** **

** **

**FORM10-Q**

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

 

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

 

**For the Quarterly Period Ended September 30, 2001**

** **

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934

** **

Commission File Number 000-30389

** **

****

** **

**EXETECHNOLOGIES, INC.**

(Exact name of registrantas specified in its charter)

 
| **Delaware **               | **751719817**                            |
|----------------------------------|------------------------------------------|
| (State or other  jurisdiction of | (I.R.S. Employer  Identification Number) |
| incorporation or  organization)  |                                     |

** **

**8787Stemmons Freeway**

**Dallas,Texas 75247**

(Address including zipcode of principal executive offices)

 

**(214)775-6000**

(Registrant’s telephonenumber, including area code)

 

Indicate by check mark whether the registrant  (1)  has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý  NO o

 

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of

October 31, 2001.

 

Common stock, $0.01 parvalue, 45,651,187 shares outstanding.

 

 

 

 

**EXE TECHNOLOGIES, INC. AND SUBSIDIARIES**

#### **INDEX TO FORM 10-Q**

** **
| **PART I.**                        | **FINANCIAL INFORMATION**                                             |
|------------------------------------|-----------------------------------------------------------------------|
|                               |                                                                  |
| **Item 1.**                        | **Financial Statements**                                              |
|                               |                                                                  |
|                               | **Consolidated Balance Sheets**                                       |
|                               |                                                                  |
|                               | **Consolidated  Statements of Operations**                            |
|                               |                                                                  |
|                               | **Consolidated  Statements of Cash Flows**                            |
|                               |                                                                  |
|                               | **Notes to  Consolidated Financial Statements**                       |
|                               |                                                                  |
| **Item 2.**                        | **Management’s Discussion and Analysis of  Financial Condition** |
|                               | **and Results of Operations**                                         |
|                               |                                                                  |
| **Item 3.**                        | **Quantitative and Qualitative Disclosures About  Market Risk**       |
|                               |                                                                  |
| **PART II.**                       | **OTHER INFORMATION**                                                 |
|                               |                                                                  |
| **Item 2.**                        | **Changes in Securities and Use of  Proceeds**                        |
|                               |                                                                  |
| **Item 6.**                        | **Exhibits  and Reports on Form 8-K**                                 |
|                               |                                                                  |
| **Signatures**                     |
|                               |                                                                  |
| **Index to Exhibits and Exhibits** |

##### ** **

**PARTI.           FINANCIAL INFORMATION**

**ITEM1.            FINANCIAL STATEMENTS**

** **

**EXE TECHNOLOGIES, INC. ANDSUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

#### ** **

 
|                                                                                                                                                                                |   | **As of**        |        | **As of**         |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|-------------|-------------------|--------|
|                                                                                                                                                                                |   | **December 31,** |        | **September 30,** |   |
|                                                                                                                                                                                |   | **2000**         |        | **2001**          |   |
|                                                                                                                                                                                |   |             |        | **(unaudited)**   |   |
| **Assets**                                                                                                                                                                          |   |             |        |              |   |
| **Current assets:**                                                                                                                                                                 |   |             |        |              |   |
| Cash  and cash equivalents                                                                                                                                                          |   | $                | 39,820,056  |              | $      | 31,251,280 |   |
| Marketable  securities                                                                                                                                                              |   | 9,147,506        |        | 2,191,894         |   |
| Accounts receivable, net of allowance for doubtful  accounts and adjustments of approximately $5,168,000 and $4,358,000 at  December 31, 2000 and September 30, 2001, respectively  |   | 33,029,674       |        | 29,415,837        |   |
| Other  receivables and advances                                                                                                                                                     |   | 614,781          |        | 719,662           |   |
| Prepaid  and other current assets                                                                                                                                                   |   | 3,180,221        |        | 3,142,754         |   |
| Total current assets                                                                                                                                                                |   | 85,792,238       |        | 66,721,427        |   |
| Marketable  securities, long-term                                                                                                                                                   |   | 10,235,457       |        | 14,891,265        |   |
| Property  and equipment, net                                                                                                                                                        |   | 8,233,891        |        | 7,948,894         |   |
| Other  assets                                                                                                                                                                       |   | 2,175,655        |        | 2,569,172         |   |
| Intangible  assets, net                                                                                                                                                             |   | 10,142,402       |        | 34,620,690        |   |
| Total assets                                                                                                                                                                        |   | $                | 116,579,643 |              | $      | 126,751,448 |   |
|                                                                                                                                                                                |   |             |        |              |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                      |   |             |        |              |   |
| **Current liabilities:**                                                                                                                                                            |   |             |        |              |   |
| Accounts payable                                                                                                                                                                    |   | $                | 6,065,703   |              | $      | 7,070,091 |   |
| Accrued expenses                                                                                                                                                                    |   | 9,931,202        |        | 10,960,270        |   |
| Accrued payroll and benefits                                                                                                                                                        |   | 2,812,071        |        | 2,159,105         |   |
| Deferred revenue                                                                                                                                                                    |   | 10,431,348       |        | 8,783,949         |   |
| Current portion of long-term debt and capital lease obligations                                                                                                                     |   | 192,883          |        | 281,647           |   |
| Total current liabilities                                                                                                                                                           |   | 29,433,207       |        | 29,255,062        |   |
| Long-term debt and capital lease obligations, net of current portion                                                                                                                |   | 102,477          |        | 73,540            |   |
| Long-term accrued expenses, net of current portion                                                                                                                                  |   | -                |        | 4,934,753         |   |
| Minority interest                                                                                                                                                                   |   | -                |        | 154,490           |   |
| Commitments and contingencies                                                                                                                                                       |   |             |        |              |   |
| **Stockholders’ equity:**                                                                                                                                                      |   |             |        |              |   |
| Preferred stock,  $.01 par value:  shares authorized -  20,000,000; none  issued or outstanding                                                                           |   | -                |        | -                 |   |
| Common stock, voting,  $.01 par value:  shares authorized -  150,000,000; shares issued - 44,487,495 and 46,643,170 at December 31, 2000  and September 30, 2001, respectively |   | 444,875          |        | 466,432           |   |
| Additional paid-in capital                                                                                                                                                          |   | 149,691,336      |        | 180,422,662       |   |
| Note receivable from stockholder                                                                                                                                                    |   | -                |        | (211,750          | )      |
| Treasury stock, at  cost, 999,483 shares of common stock at December 31, 2000 and September 30,  2001                                                                               |   | (3,431,464       | )           | (3,431,464        | )      |
| Accumulated deficit                                                                                                                                                                 |   | (55,677,267      | )           | (80,009,605       | )      |
| Deferred compensation                                                                                                                                                               |   | (3,688,059       | )           | (4,851,019        | )      |
| Other comprehensive loss                                                                                                                                                            |   | (295,462         | )           | (51,653           | )      |
| Total stockholders’ equity                                                                                                                                                     |   | 87,043,959       |        | 92,333,603        |   |
| Total liabilities and stockholders’ equity                                                                                                                                     |   | $                | 116,579,643 |              | $      | 126,751,448 |   |

 

* *

*See accompanying notes.*****

**EXE TECHNOLOGIES, INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

** **
|                                                                   |   | **Three Months Ended**** ****September 30,** |          | **Nine Months Ended********September  30,** |          |
|------------------------------------------------------------------------|--------|---------------------------------------------------|---------------|---------------------------------------------|---------------|
|                                                                   |   |                                              |          |
|                                                                   |   | **2000**                                          |          | **2001**                                    |          | **2000** |   | **2001** |   |
|                                                                   |   |                                              |          |                                        |          |   |   |   |   |
| **Revenue:**                                                           |   |                                              |          |                                        |          |   |   |   |   |
| Software license                                                       |   | $                                                 | 10,238,534    |                                        | $             | 4,935,254 |   | $ | 26,835,176 |   | $ | 21,067,872 |   |
| Services and maintenance                                               |   | 17,926,569                                        |          | 14,886,946                                  |          | 51,592,870 |   | 49,316,085 |   |
| Resale of software and equipment                                       |   | 2,396,678                                         |          | 2,470,094                                   |          | 5,690,010 |   | 6,582,444 |   |
| Total revenue                                                          |   | 30,561,781                                        |          | 22,292,294                                  |          | 84,118,056 |   | 76,966,401 |   |
| **Costs and expenses:**                                                |   |                                              |          |                                        |          |   |   |   |   |
| Cost of software licenses                                              |   | 179,164                                           |          | 323,198                                     |          | 345,131 |   | 453,657 |   |
| Cost of services and maintenance                                       |   | 13,680,831                                        |          | 9,489,045                                   |          | 41,066,920 |   | 32,105,548 |   |
| Cost of resale of software and  equipment                              |   | 1,726,575                                         |          | 2,129,455                                   |          | 4,508,406 |   | 5,445,496 |   |
| Sales and marketing                                                    |   | 6,148,200                                         |          | 6,225,668                                   |          | 18,641,159 |   | 21,466,884 |   |
| Research and development                                               |   | 2,715,790                                         |          | 3,485,964                                   |          | 6,847,203 |   | 11,322,910 |   |
| General and administrative                                             |   | 3,651,843                                         |          | 4,162,294                                   |          | 10,434,463 |   | 14,202,053 |   |
| Amortization of intangibles                                            |   | 1,178,580                                         |          | 2,316,749                                   |          | 3,458,238 |   | 6,520,253 |   |
| Warrant  and stock compensation expense allocated to:                  |   |                                              |          |                                        |          |   |   |   |   |
| Cost of services and  maintenance                                      |   | 171,874                                           |          | 130,342                                     |          | 670,821 |   | 406,961 |   |
| Sales and marketing                                                    |   | 239,343                                           |          | 44,952                                      |          | 1,216,335 |   | 285,888 |   |
| Research and development                                               |   | 4,630                                             |          | 39,882                                      |          | 12,402 |   | 133,958 |   |
| General and administrative                                             |   | 153,631                                           |          | 161,353                                     |          | 593,404 |   | 477,443 |   |
| Employee  severance and lease abandonment costs                        |   | -                                                 |          | -                                           |          | - |   | 9,930,080 |   |
| Total costs and expenses                                               |   | 29,850,461                                        |          | 28,508,902                                  |          | 87,794,482 |   | 102,751,131 |   |
| Operating income (loss)                                                |   | 711,320                                           |          | (6,216,608                                  | )             | (3,676,426 | ) | (25,784,730 | ) |
| **Other income (expense):**                                            |   |                                              |          |                                        |          |   |   |   |   |
| Interest income                                                        |   | 577,628                                           |          | 554,096                                     |          | 800,793 |   | 2,049,341 |   |
| Interest expense                                                       |   | (266,638                                          | )             | (9,618                                      | )             | (1,202,811 | ) | (29,626 | ) |
| Other                                                                  |   | (504,369                                          | )             | 117,064                                     |          | (901,064 | ) | (269,887 | ) |
| Total other income (expense)                                           |   | (193,379                                          | )             | 661,542                                     |          | (1,303,082 | ) | 1,749,828 |   |
| Income (loss) before minority interest and taxes                       |   | 517,941                                           |          | (5,555,066                                  | )             | (4,979,508 | ) | (24,034,902 | ) |
| Minority interest in subsidiary income                                 |   | -                                                 |          | (45,388                                     | )             | - |   | (146,059 | ) |
| Income (loss) before taxes                                             |   | 517,941                                           |          | (5,600,454                                  | )             | (4,979,508 | ) | (24,180,961 | ) |
| Income tax provision                                                   |   | -                                                 |          | -                                           |          | - |   | 151,377 |   |
| Net income (loss)                                                      |   | $                                                 | 517,941       |                                        | $             | (5,600,454 | ) | $ | (4,979,508 | ) | $ | (24,332,338 | ) |
| Net income (loss) per common share - basic                             |   | $                                                 | 0.02          |                                        | $             | (0.12 | ) | $ | (0.23 | ) | $ | (0.54 | ) |
| Net income (loss) per common share - diluted                           |   | $                                                 | 0.01          |                                        | $             | (0.12 | ) | $ | (0.23 | ) | $ | (0.54 | ) |
| Weighted average  number of common shares outstanding - basic          |   | 31,644,402                                        |     | 45,612,056                                  |     | 21,388,840 |     | 45,261,613 |     |
| Weighted average  number of common shares  outstanding  - diluted |   | 42,322,851                                        |     | 45,612,056                                  |     | 21,388,840 |     | 45,261,613 |     |

 

*See accompanying notes.*

 

**EXE TECHNOLOGIES, INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

** **
|                                                                                             |   | **Nine Months Ended********September  30,** |       |
|--------------------------------------------------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                                                             |   |                                        |
|                                                                                             |   | **2000**                                    |       | **2001** |   |
| **Cash Flow from Opertating Activities:**                                                        |   |                                        |       |   |   |
| Net loss                                                                                         |   | $                                           | (4,979,508 | ) | $ | (24,332,338 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in)  operating activities: |   |                                        |       |   |   |
| Depreciation and amortization                                                                    |   | 6,582,987                                   |       | 9,374,489 |   |
| Provision for losses on receivables                                                              |   | 5,800,070                                   |       | 2,709,209 |   |
| Amortization of deferred compensation                                                            |   | 1,491,200                                   |       | 1,129,900 |   |
| Issuance of warrants for services                                                                |   | 1,001,762                                   |       | 174,350 |   |
| Minority interest                                                                                |   | -                                           |       | 154,490 |   |
| Changes in operating assets and liabilities, net of the acquired  balances:                      |   |                                        |       |   |   |
| Accounts receivable                                                                              |   | (9,605,682                                  | )          | 1,266,409 |   |
| Other receivables and  advances                                                                  |   | 488,011                                     |       | (104,881 | ) |
| Prepaids and other assets                                                                        |   | (998,331                                    | )          | 100,784 |   |
| Other long-term assets                                                                           |   | (162,370                                    | )          | (364,913 | ) |
| Accounts payable                                                                                 |   | 1,605,245                                   |       | 201,777 |   |
| Accrued payroll and  benefits                                                                    |   | 394,479                                     |       | (1,085,340 | ) |
| Deferred revenue                                                                                 |   | (1,069,076                                  | )          | (2,601,657 | ) |
| Income tax payable                                                                               |   | 98,540                                      |       | (157,948 | ) |
| Accrued expenses                                                                                 |   | 1,475,713                                   |       | 6,010,410 |   |
| Other                                                                                            |   | (245,361                                    | )          | (138,285 | ) |
| Net cash provided by (used  in) operating activities                                             |   | 1,877,679                                   |       | (7,663,544 | ) |
|                                                                                             |   |                                        |       |   |   |
| **Cash Flow from Investing Activites:**                                                          |   |                                        |       |   |   |
| Purchases of property and equipment                                                              |   | (1,130,778                                  | )          | (1,987,222 | ) |
| Proceeds from sale of marketable securities                                                      |   | -                                           |       | 16,799,804 |   |
| Purchase of marketable securities                                                                |   | -                                           |       | (14,500,000 | ) |
| Cash paid for AllPoints acquisition                                                              |   | -                                           |       | (1,618,109 | ) |
| Proceeds from sale of assets                                                                     |   | 9,369                                       |       | - |   |
| Net cash used in investing activities                                                            |   | (1,121,409                                  | )          | (1,305,527 | ) |
|                                                                                             |   |                                        |       |   |   |
| **Cash Flow from Financing Activities:**                                                         |   |                                        |       |   |   |
| Issuance of common stock for options and warrants                                                |   | 343,592                                     |       | 1,285,294 |   |
| Payments on long-term debt                                                                       |   | (5,184,732                                  | )          | (134,999 | ) |
| Proceeds from revolving line of credit                                                           |   | 2,220,946                                   |       | - |   |
| Retirement of revolving line of credit                                                           |   | (11,626,859                                 | )          | - |   |
| Proceeds from initial public offering, net                                                       |   | 63,942,929                                  |       | - |   |
| Purchase of treasury stock                                                                       |   | (222,552                                    | )          | - |   |
| Retirement of AllPoints line of credit                                                           |   | -                                           |       | (750,000 | ) |
| Net cash provided by financing activities                                                        |   | 49,473,324                                  |       | 400,295 |   |
|                                                                                             |   |                                        |       |   |   |
| Net increase (decrease) in cash and cash equivalents                                             |   | 50,229,594                                  |       | (8,568,776 | ) |
| Cash and cash equivalents at beginning of year                                                   |   | 8,932,073                                   |       | 39,820,056 |   |
| Cash and cash equivalents at end of period                                                       |   | $                                           | 59,161,667 |   | $ | 31,251,280 |   |
|                                                                                             |   |                                        |       |   |   |
| **Supplemental Cash Flow Information:**                                                          |   |                                        |       |   |   |
| Cash paid for interest                                                                           |   | $                                           | 973,828    |   | $ | 33,395 |   |
| Cash paid for income taxes                                                                       |   | $                                           | 4,587      |   | $ | 184,075 |   |

* *

*See accompanying notes.*

* *

 

**EXE TECHNOLOGIES, INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(UNAUDITED)**

** **

**1. Principles of Consolidation and Basis of Presentation**

** **

                 EXE Technologies, Inc. (theCompany or EXE) is a leading provider of fulfillment, warehousing anddistribution software for traditional and e-commerce sales channels.  The accompanying unaudited consolidatedfinancial statements include the accounts of EXE Technologies, Inc. and ourmajority-owned subsidiaries.  Allsignificant intercompany balances and transactions have been eliminated inconsolidation.

 

                 Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-Q and Article 10 of RegulationS-X.  Accordingly, they do not includeall of the information and footnotes required by generally accepted accountingprinciples for fiscal year end financial statements.  In the opinion of management, all adjustments (consisting only ofnormal recurring entries) considered necessary for a fair presentation of theresults have been included for the interim periods presented.  Operating results for the three and ninemonth periods ended September 30, 2001 are not necessarily indicative of theresults that may be expected for any other interim period or for the yearending December 31, 2001.  Thesestatements should be read in conjunction with the Company’s audited financialstatements for the year ended December 31, 2000.

 

**2.  Acquisition ofAllPoints Systems, Inc.**

** **

                 On January 25, 2001, the Company completed the acquisition ofAllPoints Systems, Inc. (AllPoints). AllPoints provides warehouse and distribution management computersoftware systems and installs these systems. The acquisition strengthens EXE’s position as a leading provider offulfillment, warehousing and distribution software by extending EXE’s presencein high volume, piece pick and parcel environments such as catalog, generalmerchandise, apparel, consumer electronics and e-commerce companies.** **Thetransaction was completed in a stock-for-stock merger in which EXE issued1,590,357 shares of EXE common stock and assumed options for an additional 409,606shares of EXE common stock in exchange for all of the outstanding securities ofAllPoints.  The transaction wasaccounted for as a purchase.

 

 

                Thebreakdown of the consideration, including transaction costs, exchanged for theoutstanding securities of AllPoints is as follows:

 
| Fair market  value of 1,590,357 shares of common stock                                                    |   | $          | 23,420,492 |   |
|-----------------------------------------------------------------------------------------------------------|--------|------------|------------|--------|
| Fair market  value of options to purchase 409,606 shares of common stock                                  |   | 5,503,447  |       |
| Estimated  intrinsic value of unvested stock options at consummation  date related to future service |   | (1,923,560 | )          |
| Transaction  costs                                                                                        |   | 1,618,109  |       |
| Total  combination cost                                                                                   |   | $          | 28,618,488 |   |

 

Theaggregate purchase price has been allocated to the net assets acquired asfollows:

 
| Goodwill (six  year life)             |   | $          | 26,682,991 |   |
|---------------------------------------|--------|------------|------------|--------|
| Developed  technology (six year life) |   | 3,000,000  |       |
| Assembled  workforce (six year life)  |   | 1,300,000  |       |
| Liabilities  assumed                  |   | (3,206,136 | )          |
| Tangible assets  acquired             |   | 841,633    |       |
|                                  |   | $          | 28,618,488 |   |

 

                Subsequent to the transaction,EXE paid off and terminated AllPoints’ $750,000 line of credit.

 

                 The following summary, preparedon an unaudited pro forma basis, reflects the condensed consolidated results ofoperations for the nine months ended September 30, 2000 and 2001 assumingAllPoints had been acquired at the beginning of the periods presented:

 
|                                           |   | **Pro  Forma (Unaudited)**           |       |
|------------------------------------------------|--------|--------------------------------------|------------|
|                                           |   | **Nine  Months Ended September 30,** |       |
|                                           |   | **2000**                             |       | **2001** | ** ** |
|                                           |   |                                 | ** ** |   | ** ** |
| Revenue                                        |   | $                                    | 89,970,083 |   | $ | 77,154,773 |   |
|                                           |   |                                 |       |   |   |   |   |
| Net loss                                       |   | $                                    | (9,378,668 | ) | $ | (25,112,795 | ) |
|                                           |   |                                 |       |   |   |
| Net loss per  common share - basic and diluted |   | $                                    | (0.41      | ) | $ | (0.55 | ) |

 

                 The pro forma results are notnecessarily indicative of what would have occurred if the acquisition had beenin effect for the periods presented.  Inaddition they are not intended to be a projection of future results and do notreflect any synergies that might be affected from combined operations.

 

**3.  Deferred Compensation**

 

                 The Company recorded deferredcompensation expense for differences between the exercise price and the deemedfair market value of the Company’s common stock on the grant date for certainoptions granted.  Deferred compensationof approximately $4.6 million was incurred during 2000 and $2.6 million wasincurred during the nine months ended September 30, 2001.  The deferred compensation is amortizedratably over the vesting period of the individual options, generally three tofour years.  Compensation expenserelating to stock options recognized for the three months ended September 30,2000 and 2001 was approximately $0.4million.  Compensation expense relating to stock options recognized for thenine months ended September 30, 2000 and 2001 was approximately $1.5 millionand $1.1 million, respectively.

 

**4.  Earnings Per Share**

 

                TheCompany computes net income (loss) per share in accordance with the provisionsof SFAS No. 128, “Earnings per Share.” Basic net income (loss) per common shareis computed using the weighted average number of shares of common stockoutstanding during each period.

 

                Dilutednet income (loss) per common share is computed using the weighted averagenumber of shares of common stock outstanding during each period and commonequivalent shares consisting of preferred stock, warrants and stock options(using the treasury stock method), if dilutive.  The following table sets forth the calculation of basic anddilutive net income (loss) per share for the periods presented:

 
|                                                          |   | **Three  months ended  September 30,** |    | **Nine  months ended  September 30,** |   |
|---------------------------------------------------------------|--------|----------------------------------------|---------|---------------------------------------|--------|
|                                                          |   |                                   |    |
|                                                          |   | **2000**                               |    | **2001**                              |   | **2000** |   | **2001** |   |
|                                                          |   |                                   |    |                                  |   |   |   |   |   |
| Numerator for  basic and diluted net income (loss) per share: |   |                                   |    |                                  |   |   |   |   |   |
| Net income  (loss)                                            |   | $                                      | 517,941 |                                  | $      | (5,600,454 | ) | $ | (4,979,508 | ) | $ | (24,332,338 | ) |
| Denominator for  basic net income (loss)  per share:     |   |                                   |    | -                                     |   |   |   | - |   |
| Weighted average  common shares outstanding                   |   | 31,644,402                             |    | 45,612,056                            |   | 21,388,840 |   | 45,261,613 |   |
| Net income  (loss) - basic                                    |   | $                                      | 0.02    |                                  | $      | (0.12 | ) | $ | (0.23 | ) | $ | (0.54 | ) |
|                                                          |   |                                   |    |                                  |   |   |   |   |   |
| Denominator for  diluted net income (loss) per share:         |   |                                   |    |                                  |   |   |   |   |   |
| Weighted average  common shares outstanding                   |   | 31,644,402                             |    | 45,612,056                            |   | 21,388,840 |   | 45,261,613 |   |
| Effect of  dilutive securities -                              |   |                                   |    |                                  |   |   |   |   |   |
| Common stock  options                                         |   | 2,786,286                              |    | -                                     |   | - |   | - |   |
| Warrants                                                      |   | 394,175                                |    | -                                     |   | - |   | - |   |
| Preferred stock                                               |   | 7,497,988                              |    | -                                     |   | - |   | - |   |
| Weighted average  common and common  equivalent shares   |   | 42,322,851                             |    | 45,612,056                            |   | 21,388,840 |   | 45,261,613 |   |
| Net income  (loss) per share - dilutive                       |   | $                                      | 0.01    |                                  | $      | (0.12 | ) | $ | (0.23 | ) | $ | (0.54 | ) |

 

**5.  Comprehensive Loss**

 

                Comprehensive loss includesforeign currency translation gains (losses) and unrealized gains (losses) onsecurities available for sale.  Thefollowing table sets forth the calculation of comprehensive loss for theperiods presented:

 
|                                                    |   | **Three  Months Ended****September 30,** |       | **Nine  Months Ended****September 30,** |       |
|---------------------------------------------------------|--------|------------------------------------------|------------|-----------------------------------------|------------|
|                                                    |   |                                     |       |
|                                                    |   | **2000**                                 |       | **2001**                                |       | **2000** |   | **2001** | ** ** |
|                                                    |   |                                     | ** ** |                                    | ** ** |   | ** ** |   | ** ** |
| Net income  (loss)                                      |   | $                                        | 517,941    |                                    | $          | (5,600,454 | ) | $ | (4,979,508 | ) | $ | (24,332,338 | ) |
| Foreign currency  translation  gains (losses)      |   | 86,656                                   |       | (116,398                                | )          | 461,374 |   | 55,553 |   |
| Unrealized gain  on securities  available for sale |   | -                                        |       | 73,399                                  |       | - |   | 188,256 |   |
|                                                    |   |                                     |       |                                    |       |   |   |   |   |
| Total  comprehensive income (loss)                      |   | $                                        | 604,597    |                                    | $          | (5,643,453 | ) | $ | (4,518,134 | ) | $ | (24,088,529 | ) |

###### ** **

###### **6.  DerivativeFinancial Instruments**

 

                Effective January 1, 2001, theCompany adopted the provisions of Financial Accounting Standards BoardStatement No. 133, *Accounting for Derivative Instruments and HedgingActivities,*(FASB 133).  Theadoption of FASB 133 had no material impact on the Company's financial positionor operating results for the three and nine months ended September 30, 2001.

 

                In January 2001, the Companybegan a foreign currency-hedging program to hedge certain nonfunctionalcurrency exposure.  Forward currencyexchange contracts are utilized by the Company to reduce foreign currencyexchange and interest rate risks with the goal of offsetting foreign currencytransaction gains and losses recorded for accounting purposes with gains andlosses realized on the forward contracts. The Company does not hold derivative financial instruments for tradingor speculative purposes.

 

                As of September 30, 2001, theCompany had outstanding forward currency exchange contracts of $3.1 million tosell Japanese Yen and $4.0 million to sell British Pounds Sterling which hedgenet balance sheet exposures.  Gains andlosses arising from the changes in the fair value of forward currency exchangecontracts are recognized as a component of other income (expense).  At September 30, 2001, the current marketsettlement values of the forward contracts were not significant.  There were no forward contracts outstandingat December 31, 2000.

** **

###### **7.  RecentAccounting Pronouncements**

** **

                 InJune 2001, the Financial Accounting Standards Board issued Statements ofFinancial Accounting Standards No. 141, *Business Combinations*, and No. 142, *Goodwill andOther Intangible Assets*, effective for fiscal years beginning afterDecember 15, 2001.  Under the new rules,goodwill and intangible assets deemed to have indefinite lives will no longerbe amortized but will be subject to annual impairment tests in accordance withthese statements.  Other intangibleassets will continue to be amortized over their useful lives.

 

                TheCompany will apply the new rules on accounting for goodwill and otherintangible assets beginning in the first quarter of 2002.  Application of the nonamortizationprovisions of the Statement is expected to result in an increase in net incomeof approximately $9.0 million or $0.20 per share in 2002 as a result ofnonamortization of existing goodwill. The Company will perform the first of the required impairment tests ofgoodwill and indefinite lived intangible assets as of January 1, 2002.  The effect of these tests on the earningsand financial position of the Company have yet to be determined but may resultin a significant charge to earnings in a future period.  The continued economic slowdown and delaysin customer spending for large-scale IT projects may result in futureimpairment of the Company’s acquired goodwill and intangibles.

** **

**8.  Segments**

** **

                 The Company is engaged in thedesign, development, marketing and support of fulfillment, warehousing anddistribution software for traditional and e-commerce sales channels.  All financial information is reviewed on aconsolidated basis with additional information by geographic region used tomake operating decisions and assess the results of the Company.  The Company’s geographic information as ofand for the three and nine months ended September 30, 2000 and 2001 is asfollows:

 
|                                                          |   |        |        | **Europe**      |       |        |       |             |       |        |       |
|---------------------------------------------------------------|--------|-------------|-------------|-----------------|------------|-------------|------------|------------------|------------|-------------|------------|
|                                                          |   | **United**  |        | **and the**     |       | **Asia**    |       |             |       |        |       |
|                                                          |   | **States**  |        | **Middle East** |       | **Pacific** |       | **Eliminations** |       | **Total**   |       |
|                                                          |   |        | ** **  |            | ** ** |        | ** ** |             | ** ** |        | ** ** |
| Three months ended September 30, 2000                         |   |        | ** **  |            | ** ** |        | ** ** |             | ** ** |        | ** ** |
| Revenue                                                       |   | $           | 18,000,475  |            | $          | 4,766,919   |       | $                | 7,794,387  |        | $          | - |   | $ | 30,561,781 |   |
| Amortization of intangibles                                   |   | 1,178,580   |        | -               |       | -           |       | -                |       | 1,178,580   |       |
| Warrant and stock  compensation expense                       |   | 569,478     |        | -               |       | -           |       | -                |       | 569,478     |       |
| Operating income (loss)                                       |   | (140,326    | )           | (518,119        | )          | 1,369,765   |       | -                |       | 711,320     |       |
|                                                          |   |        |        |            |       |        |       |             |       |        |       |
| Nine months ended September 30, 2000                          |   |        | ** **  |            | ** ** |        | ** ** |             | ** ** |        | ** ** |
| Revenue                                                       |   | 49,538,530  |        | 16,247,517      |       | 18,332,009  |       | -                |       | 84,118,056  |       |
| Amortization of intangibles                                   |   | 3,458,238   |        | -               |       | -           |       | -                |       | 3,458,238   |       |
| Warrant and stock  compensation expense                       |   | 2,492,962   |        | -               |       | -           |       | -                |       | 2,492,962   |       |
| Operating income (loss)                                       |   | (3,954,368  | )           | (1,425,913      | )          | 1,703,855   |       | -                |       | (3,676,426  | )          |
|                                                          |   |        |        |            |       |        |       |             |       |        |       |
| As of September 30, 2000                                      |   |        |        |            |       |        |       |             |       |        |       |
| Property and equipment, net                                   |   | 6,360,753   |        | 1,370,813       |       | 864,064     |       | -                |       | 8,595,630   |       |
| Total assets                                                  |   | 110,136,290 |        | 5,101,806       |       | 5,487,558   |       | (3,102,302       | )          | 117,623,352 |       |
|                                                          |   |        | ** **  |            | ** ** |        | ** ** |             | ** ** |        | ** ** |
| Three months ended September 30, 2001                         |   |        |        |            |       |        |       |             |       |        |       |
| Revenue                                                       |   | 11,535,171  |        | 5,007,184       |       | 5,749,939   |       | -                |       | 22,292,294  |       |
| Amortization of intangibles                                   |   | 2,292,394   |        | 13,450          |       | 10,905      |       | -                |       | 2,316,749   |       |
| Warrant and stock  compensation  expense                 |   | 154,696     |        | 93,608          |       | 128,225     |       | -                |       | 376,529     |       |
| Employee severance and loss on  lease abandonment costs  |   | -           |        | -               |       | -           |       | -                |       | -           |       |
| Operating  income (loss)                                      |   | (6,161,865  | )           | (670,299        | )          | 615,556     |       | -                |       | (6,216,608  | )          |
|                                                          |   |        |        |            |       |        |       |             |       |        |       |
| Nine months ended September 30, 2001                          |   |        |        |            |       |        |       |             |       |        |       |
| Revenue                                                       |   | 41,475,974  |        | 14,503,191      |       | 20,987,236  |       | -                |       | 76,966,401  |       |
| Amortization of intangibles                                   |   | 6,446,862   |        | 40,624          |       | 32,767      |       | -                |       | 6,520,253   |       |
| Warrant and stock  compensation  expense                 |   | 692,007     |        | 263,006         |       | 349,237     |       | -                |       | 1,304,250   |       |
| Employee severance and  loss on  lease abandonment costs |   | 8,608,786   |        | 730,108         |       | 591,186     |       | -                |       | 9,930,080   |       |
| Operating income (loss)                                       |   | (23,873,445 | )           | (3,415,348      | )          | 1,504,063   |       | -                |       | (25,784,730 | )          |
|                                                          |   |        |        |            |       |        |       |             |       |        |       |
| As of September 30, 2001                                      |   |        |        |            |       |        |       |             |       |        |       |
| Property and equipment,  net                                  |   | 5,637,481   |        | 1,476,090       |       | 835,323     |       | -                |       | 7,948,894   |       |
| Total  assets                                                 |   | $           | 122,407,370 |            | $          | 1,457,664   |       | $                | 5,994,448  |        | $          | (3,108,034 | ) | $ | 126,751,448 |   |

 

 

**9.  Employee Severanceand Lease Abandonment**

 

                 During the six months ended June 30, 2001, theCompany implemented and announced plans to reduce costs and improve operatingefficiency.  During the three months ended March 31, 2001, the Company recorded acharge of approximately $430,000 for costs associated with severance and otheremployee related costs for the termination of 18 services, sales and marketing,development and administrative employees. In response to the continuedglobal slowdown in customer spending for large-scale IT projects, the Companylaunched additional cost reduction actions during the three months ended June30, 2001.  These actions resulted in acharge of $9,500,000 that included approximately $1,956,000 for severance andother employee related costs for the termination of 119 services, sales andmarketing, development and administrative employees, $7,440,000 for theabandonment of certain leased office space, less estimated sublease recoveries,at the Company's North American and United Kingdom facilities, and $104,000 forother costs associated with the downsizing of operations at the Company's HongKong office.

 

                The Company has recorded approximately $1.8 millionof cash charges against the reserves established for these 2001 cost reductionactions.  The remaining liability atSeptember 30, 2001 is approximately $8.1 million and is expected to be paidthrough 2007.

** **

**10.  Subsequent Events**

** **

**               **Because weak economic conditions are expectedto continue into next year, the Company initiated plans for additional costreduction and restructuring actions. These further actions will be announced and implemented during the threemonths ended December 31, 2001 and include an announced staff reduction of 49services, sales and marketing, development and administrative employees in theUnited States that occurred in October 2001.

** **

**ITEM 2.****            MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL**

**                          CONDITIONAND RESULTS OF OPERATIONS**

 

##### **Overview**

 

                EXETechnologies, Inc. is a leading provider of fulfillment, warehousing anddistribution software for traditional and e-commerce sales channels.  Our software allows companies to efficientlymanage and control the flow of inventory throughout the supply chain using theInternet and traditional communication methods.  Companies use our software to reduce distribution costs, manageinventory across the supply chain, and increase customer loyalty andsatisfaction.  We provide global serviceand support for our software from established facilities in North America, Europe,the Middle East, Asia, and Australia.

 

                Wederive our revenue from the sale of software licenses; product relatedconsulting, training, maintenance and support (collectively, “services andmaintenance”); and the resale of software and equipment.

 

                Werecognize license revenue under Statement of Position, or SOP, No. 97-2.  Under SOP No. 97-2, software license revenueis recognized upon execution of a contract and delivery of the software,provided that the license fee is fixed and determinable, no significantproduction, modification or customization of the software is required,vendor-specific objective evidence of fair value exists to allow the allocationof the total fee to elements of the arrangement and collection of the licensefee is considered probable by management. Product related maintenance and support revenue is recognized ratablyover the term of the contract, which is typically one year, and revenue fromproduct related consulting and training is recognized as such services areperformed.

 

                OnJanuary 25, 2001 we completed the acquisition of AllPoints Systems, Inc.(AllPoints) of Norwood, Massachusetts. The transaction was completed in a stock-for-stock merger in which weissued 1,590,357 shares of our common stock and assumed options for anadditional 409,606 shares of our common stock in exchange for all of theoutstanding securities of AllPoints. The acquisition was intended to strengthen our global leadership bydeepening our vertical market presence and expanding our software and serviceofferings. AllPoints provides warehouse and distribution management softwareand services. With the acquisition of AllPoints, we extended our presence inhigh volume, piece pick and parcel environments such as catalog, generalmerchandise, apparel, consumer electronics and e-commerce companies.  We believe that Allpoints’ technology willenable us to strengthen our ability to delcver one-to-one fulfillment,including single unit picking, packaging and shipping in high volume. Thetransaction was accounted for as a purchase.

 

                During the nine monthsended September 30, 2001, our revenues have been adversely impacted from aglobal slowdown in customer spending for large-scale IT projects.  We have implemented plans to reduce costsand improve operating efficiency in response to this slowdown.  During the three months ended March 31,2001, we recorded a charge of $0.4 million for costs associated with severanceand other employee related costs for the termination of 18 services, sales andmarketing, development and administrative employees.  Additionally, during the three months ended June 30, 2001, werecorded a charge of $9.5 million that included approximately $2.0 million forseverance and other employee related costs for the termination of 119 services,sales and marketing, development and administrative employees, $7.4 million forthe abandonment of certain leased office space, less estimated subleaserecoveries, at our North American and United Kingdom facilities, and $0.1million for other costs associated with the downsizing of operations at ourHong Kong office.

 

                The terrorist attacks upon the United States onSeptember 11, 2001 further compounded the recession-like environment in whichwe currently operate, by disrupting sales cycles and causing customers topostpone, cut back or cancel planned projects. As a result, the cost reduction measures from the previous operatingperiods were not sufficient to offset the further decline in revenues duringthe three months ended September 30, 2001. We believe that weak economic conditions are likely to continue intonext year.  As a result, we haveinitiated plans for additional cost reduction and restructuring actions.  These further actions will be announced andimplemented during the three months ended December 31, 2001 and include anannounced staff reduction of 49 services, sales and marketing, development andadministrative employees in the United States that occurred in October2001.  These changes are intended toprovide a more efficient cost structure and position us to generate positiveoperating cash flow in fiscal 2002.

 

##### **Results of Operations**

 

**Three Months Ended September 30, 2001Compared to the Three Months Ended**

**September 30, 2000**

** **

**Revenue**

 

                *Total Revenue.*  Total revenue decreased by $8.3 million, or 27.1%, to $22.3million for the three months ended September 30, 2001, from $30.6 million forthe three months ended September 30, 2000. International revenue accounted for 48.3% of total revenue during thethree months ended September 30, 2001 and 41.1% of total revenue during thethree months ended September 30, 2000. No single customer accounted for more than 10.0% of total revenue duringthe three months ended September 30, 2001 or 2000.

 

                *Software License.*  Software license revenue decreased $5.3million, or 51.8%, to $4.9 million for the three months ended September 30,2001, from $10.2 million for the three months ended September 30, 2000.  Software license revenue as a percentage oftotal revenue was 22.1% for the three months ended September 30, 2001 versus33.5% for the three months ended September 30, 2000.  These decreases were the result of the global slowdown incustomer spending for large-scale IT projects. Sales of our EXceed Fulfill and predecessor products decreased by $4.0million for the three months ended September 30, 2001, as compared to the threemonths ended September 30, 2000, while sales of our EXceed 2000 warehousemanagement system product decreased $1.3 million. Our EXceed Fulfill andpredecessor products accounted for 99.1% of total software license revenueduring the three months ended September 30, 2001 and 86.7% of total softwarelicense revenue during the three months ended September 30, 2000.

 

*                Servicesand Maintenance.* Services and maintenance revenue decreased $3.0 million, or 17.0%, to$14.9 million for the three months ended September 30, 2001 from $17.9 millionfor the three months ended September 30, 2000. Service and maintenance revenue from our Exceed Fulfill and predecessorproducts declined $1.5 million for the three months ended September 30, 2001 ascompared to the three months ended September 30, 2000, while services andmaintenance revenue from our EXceed 2000 warehouse management system andmainframe products decreased $1.4 million for the three months ended September30, 2001. These decreases in services and maintenance revenue were attributedto the global slowdown in customer spending for large-scale IT projects. Theglobal slowdown in the economy has adversely impacted our ability to generate newlicense revenue, thereby contributing to the decline in services andmaintenance revenue from new EXceed Fulfill projects and resulting in a shiftin our revenue mix.  Services andmaintenance revenue as a percentage of total revenue was 66.8% for the threemonths ended September 30, 2001 versus 58.7% for the three months endedSeptember 30, 2000.  Our EXceed Fulfilland predecessor products accounted for 59.2% of total services and maintenancerevenue for the three months ended September 30, 2001 versus 57.4% of totalservices and maintenance revenue for the three months ended September 30, 2000.

 

*                ResaleSoftware and Equipment.* Resale software and equipment revenue increased $0.1 million, or 3.1%,to $2.5 million for the three months ended September 30, 2001, from $2.4million for the three months ended September 30, 2000.  Resale software and equipment as apercentage of total revenue was 11.1% for the three months ended September 30,2001 versus 7.8% for the three months ended September 30, 2000.

 

**Costs and Expenses**

 

*                Cost ofSoftware Licenses.* Cost of software licenses consists primarily of royalties associatedwith software used to develop our software products, the cost of reproduction,and the cost of complementary software applications that we purchase to sell toour customers.  Cost of softwarelicenses represented 6.5% of software license revenue for the three monthsended September 30, 2001 and 1.7% for the three months ended September 30,2000. The increase in cost of software licenses as a percentage of softwarelicense revenue was attributed to an increase in cost of purchasingcomplementary software that was sold during the three months ended September30, 2001.

 

*                Cost ofServices and Maintenance.* Cost of services and maintenance consists primarily of salaries ofprofessional staff and costs associated with implementation, consulting andtraining services, hotline telephone support, new releases of software andupdating user documentation.  Cost of servicesand maintenance decreased $4.2 million, or 30.6%, to $9.5 million for the threemonths ended September 30, 2001, from $13.7 million for the three months endedSeptember 30, 2000.  The decrease wasrelated primarily to a reduction in the number of full time and contractservices and maintenance employees attributed to the decline in global ITspending.  As a percentage of servicesand maintenance revenue, cost of services and maintenance decreased to 63.7%for the three months ended September 30, 2001, from 76.3% for the three monthsended September 30, 2000.  The decreasein cost as a percentage of services and maintenance revenue was due to anincrease in productivity (i.e., higher revenue generated per employee).

 

*                Cost ofResale Software and Equipment.*  Cost of resale software and equipment consists primarily of thecosts of the database software tools and hardware we purchase to resell to ourcustomers.  Cost of resale software andequipment increased $0.4 million, or 23.3%, to $2.1 million for the threemonths ended September 30, 2001, from $1.7 million for the three months endedSeptember 30, 2000.  As a percentage ofresale software and equipment revenue, cost of resale software and equipmentwas 86.2% for the three months ended September 30, 2001 and 72.0% for the threemonths ended September 30, 2000. The increase in cost as a percentage ofrevenue reflects the fact that significant sales of higher margin Exceed 2000data base software occurred during the three months ended September 30, 2000.

 

*                Salesand Marketing.*  Salesand marketing expenses consist primarily of salaries, commissions, bonuses,recruiting costs, travel, marketing materials and trade shows.  Sales and marketing expenses increased $0.1million, or 1.3%, to $6.2 million for the three months ended September 30,2001, from $6.1 million for the three months ended September 30, 2000. As apercentage of total revenue, sales and marketing expenses increased to 27.9%for the three months ended September 30, 2001, from 20.1% for the three monthsended September 30, 2000.  The increasein sales and marketing costs as a percentage of total revenue was a result oflower than anticipated revenue for the three months ended September 30, 2001due to the current economic environment.

 

*                Researchand Development.* Research and development expenses consist primarily of salaries andother personnel-related costs for our product development activities.  Research and development expenses increased$0.8 million, or 28.4%, to $3.5 million for the three months ended September30, 2001, from $2.7 million for the three months ended September 30, 2000.  The increase in research and developmentexpenses was due primarily to an increase in the number of employees obtainedthrough the AllPoints acquisition and hired externally to enhance our EXceed CollaborateSuite.  As a percentage of totalrevenue, research and development expenses increased to 15.6% for the threemonths ended September 30, 2001, from 8.9% for the three months ended September30, 2000.  The increase was primarilydue to lower than anticipated revenue for the three months ended September 30,2001, due to the current economic environment.

 

*                Generaland Administrative.* General and administrative expenses consist primarily of salaries andother personnel-related costs of our finance, human resources, informationsystems, administrative, legal and executive departments, insurance costs andthe costs associated with legal, accounting, and other administrativeservices.  General and administrative costsincreased $0.5 million, or 14.0%, to $4.2 million for the three months endedSeptember 30, 2001, from $3.7 million for the three months ended September 30,2000.  The increase in general andadministrative expenses was due to higher personnel-related expenses associatedwith the acquisition of AllPoints, and from increased consulting and contractservices costs associated with outsourcing and upgrading internal informationsystems. As a percentage of total revenue, general and administrative expensesincreased to 18.7% for the three months ended September 30, 2001, from 11.9%for the three months ended September 30, 2000. This increase was primarily due to lower than anticipated revenue forthe three months ended September 30, 2001, due to the current economicenvironment.

 

*                Amortizationof Intangibles.* Amortization of intangibles relates primarily to intangibles acquired inconnection with the 1997 acquisition of Dallas Systems and the 2001 acquisitionof AllPoints.  Amortization ofintangibles increased $1.1 million to $2.3 million for the three months endedSeptember 30, 2001, from $1.2 million for the three months ended September 30,2000.  The increase in amortization wasdue to intangibles acquired in connection with the acquisition of AllPoints.

 

*                Non-CashWarrant and Stock Compensation.*  Non-cash warrant and stock compensation expense relates to theamortization of deferred compensation recorded primarily in connection withstock options granted to employees.  Thedeferred compensation recorded represented the difference between the exerciseprice and the deemed fair value of our common stock on the date of grant ofthese options.  Non-cash warrant andstock compensation expense decreased $0.2 million to $0.4 million for the threemonths ended September 20, 2001, from $0.6 million for the three months endedSeptember 30, 2000.

 

                *OtherIncome (Expense).* Other income (expense) consists of gains and losses from currencyfluctuations, interest expense and loan cost amortization on outstanding debt,and interest income on investments. Other income (expense) improved $0.9 million to an income of $0.7million for the three months ended September 30, 2001, from an expense of $0.2million for the three months ended September 30, 2000.  The improvement was due to a decrease inloan cost amortization of $0.1 million, a decrease in interest expense of $0.3million, and an improvement of $0.5 million from foreign exchange transactions.

* *

*                IncomeTax.*  No income taxbenefit was recognized for operating losses recorded for the three months endedSeptember 30, 2001 and 2000 due to the uncertainty of the timing and amount offuture taxable income.

 

**Nine Months Ended September 30, 2001Compared to the Nine Months Ended**

**September 30, 2000**

** **

**Revenue**

 

                *Total Revenue.*  Total revenue decreased by $7.1 million, or 8.5%, to $77.0million for the nine months ended September 30, 2001, from $84.1 million forthe nine months ended September 30, 2000. International revenue accounted for 46.1% of total revenue during thenine months ended September 30, 2001 and 41.1% of total revenue during the ninemonths ended September 30, 2000.  Nosingle customer accounted for more than 10.0% of total revenue during the ninemonths ended September 30, 2001 or 2000.

 

                *Software License.*  Software license revenue decreased $5.7million, or 21.5%, to $21.1 million for the nine months ended September 30,2001, from $26.8 million for the nine months ended September 30, 2000.  Software license revenue as a percentage oftotal revenue was 27.4% for the nine months ended September 30, 2001 versus31.9% for the nine months ended September 30, 2000.  These decreases were the result of a global slowdown in customerspending for large-scale IT projects. Sales of our EXceed Fulfill and predecessor products decreased by $3.1million for the nine months ended September 30, 2001, as compared to the ninemonths ended September 30, 2000, while sales of our EXceed 2000 warehousemanagement system product decreased $2.6 million. Our EXceed Fulfill andpredecessor products accounted for 96.2% of total software license revenueduring the nine months ended September 30, 2001 and 87.2% of total softwarelicense revenue during the nine months ended September 30, 2000.

 

*     Services andMaintenance.*  Servicesand maintenance revenue decreased $2.3 million, or 4.4%, to $49.3 million forthe nine months ended September 30, 2001 from $51.6 million for the nine monthsended September 30, 2000.  The decreasein services and maintenance revenue was attributed to the global slowdown incustomer spending for large-scale IT projects. Services and maintenance revenue from our EXceed Fulfill and predecessorproducts increased $1.3 million, while services and maintenance revenue fromour EXceed 2000 warehouse management system and mainframe products decreased$3.1 million, and product related training revenue decreased $0.5 million forthe nine months ended September 30, 2001. Services and maintenance revenue as a percentage of total revenue was64.1% for the nine months ended September 30, 2001 versus 61.3% for the nine monthsended September 30, 2000.  Our EXceedFulfill and predecessor products accounted for 59.3% of total services andmaintenance revenue for the nine months ended September 30, 2001 versus 54.1%of total services and maintenance revenue for the nine months ended September30, 2000.

 

     *Resale Software andEquipment.*  Resale softwareand equipment revenue increased $0.9 million, or 15.7%, to $6.6 million for thenine months ended September 30, 2001, from $5.7 million for the nine monthsended September 30, 2000.  The increasewas primarily due to a large equipment sale to one of our customers.  Resale software and equipment as apercentage of total revenue was 8.6% for the nine months ended September 30,2001 versus 6.8% for the nine months ended September 30, 2000.

 

**Costs and Expenses**

 

*                Cost ofSoftware Licenses.* Cost of software licenses represented 2.2% of software license revenuefor the nine months ended September 30, 2001 and 1.3% for the nine months endedSeptember 30, 2000.  The increase in thecost of software licenses as a percentage of software license revenue wasattributed to an increase in cost of purchasing complementary software that wassold in the current year.

 

*                Cost ofServices and Maintenance.* Cost of services and maintenance decreased $9.0 million, or 21.8%,to $32.1 million for the nine months ended September 30, 2001, from $41.1million for the nine months ended September 30, 2000.  The decrease was related primarily to a reduction in the numberof full time and contract services and maintenance employees attributed to thedecline in global IT spending.  As apercentage of services and maintenance revenue, cost of services andmaintenance decreased to 65.1% for the nine months ended September 30, 2001,from 79.6% for the nine months ended September 30, 2000.  The decrease in cost as a percentage ofservices and maintenance revenue was due to an increase in productivity (i.e.,higher revenue generated per employee).

 

*                Cost ofResale Software and Equipment.* Cost of resale software and equipment increased $0.9 million, or20.8%, to $5.4 million for the nine months ended September 30, 2001, from $4.5million for the nine months ended September 30, 2000.  The increase was due to higher resale software and equipmentsales for the nine months ended September 30, 2001.  As a percentage of resale software and equipment revenue, cost ofresale software and equipment was 82.7% for the nine months ended September 30,2001 and 79.2% for the nine months ended September 30, 2000.

 

*                Salesand Marketing.* Salesand marketing expenses increased $2.9 million, or 15.2%, to $21.5 million forthe nine months ended September 30, 2001, from $18.6 million for the ninemonths ended September 30, 2000.  Theincrease was due primarily to an increase in the number of sales and marketingpersonnel.  As a percentage of totalrevenue, sales and marketing expenses increased to 27.9% for the nine monthsended September 30, 2001, from 22.2% for the nine months ended September 30, 2000.  The increase in sales and marketing costs asa percentage of total revenue was a result of lower than anticipated revenuefor the nine months ended September 30, 2001 due to the current economicenvironment.

 

*                Researchand Development.* Research and development expenses increased $4.5 million, or 65.4%, to$11.3 million for the nine months ended September 30, 2001, from $6.8 millionfor the nine months ended September 30, 2000. The increase in research and development expenses was due primarily to anincrease in the number of employees obtained through the AllPoints acquisitionand hired externally to enhance our EXceed Collaborate Suite.  As a percentage of total revenue, researchand development expenses increased to 14.7% for the nine months ended September30, 2001, from 8.1% for the nine months ended September 30, 2000.  The increase in research and developmentcosts as a percentage of total revenue was a result of lower than anticipatedrevenue for the nine months ended September 30, 2001 due to the currenteconomic environment.

 

*                Generaland Administrative.* General and administrative costs increased $3.8 million, or 36.1%,to $14.2 million for the nine months ended September 30, 2001, from $10.4million for the nine months ended September 30, 2000.  The increase in general and administrative expenses was due tohigher personnel-related expenses associated with the acquisition of AllPoints,opening and staffing new offices in Benelux, France, and Germany, and increasedconsulting and contract services costs associated with outsourcing andupgrading internal information systems. As a percentage of total revenue, general and administrative expensesincreased to 18.5% for the nine months ended September 30, 2001, from 12.4% forthe nine months ended September 30, 2000. This increase was primarily due to lower than anticipated revenue forthe nine months ended September 30, 2001, due to the current economicenvironment.

 

*                Amortizationof Intangibles.* Amortization of intangibles increased $3.0 million to $6.5 million forthe nine months ended September 30, 2001, from $3.5 million for the nine monthsended September 30, 2000.  The increasein amortization was due to intangibles acquired in connection with theacquisition of AllPoints.

 

*                Non-CashWarrant and Stock Compensation.*  Non-cash warrant and stock compensation expense decreased $1.2million to $1.3 million for the nine months ended September 30, 2001, from $2.5million for the nine months ended September 30, 2000.

 

                *EmployeeSeverance and Lease Abandonment Costs*.  During the six months ended June 30, 2001,we implemented and announced plans to reduce costs and improve operatingefficiency.  During the three monthsended March 31, 2000, we recorded a charge of $0.4 million for costs associatedwith severance and other employee related costs for the termination of 18services, sales and marketing, development and administrative employees.  Additionally, during the three months endedJune 30, 2001, we recorded a charge of $9.5 million that included approximately$2.0 million for severance and other employee related costs for the terminationof 119 services, sales and marketing, development and administrative employees,$7.4 million for the abandonment of certain leased office space, less estimatedsublease recoveries, at our North American and United Kingdom facilities, and$0.1 million for other costs associated with the downsizing of operations atour Hong Kong office.  As of June 30,2001, the remaining liability was approximately $8.1 million and is expected tobe paid through 2007.

 

*                OtherIncome (Expense).* Other income (expense) improved $3.0 million to an income of $1.7million for the nine months ended September 30, 2001, from an expense of $1.3million for the nine months ended September 30, 2000.  The improvement was due to an increase in interest income of $1.2million, a decrease in interest expense of $1.2 million, a decrease in foreignexchange losses of $0.4 million, and a decrease in loan cost amortization of$0.2 million.

* *

*                IncomeTax.* An income taxprovision of $0.2 million was recognized during the nine months ended September30, 2001, compared to no income tax provision or benefit during the same periodin 2000.  The income tax provision inthe nine months ended September 30, 2001 was primarily due to tax on incomeearned by foreign subsidiaries while corresponding domestic tax benefitgenerated by foreign tax credits was not recognized due to the uncertainty ofthe timing and amount of future taxable income.

 

**Liquidity and Capital Resources**

 

                We have funded our operations through the issuance ofour preferred and common stock, bank borrowings and cash flow fromoperations.  As of September 30, 2001 wehad $31.3 million in cash and cash equivalents, $2.2 million in short-termmarketable securities, $14.9 million in long-term marketable securities and$37.5 million in working capital.

 

                Net cash used in operating activities was $7.7million for the nine months ended September 30, 2001.  Cash used in operations was primarily used to fund the $24.3million operating loss, net of non-cash charges for depreciation, amortization,provisions for losses on receivables, minority interest, and warrant and stockcompensation expenses.  Other charges incash from operating activities, net of the assets and liabilities acquired inthe AllPoints acquisition, included cash used for decreases in accrued payrolland benefits and deferred revenue. These uses were offset by a decrease in accounts receivable and anincrease in accrued expenses attributed to the cost reduction plan.  Net cash provided by operating activitieswas $1.9 million for the comparable nine months ended September 30, 2000.

 

                Net cash used ininvesting activities was $1.3 million for the nine months ended September 30,2001.  We incurred approximately $1.6million in expenses associated with the AllPoints acquisition, purchasedproperty and equipment of $2.0 million, and generated $2.3 million of cash fromnet sales of marketable securities.  Netcash used in investing activities was $1.1 million for the comparable ninemonths ended September 30, 2000.

 

                Net cash provided by financing activities was $0.4million for the nine months ended September 30, 2001.  We generated cash of $1.3 million from the issuance of commonstock, paid off and terminated AllPoints’ $0.8 million line of credit, andreduced other long-term debt by $0.1 million. Net cash provided by financing activities was $49.4 million for thecomparable nine months ended September 30, 2000, and arose primarily from theproceeds of our initial public offering.

 

                We believe that our existing working capital will besufficient to fund our operations for at least the next year.  However, there can be no assurance that wewill not require additional financing in the future.  We cannot be sure that we will be able to obtain this additionalfinancing, or that, if we can, the terms will be acceptable to us.

 

**Recently Issued AccountingPronouncements**

** **

                 InJune 2001, the Financial Accounting Standards Board issued Statements ofFinancial Accounting Standards No. 141, *Business Combinations*, and No. 142, *Goodwill andOther Intangible Assets*, effective for fiscal years beginning afterDecember 15, 2001.  Under the new rules,goodwill and intangible assets deemed to have indefinite lives will no longerbe amortized but will be subject to annual impairment tests in accordance withthese statements.  Other intangibleassets will continue to be amortized over their useful lives.

 

                TheCompany will apply the new rules on accounting for goodwill and otherintangible assets beginning in the first quarter of 2002.  Application of the nonamortizationprovisions of the Statement is expected to result in an increase in net incomeof approximately $9.0 million or $0.20 per share in 2002 as a result of nonamortizationof existing goodwill.  The Company willperform the first of the required impairment tests of goodwill and indefinitelived intangible assets as of January 1, 2002. The effect of these tests on the earnings and financial position of theCompany have yet to be determined but may result in a significant charge toearnings in a future period.

**Forward-Looking Statements**

 

                Inaddition to historical information, this filing and our Annual Report on Form10-K may contain forward-looking statements. Any statements contained herein (including without limitation statementsto the effect that the Company or its management “believes,” “expects,”“anticipates,” “plans,” and similar expressions) that relate to future eventsor conditions, including, among others, statements relating to economicconditions, cost reduction and restructuring actions and their impact onearnings and cash flows, sufficiency of working capital, accounting forgoodwill and other intangible assets, and enhancement of the company’s softwareshould be considered forward-looking statements.  These forward-looking statements are subject to certain risks anduncertainties that could cause actual results to differ materially from thosereflected in these forward-looking statements. Factors that might cause such a difference include, but are not limitedto, those discussed in the section entitled “Management’s Discussion andAnalysis of Financial Condition and Results of Operations-Certain Factors ThatMay Affect Future Results” in our Annual Report on Form 10-K.  Readers are cautioned not to place unduereliance on these forward-looking statements, which reflect management’sopinions only as of the date hereof. The Company undertakes no obligations to revise or publicly release theresults of any revision to these forward-looking statements, whether as aresult of new information, future events, or otherwise.

 

**ITEM3.****   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

                Wedevelop products in the United States and market our products in North America,Europe, the Middle East, Asia, and Australia. As a result, our financial results could be affected by factors such aschanges in foreign currency exchange rates or weak economic conditions inforeign markets.  Some of our revenue isdenominated in currencies other than the U.S. dollar, in particular theJapanese yen, the Singapore dollar and the Euro.  However, most of our sales are currently made in U.S. dollars anda strengthening of the dollar could make our products less competitive inforeign markets.

 

                Weused a portion of the proceeds obtained from our August 2000 initial publicoffering to repay all outstanding amounts under our revolving credit facilityand term loan, which we subsequently terminated.  To the extent that we enter into a new credit facility in thefuture, future interest expense could be subject to fluctuations based on thegeneral level of U.S. interest rates.

 

                Pendingtheir application, we have invested the remaining proceeds from our initialpublic offering in investment grade corporate and government securities andmoney market funds.  The primaryobjective of our investment activities is to preserve capital while at the sametime maximizing the income we receive from our investments without significantlyincreasing risk.  Some of the securitiesthat we invest in may have market risk. This means that a change in prevailing interest rates may cause theprincipal amount of the investment to fluctuate.  For example, if we hold a security that was issued with a fixedinterest rate at the then-prevailing rate and the prevailing interest ratelater rises, the principal amount of our investment will probably decline.  As of September 30, 2001 we had $25.7million of securities which mature in 90 days or less, $2.2 million ofsecurities which mature between 90 days and one year, and $14.9 million ofsecurities which mature between one and two years.  We do not believe that we have any material exposure to interestrate risk.

#####  

**PARTII.  OTHERINFORMATION**

** **

**ITEM2.    CHANGES I****N SECURITIESAND USE OF PROCEEDS**

** **

**Item 2.  ChangesIn Securities And Use Of Proceeds**

** **

**(d)           Useof Proceeds**

** **

                TheCompany completed its initial public offering of 8.0 million shares of itscommon stock pursuant to a Registration Statement on Form S-1 (Registration No.333-35106, effective August 3, 2000) on August 9, 2000.  Total proceeds from the offering, includingthe exercise of the over-allotment option, were approximately $63.9 million,net of underwriting discounts and commissions of approximately $5.0 million andother fees and expenses of approximately $1.8 million.

 

                Approximately$16.6 million of the offering proceeds were used to pay off and terminate theCompany’s revolving line of credit and term loan in August 2000.  In January 2001, we completed theacquisition of AllPoints.  Approximately$2.4 million was spent on acquisition costs and debt retirement associated withthis transaction and approximately $8.3 million has been used to fundoperations.  The remainder of theproceeds has been invested in investment grade corporate and governmentsecurities and money market funds.  Weintend to use the remaining proceeds for research and development activities;expenditures on sales and marketing, consulting services, and general and administrativepersonnel; systems costs; and working capital and general corporate purposes,including possible acquisitions of, or investments in, businesses andtechnologies that are complementary to our business.

 

**ITEM6.     EXHIBITS AND REPORTS ON FORM 8-K**

 

**(a)           Exhibits**

** **

4.1           Second Amended and Restated By-laws of the Company

** **

**(b)           Reports on Form 8-K**

 

None.****

**SIGNATURES**

 

                 Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                           | EXE TECHNOLOGIES, INC. |
|--------------------------------|------------------------|
|                           |                   |   |
|                           |                   |   |
|                           |                   |   |
| Date:   November 13, 2001 | By:                    | /s/  RAYMOND  R. HOOD |
|                           |                   | Raymond R. Hood |
|                           |                   | Chief Executive Officer |
|                           |                   |   |
|                           |                   |   |
| Date:   November 13, 2001 | By:                    | /s/  MICHAEL  A. BURSTEIN |
|                           |                   | Michael A. Burstein |
|                           |                   | Senior Vice President, Finance, Chief Financial |
|                           |                   | Officer and Treasurer |

 

 

**INDEXTO EXHIBITS**

** **

4.1           SecondAmended and Restated By-laws of the Company