ 20,445 $ 18,771
Services 3,227 2,195 8,491 6,054
- ----------------------------------------------------------------------------------------------------
9,360 7,113 28,936 24,825
- ----------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Costs of license fees and services 1,325 998 3,913 3,042
Sales and marketing 5,384 3,281 15,223 10,541
Product development 1,500 1,251 4,402 3,755
General and administrative 1,506 1,200 4,388 4,131
Nonrecurring charges 384 -- 384 --
- ----------------------------------------------------------------------------------------------------
10,099 6,730 28,310 21,469
- -----------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (739) 383 626 3,356
Other income, net 204 330 757 968
- -----------------------------------------------------------------------------------------------------
Income (loss) before income taxes (535) 713 1,383 4,324
Provision (credit) for income taxes (160) 264 529 1,633
- -----------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (375) $ 449 $ 854 $2,691
- -----------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE $ (0.05) $ 0.05 $ 0.11 $ 0.31
- -----------------------------------------------------------------------------------------------------
SHARES USED IN PER SHARE COMPUTATIONS 7,238 8,502 7,845 8,580
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed statements.
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 854 $ 2,691
- ---------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in trade receivables (1,243) (262)
Increase in prepaid expenses and other current assets (691) (35)
(Increase) decrease in income taxes receivable (28) 517
Depreciation and amortization 2,248 1,716
Increase (decrease) in current liabilities 283 (259)
Increase in noncurrent liabilities 24 115
- ---------------------------------------------------------------------------------------
Total adjustments 593 1,792
- ---------------------------------------------------------------------------------------
Net cash provided by operating activities 1,447 4,483
- ---------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Decrease (increase) in short-term investments 1,495 (4,942)
Purchases of furniture, fixtures, and equipment, net (2,002) (2,739)
Additions to capitalized software development costs (1,740) (113)
Increase in long-term investments (229) (12)
Other (172) 12
- ---------------------------------------------------------------------------------------
Net cash used for investing activities (2,648) (7,794)
- ---------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock, net of related costs 525 207
Income tax benefits related to exercise of stock options -- 528
Other (63) (36)
- ---------------------------------------------------------------------------------------
Net cash provided by financing activities 462 699
- ---------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (739) (2,612)
Cash and cash equivalents, beginning of period 9,304 12,735
- ---------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 8,565 $10,123
- ---------------------------------------------------------------------------------------
Supplemental Disclosures
Interest paid $ -- $ --
Income taxes paid $ 868 $ 1,215
- ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated condensed statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED CONDENSED 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 effect of stock options was anti-dilutive for the three months
ended September 30, 1996 and was excluded from the calculation. 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 $702,000
and $31,000 in the three months ended September 30, 1996 and 1995, and
$1,877,000 and $119,000 for the nine months ended September 30, 1996 and
1995, respectively. Advertising expense was $564,000 and $31,000 for the
three months ended September 30, 1996 and 1995, and $1,466,000 and $119,000
for the nine months ended September 30, 1996 and 1995, respectively.
Unamortized advertising costs included in prepaid expenses were $411,000 and
$0 at September 30, 1996 and 1995.
<PAGE>
FINANCIAL REVIEW
RESULTS OF OPERATIONS:
Revenues. Total revenues increased 32% to $9,360,000 for the three months ended
September 30, 1996 as compared to $7,113,000 for the same period in 1995.
Revenues increased 17% to $28,936,000 for the nine months ended September 30,
1996 as compared to $24,825,000 for the prior year period.
The Company derives revenue from license fees for its RemoteWare products and
service fees for its software support and maintenance program and systems
integration and training services. Revenues from license fees increased 25% to
$6,133,000 and 9% to $20,445,000 in the three and nine months ended September
30, 1996 as compared to the same periods in 1995. The increase in license fees
is primarily due to a 38% increase in add-on license fees from the installed
customer base for the third quarter of 1996 as compared to the same period in
1995. License fees from new customers were approximately the same in the third
quarter of 1996 as compared to the prior year period, with the number of new
customers added declining from 71 to 65 but the average deal size increasing
from $26,000 to $29,000. 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.
In March and September of 1996, the Company released RemoteWare products that
run on the Microsoft NT operating system. License fees from the NT products
contributed 17% of total license fees for the third quarter of 1996.
The Company distributes its products through a combination of direct sales and
Solution Partner channels. License fees from direct sales accounted for 61% and
56% of total license fees in the three and nine months ended September 30, 1996
as compared to 47% and 53% in the prior year periods. License fee revenue
outside North America increased 70% in the third quarter of 1996 as compared to
the same period in 1995 primarily due to increased sales and marketing efforts
and a large add-on license fee from an installed customer.
Revenues from services increased 47% to $3,227,000 and 40% to $8,491,000 in the
three and nine months ended September 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 33% to $1,325,000 and 29% to $3,913,000 in the three and nine months
ended September 30, 1996 as compared to the same periods in 1995. Costs of
license fees and services remained constant as a percentage of revenues at 14%
for the three months ended September 30, 1996 and increased to 14% from 12% in
the nine months ended September 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 64% to $5,384,000
and 44% to $15,223,000 in the three and nine months ended September 30, 1996 as
compared to the same periods in 1995. Sales and marketing expenses increased as
a percentage of revenues to 58% from 46% and to 53% from 42% for the three and
nine months ended September 30, 1996 as compared to the prior year periods. The
increase in expenses was due to higher advertising, personnel and international
marketing 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 its marketing programs
expenditures in Europe to bolster market awareness for the U.K., French and
German operations, and opened a new sales office in Australia.
Product development. Product development expenditures (expenses plus
capitalized software development costs) increased 75% to $2,311,000 and 59% to
$6,142,000 for the three and nine months ended September 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 the Microsoft Windows NT operating system.
Capitalized software development costs were $811,000 and $70,000 for the three
months ended September 30, 1996 and 1995, respectively, and $1,740,000 and
$113,000 for the nine months ended September 30, 1996 and 1995. The increase in
capitalized software development costs reflects investments in the 3.0 and 3.1
versions of RemoteWare and the development of a replication agent for Lotus
Notes. RemoteWare 3.1 and the replication agent for Lotus Notes were released
for general availability on September 30, 1996. Net product development expenses
(product development expenditures less capitalized software) increased 20% to
$1,500,000 and 17% to $4,402,000 for the three and nine months ended September
30, 1996 as compared to the same periods in 1995. Net product development
expenses as a percentage of revenues decreased to 16% from 18% for the three
months ended September 30, 1996 and 1995 and remained constant at 15% for the
nine months ended September 30, 1996 as compared to the same period in 1995.
<PAGE>
The following table summarizes product development expenditures:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product development expenditures $ 2,311 $ 1,321 $ 6,142 $ 3,868
Less: Capitalized software development costs 811 70 1,740 113
------------------------------------------------------------
Net product development expenses $ 1,500 $ 1,251 $ 4,402 $ 3,755
------------------------------------------------------------
As a percentage of revenues:
Gross product development expenditures 25% 19% 21% 16%
Net product development expenses 16% 18% 15% 15%
Capitalized product development rate 35% 5% 28% 3%
</TABLE>
General and administrative. General and administrative expenses increased 26%
to $1,506,000 and 6% to $4,388,000 in the three and nine months ended September
30, 1996 as compared to the same periods in 1995. General and administrative
expenses decreased as a percentage of revenues to 16% from 17% in the three
months ended September 30, 1996 and to 15% from 17% for the nine months ended
September 30, 1996 as compared to the prior year periods. The increase in
general and administrative expenses was primarily due to additional personnel
expenses to support administrative functions.
Nonrecurring Charges. The Company recorded a nonrecurring charge
of $384,000 during the third quarter of 1996 associated with changes in the
Company's executive management team. Excluding the nonrecurring charge, the
operating loss as a percent of revenues was 4% for the third quarter of 1996 as
compared to operating income of 5% of revenues for the prior year period, and
operating income of 3% and 14% of revenues for the nine months ended September
30, 1996 and 1995, respectively.
Other income and expense. Other income, primarily interest income, decreased
38% to $204,000 and 22% to $757,000 in the three and nine months ended September
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 September 30, 1996, the Company had cash, cash equivalents, and short-term
investments of $16,185,000 and working capital of $24,413,000. During the
first nine months of 1996, the Company generated $1,447,000 of cash from
operating activities, purchased capital equipment of $2,002,000 and capitalized
software development costs of $1,740,000.
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.
<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 Financial data schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the
quarter ended September 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: November 14, 1996 By: /s/ SIDNEY V. SACK
--------------------------
Sidney V. Sack
Chief Financial Officer
(Principal Financial and
Authorized Officer)
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- --------- -------------------
<S> <C>
11 Statement re computation of per share earnings
27 Financial data schedule
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
XCELLENET, INC. AND SUBSIDIARIES
Computation of Earnings Per Share of Common Stock
For the Three and Nine Months Ended September 30, 1996 and 1995
(amounts in thousands, except per share)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1996 1995 1996 1995
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding 7,238 7,526 7,190 7,433
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 -- 976 655 1,147
-------- -------- --------------------
Number of common and common equivalent shares outstanding 7,238 8,502 7,845 8,580
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 -- -- 84 --
-------- -------- --------------------
Number of common and common equivalent shares outstanding
assuming full dilution 7,238 8,502 7,929 8,580
======= ======= =========== =======
Net income ($375) $449 $854 $2,691
======= ======= =========== =======
Earnings per share:
Primary ($0.05) $0.05 $0.11 $0.31
======= ======= =========== =======
Fully diluted ($0.05) $0.05 $0.11 $0.31
======= ======= =========== =======
</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.
<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> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,565
<SECURITIES> 7,620
<RECEIVABLES> 9,659
<ALLOWANCES> 325
<INVENTORY> 0
<CURRENT-ASSETS> 27,474
<PP&E> 10,321
<DEPRECIATION> 5,301
<TOTAL-ASSETS> 35,031
<CURRENT-LIABILITIES> 3,061
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 31,037
<TOTAL-LIABILITY-AND-EQUITY> 35,031
<SALES> 6,133
<TOTAL-REVENUES> 9,360
<CGS> 1,325
<TOTAL-COSTS> 1,325
<OTHER-EXPENSES> 8,774
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (535)
<INCOME-TAX> (160)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (375)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
