10-Q 1 aa10q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended October 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period From To Commission file number 1-111898 ACCELIO CORPORATION (Exact name of registrant as specified in its charter) CANADA N/A --------------------------- -------------------------- (state or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 560 Rochester Street Ottawa, Ontario K1S 5K2, Canada ----------------------------------------- (Address of principal executive offices) (613) 233-2256 ------------------------ Registrant's telephone number (including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ APPLICABLE ONLY TO CORPORATE ISSUERS The number of the issuer's Common Shares outstanding on November 20, 2001: 24,915,913 1 ACCELIO CORPORATION TABLE OF CONTENTS PART I FINANCIAL INFORMATION Page No. Item 1. Financial Statements Consolidated Balance Sheets as at October 31, 2001, and 3 April 30, 2001 Consolidated Statements of Operations for the three and six 4 month periods ended October 31, 2001 and October 31, 2000 Consolidated Statements of Comprehensive Income for the three 5 and six months periods ended October 31, 2001 and October 31, 2000 Consolidated Statements of Cash Flows for the three month and 6 six month periods ended October 31, 2001 and October 31, 2000 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial 19 Condition and Results of Operations PART II OTHER INFORMATION Item 1. Legal Proceedings 29 Item 6. Exhibits and Reports on Form 8-K 29 SIGNATURES 30 This Quarterly Report on Form 10-Q ("Report"), contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933. Discussions containing such forward-looking statements may be found in Items 2 of Part I and Item 1 of Part II herof, as well as within this Report generally. In addition, when used in this Report, the words "believes", "intends", "anticipates", "expects", and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially from those described in the forward-looking statements as a result of changes in technology, changes in industry standards, new product introduction by competitors, increased participation in the enterprise software market by major corporations and other matters set forth in this Report. The Company does not undertake any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. 2

6 ACCELIO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of presentation These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"), and include all assets, liabilities, revenues and expenses of Accelio Corporation ("Accelio") and its wholly-owned subsidiaries: Accelio Corporation (a Delaware corporation), JF A'Asia Pty. Limited ("Accelio Pacific"), Accelio Aktiebolag ("Accelio Nordic"), Accelio France SA ("Accelio France"), Accelio UK Limited ("Accelio UK"), Accelio Deutschland GmbH ("Accelio Germany"), Accelio Technologies Limited ("Accelio Ireland"), Accelio Japan K.K. ("Accelio Japan"), Accelio Netherlands BV ("Accelio Netherlands"), Accelio Norge AS ("Accelio Norway") and Accelio PTE Ltd ("Accelio Singapore"). Accelio and its wholly-owned subsidiaries are collectively referred to herein as the "Company". Investments in businesses that the Company does not control, but over which it can exert significant influence, are accounted for using the equity method. Such investments are periodically evaluated for impairment and appropriate adjustments are recorded, if necessary. The unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of the Company's management, necessary for a fair statement of results for these interim periods. The unaudited interim financial statements should be read in conjunction with and follow the same accounting policies and methods of application as the most recent annual financial statements of April 30, 2001. (b) Revenue recognition The Company recognizes revenue in accordance with Statement of Position ("SOP") 97-2, "Software Revenue Recognition," issued by the American Institute of Certified Public Accountants ("AICPA"), SOP 98-9, "Modification of 97-2, Software Recognition with Respect to Certain Transactions" and Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements", issued by the Securities and Exchange Commission (SEC). The Company records product revenue from packaged software and irrevocable commitments to purchase products when persuasive evidence of an arrangement exists, the software product has been shipped, there are no significant uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable. The Company's Irrevocable Commitment Licenses ("ICLs") are arrangements to use multiple copies of a software product under site licenses with users and to market multiples copies of a software under similar arrangements with resellers. These arrangements always include post-contract customer support ("PCS") and are typically less than a year in duration with a significant portion of the product license fee payable within the Company's normal trade terms. Revenues from irrevocable commitments to purchase products with payment terms exceeding the Company's customary trade terms are recorded at the amount receivable less deemed interest. The Company amortizes the difference between the face value of the receivable and the discounted amount over the term of the receivable and records the discount as interest income. Revenue from software product licenses which include significant customization and revenue from services are recognized on a percentage of completion basis, whereby revenue is recorded, based on labor input hours, at the estimated realizable value of work completed to date. Estimated losses on contracts are recognized when they become probable. Unbilled receivables represent consulting work performed under contract and not yet billed. Revenue from maintenance agreements ("PCS") is recognized ratably over the term of the agreement. Unearned revenue represents payments received from customers for services not yet performed. 2. ACCOUNTS RECEIVABLE Accounts receivable and term accounts receivable are net of an allowance for doubtful accounts of $3.2 million at October 31, 2001, and $2.9 million at April 30, 2001. The Company records revenues from irrevocable commitments to purchase products which do not conform to the 7 ACCELIO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Company's customary trade terms at the minimum amount receivable less deemed interest ("Term Accounts Receivable"). The Company's Irrevocable Commitment Licenses ("ICLs") are arrangements to use multiple copies of a software product under site licenses with users and to market multiples copies of a software under similar arrangements with resellers. These arrangements always include post-contract customer support ("PCS") and are typically less than a year in duration with a significant portion of the product license fee payable within the Company's normal trade terms. License revenue from arrangements having extended payment terms were $287,000 for the three months ended October 31, 2001, and $660,000 in the six months ended October 31, 2001 compared to $274,000 and $2.4 million for the three and six months ended October 31, 2000 respectively. For the three months ended October 31, 2001, the discount rate used was 6.5%. The Company records Term Accounts Receivable as non-current to the extent that payment will be received more than one year from the balance sheet date. Payment of Term Accounts Receivable is generally due the earlier of: (i) delivery of the Company's products by the customer to its customers or end users; and (ii) specific dates in the license agreement ("Minimum Payment Dates"). The net amount of these receivables at October 31, 2001, and April 30, 2001 was $2.1 million and $4.0 million, respectively. Net additions to non-current Term Accounts Receivable were nil for the three and six months ended October 31, 2001 and 2000. The Company's customer base consists of large numbers of diverse customers dispersed across many industries and geographies. As a result, concentration of credit risk with respect to accounts receivable and term accounts receivable is not significant. 3. FIXED ASSETS October 31, 2001 --------------------------------------------- Accumulated Net book Cost depreciation value ------------ ---------------- ------------- (in thousands of Canadian dollars) Computer equipment $ 21,822 $ 15,804 $ 6,018 Furniture and fixtures.......... 9,446 6,067 3,379 Leasehold improvements...... 5,913 2,349 3,564 ------------ ---------------- ------------- $ 37,181 $ 24,220 $ 12,961 ============ ================ ============= April 30, 2001 --------------------------------------------- Accumulated Net book Cost depreciation value ------------ ---------------- ------------- (in thousands of Canadian dollars) Computer equipment $20,013 $13,999 $6,014 Furniture and fixtures.......... 9,152 5,424 3,728 Leasehold improvements...... 4,974 1,994 2,980 ------------ ---------------- ------------- $34,139 $21,417 $12,722 ============ ================ ============= 8 ACCELIO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 4. OTHER ASSETS October 31, 2001 ------------------------------------------- Accumulated Net book Cost amortization value ------------ ---------------- ----------- (in thousands of Canadian dollars) Delrina technology, trademarks, tradenames and workforce.................. $ 16,081 $ 11,679 $ 4,402 Software........................ 17,715 8,464 9,251 Goodwill........................ 2,235 1,480 755 Licenses, marketing and distribution rights............. 6,895 3,870 3,025 Capitalized software costs...... 17,294 16,767 527 Other assets.................... 6,448 4,237 2,211 ------------ ------------- ------------ $ 66,668 $ 46,497 $ 20,171 ============ ============= ============ April 30, 2001 -------------------------------------------- Accumulated Net book Cost amortization value ------------ ---------------- ------------ (in thousands of Canadian dollars) Delrina technology, trademarks, tradenames and workforce.................. $16,081 $11,146 $4,935 Software........................ 16,955 8,105 8,850 Goodwill........................ 2,203 1,319 884 Licenses, marketing and distribution rights............. 6,792 3,375 3,417 Capitalized software costs...... 17,294 16,331 963 Other assets.................... 6,234 4,157 2,077 ------------ ------------- ------------- $65,559 $44,433 $21,126 ============ ============= ============= 5. FINANCIAL INSTRUMENTS AND CREDIT FACILITY The Company has entered into receivable purchase agreements with certain third party purchasers. Under the agreements, the Company has the option to sell certain accounts receivable on a recourse basis. The purchasers have recourse in the event of a trade dispute as defined in the receivables purchase agreements. As at October 31, 2001 and April 30, 2001, the outstanding balance of accounts receivable sold under these agreements was approximately US$3.1 million and US$3.6 million, respectively. The recourse obligation is estimated to be nil as the Company believes that none of the receivables sold are at risk of recourse. The Company has a committed $10 million credit facility with the Royal Bank of Canada ("RBC"). This credit facility is made up of a $10 million term loan facility which bears interest at a rate of 1.5% over the Bankers Acceptance rate of RBC from time to time and is payable on August 1, 2002. As at October 31, 2001, the Company had drawn all of the $10 million term loan facility and fixed the interest rate until January 17, 2002, at 3.02%. The Company has granted, as collateral for the $10 million credit facility, a general security agreement over Accelio's assets, including a pledge of the shares of certain subsidiaries. When the Company deems appropriate, Accelio uses forward contracts and purchased options to manage exposures to foreign exchange. The Company's objective is to minimize risk using the most effective methods to eliminate or reduce the impacts of this exposure. Accelio does not enter into financial instruments for speculative or trading purposes. As at October 31, 2001, the Company had no outstanding foreign exchange financial instruments. 9 ACCELIO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 6. RESEARCH AND DEVELOPMENT EXPENSE The following table provides a summary of capitalized software costs and the related amortization and write down charged to cost of product in the three and six months ended October 31, 2001 and October 31, 2000.

7. INCOME TAXES As at October 31, 2001, the Company had net deferred tax assets of $76.8 million (October 31, 2000, $58.9 million), the principal components of which were temporary differences associated with the acquisition of in process research and development and operating loss carry forwards. The Company believes sufficient uncertainty exists regarding the realizability of these net deferred tax assets such that a valuation allowance of $76.8 million (October 31, 2000, $53.2 million) has been applied. During the quarter ended October 31, 2001, the Company recorded a provision for domestic capital taxes and foreign jurisdiction income tax of $131,000 (October 31, 2000, $501,000). 10 ACCELIO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 8. PROVISION FOR RESTRUCTURING COSTS On March 17, 1999, the Corporation announced a restructuring plan and recorded a provision for restructuring costs of $30.5 million directed at reducing costs. The key restructuring actions included: o consolidation of management responsibilities and reduction in headcount; o closure of redundant facilities; o reduction in the carrying value of certain capital assets primarily related to past acquisitions; and o cancellation of certain commitments and other costs. The following table summarizes the activity in the restructuring costs during the three months ended October 31, 2001:

13 ACCELIO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)

14 ACCELIO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)

15 ACCELIO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)

ACCELIO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 10. CAPITAL LEASE OBLIGATION The Company leases certain computer hardware and software under capital lease agreements. The capital leases have been recorded as fixed assets, other assets, and capital lease obligations in the accompanying financial statements. Depreciation related to the capital leases is included in depreciation and amortization expense for the three and six months ended October 31, 2001. The total future minimum lease payments under capital leases at October 31, 2001 are as follows: in thousands of Canadian Years ending April 30, dollars ---------------------- -------------- 2002................................................. $ 546 2003................................................. 1,042 2004................................................. 685 2005................................................. 42 ------------ Total minimum lease payment.......................... 2,315 Less amounts representing interest................... (200) ============= Present value of net minimum lease payments.......... $ 2,115 Less current portion................................. (947) ------------ Long term portion.................................... $ 1,168 ============ 11. NET CHANGE IN OPERATING COMPONENTS OF WORKING CAPITAL The net change in operating components of working capital is comprised of:

17 ACCELIO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 12. RECENT ACCOUNTING PRONOUNCEMENTS On October 3, 2001 the Financial Accounting Standards Board (FASB) issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, that replaces FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, for the disposal of segments of business. Statement 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. The provisions of Statement 144 are effective for financial statements issued or fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. This pronouncement will be effective for the Company's fiscal year beginning May 1, 2002. Management believes the adoption of SFAS No. 144 will not have a significant impact on the Company's financial condition or results of operations. In July 2001, the Financial Accounting Standards Board ("FASB") has issued the Statement of Financial Standards ("SFAS") No.141, Business Combinations, that will require all business combinations to use the purchase method of accounting. This pronouncement is effective for all business combinations initiated after June 30, 2001. The FASB has also issued SFAS No. 142, Goodwill and Other Intangible Assets, which will require intangible assets with an indefinite life and goodwill to be tested for impairment on an annual basis. Goodwill and indefinite life intangibles will no longer be amortized. Intangible assets with a definite life will continue to be amortized over their useful life. This pronouncement will be effective for the Company's fiscal year beginning May 1, 2002. Management believes the adoption of SFAS No. 141 and SFAS No. 142 will not have a significant impact on the Company's financial condition or results of operations. In June 1998, the FASB issued the Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June, 1999, the FASB issued SFAS No.137, which delays the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. Currently, as the Company has no derivative instruments, the adoption of SFAS No. 133 has had no impact on the Company's financial condition or results of operations. 13. COMPARATIVE RESULTS Certain of the prior years' figures have been reclassified in order to conform to the presentation adopted in the current year. 14. SUBSEQUENT EVENTS In a move to reduce its cost base while also preserving the intellectual talent of the Company, Accelio has implemented a Global salary reduction program of 10% for all employees earning $60,000 or higher. Employees earning less than $60,000 will receive a 5% reduction. This initiative is currently for six months but may be extended to twelve months and will commence during the quarter ended January 31, 2002. The reduction will apply to every employee, where applicable geographically, including the Board of Directors, the executive officers and the Chief Executive Officer. The Company has cancelled all executive bonus plans for the third and fourth quarters, unless it meets its profit target, and also eliminated a total of 50 positions. All employees will receive statutory notice of this change in salary in accordance with employment law. Employees will be granted stock options on a prorated basis with the salary reduction. The Company expects to grant 500,000 options to employees pursuant to this arrangement. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The following discussion of the Company's results of operations and of its liquidity and capital resources should be read in conjunction with the information contained in the Consolidated Financial Statements and related Notes thereto. The following discussion provides a comparative analysis of material changes for the quarters ended October 31, 2001, and 2000, in the financial condition and results of operations of the parent company ("Accelio") and its wholly-owned subsidiaries: Accelio Corporation (a Delaware corporation), JF A'Asia Pty. Limited ("Accelio Pacific"), Accelio Scandinavia AB ("Accelio Nordic"), Accelio France SA ("Accelio France"), Accelio UK Limited ("Accelio UK"), Accelio Deutschland GmbH ("Accelio Germany"), Accelio Technologies Limited ("Accelio Ireland"), Accelio Japan K.K. ("Accelio Japan"), Accelio Netherlands BV ("Accelio Netherlands") and Accelio PTE Ltd ("Accelio Singapore"). Accelio and its wholly-owned subsidiaries are collectively referred to herein as the "Company". Results of Operations The Company's revenues and operating results have varied substantially from quarter to quarter. With the exception of its consulting services operation, the Company has historically operated with little backlog of orders because its software products are generally shipped as orders are received. The Company records product revenue from packaged software and irrevocable commitments to purchase products when persuasive evidence of an arrangement exists, the software product has been shipped, there are no significant uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable. As a result, product revenue in any period is substantially dependent on orders booked and shipped in that period. Product revenue is difficult to forecast due to the fact that the Company's sales cycle, from initial trial to multiple copy licenses, varies substantially from customer to customer. As a result, variations in the timing of product sales can cause significant variations in operating results from period to period. Product revenue represented 43% of total revenue for the quarter ended October 31, 2001. Service revenue primarily consists of consulting services, training and technical support. Consulting services include assisting customers to configure, implement and integrate the Company's products and, when required, customize products and design automated processes to meet customers' specific business needs. Service revenue represented 57% of total revenue for the quarter ended October 31, 2001. Costs and expenses are comprised of cost of product, cost of service, sales and marketing, general and administrative, research and development, depreciation and amortization and other expenses. Cost of product consists of the cost of disks, manuals, packaging, freight, royalty payments to vendors whose software is bundled with certain products, amortization of deferred product development costs and provision for bad debts. Cost of service includes all costs of providing technical support, training, consulting, custom forms development application development services and provision for bad debts. Sales and marketing expenses are principally related to salaries and commissions paid to sales and marketing personnel and the cost of marketing programs. Research and development expenses include personnel and occupancy costs as well as the costs of software development, testing, product management, quality assurance and documentation. General and administrative expenses include personnel and occupancy costs related to administrative personnel. Depreciation and amortization includes depreciation of fixed assets and amortization of other assets, goodwill and distribution rights relating to various acquisitions. The Company amortizes goodwill and distribution rights over their expected useful lives. The Company periodically reviews the carrying value of its fixed assets and other assets. Any impairment in the carrying value is recognized at that time. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't) The following table sets forth, on a comparative basis for the periods indicated, the components of the Company's product margin, service margin and product and service margin:

The following table presents, for the periods indicated, consolidated statement of operations data expressed as a percentage of total revenues:

20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't) The following table provides details of product revenue by geographic segment and, within Canada and the United States of America, by distribution channel:

Three Months Ended October 31, 2001, Compared to Three Months Ended October 31, 2000 Revenues Total Revenues: Total revenues decreased 22% to $20.9 million for the three months ended October 31, 2001, from $26.7 million for the three months ended October 31, 2000. Total revenues consisted of 43% product revenue and 57% service revenue for the three months ended October 31, 2001. Product Revenue: Product revenue decreased 48% to $8.9 million for the three months ended October 31, 2001, from $17.3 million for the three months ended October 31, 2000. Product revenue derived from North America, Europe and Rest of World represented 54%, 41% and 5%, respectively, of product revenue for the three months ended October 31, 2001, as compared to 55%, 26% and 19%, respectively, of product revenue for the three months ended October 31, 2000. Product revenue derived from North America decreased 48% to $4.9 million for the three months ended October 31, 2001, from $9.4 million for the three months ended October 31, 2000. Reseller and OEM sales, which represented 32% of North American product revenue, decreased 73% to $1.6 million for the three months ended October 31, 2001, from $5.9 million for the three months ended October 31, 2000 due primarily to lower than expected revenues from the United States Government. Product revenue from direct sales, which represented 68% of North American product revenue, decreased 7% to $3.3 million for the three months ended October 31, 2001, from $3.6 million for the three months ended October 31, 2000. Product revenue derived from Europe decreased 19% to $3.7 million for the three months ended October 31, 2001, from $4.6 million for the three months ended October 31, 2000, due to decreased license revenue from the United Kingdom and Sweden. Product revenue derived from Rest of World decreased 88% to $0.4 million for the three months ended October 31, 2001, from $3.3 million for the three months ended October 31, 2000, primarily due to decreased reseller revenue from Japan and Australia. Service Revenue: Service revenue increased 26% to $11.9 million for the three months ended October 31, 2001, from $9.4 million for the three months ended October 31, 2000. For the three months ended October 31, 2001, maintenance and support revenue increased 9% to $7.2 million from $6.7 million for the three months ended October 31, 2000. The Company's consulting revenue increased 69% to $4.7 million for the three months ended October 31, 2001, from $2.8 million for the three months ended October 31, 2000. The increase in consulting revenue was a direct result of sales efforts to increase the amount and size of ongoing professional service projects over the past year. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't) Costs and Expenses Total Costs and Expenses: Total costs and expenses were $34.7 million for the three months ended October 31, 2001, an increase of 33% from $26.2 million for the three months ended October 31, 2000. In a move to reduce its cost base while also preserving the intellectual talent of the Company, Accelio has implemented a global salary reduction program of 10% for all employees earning $60,000 or higher. Employees earning less than $60,000 will receive a 5% reduction. This initiative is currently for six months but may be extended to twelve months and will commence during the quarter ended January 31, 2002. The reduction will apply to every employee, where applicable geographically, including the Board of Directors, the executive officers and the Chief Executive Officer. The Company has cancelled all executive bonus plans for the third and fourth quarters, unless it meets its profit target and also eliminated a total of 50 positions. All employees will receive statutory notice of this change in salary in accordance with employment law. Employees will be granted stock options on a prorated basis with the salary reduction. The grant is based on the amount of the salary reduction divided by 4. For example, an employee with a salary of $60,000 would multiply the salary times 10% ($6,000) divided by two ($3,000) divided by 4 equals number of options granted of 750. The vesting period for these options is 2/3 of one year from the date of grant and the remaining 1/3 after eighteen months of grant date. The Company expects to grant 500,000 options to employees pursuant to this arrangement. Cost of Product: Cost of product decreased 4% to $2.0 million for the three months ended October 31, 2001, from $2.1 million for the three months ended October 31, 2000. These costs represent 23% and 12% of product revenue for the three months ended October 31, 2001 and October 31, 2000, respectively. The decrease is related to a decrease in amortization of capitalized software costs. During fiscal year 2001, the company wrote down the value of certain capitalized software costs. The write-down was attributable to management's analysis that the life cycles of some of its products had come to an end. Total capitalized software costs charged to cost of product revenue decreased 66% to $276,000 for the three months ended October 31, 2001, from $819,000 for the three months ended October 31, 2000. Total bad debt expense decreased 36% to $574,000 for the three months ended October 31, 2001, from $891,000 for the three months ended October 31, 2000. Cost of Service: Cost of service increased 94% to $5.0 million for the three months ended October 31, 2001, from $2.6 million for the three months ended October 31, 2000 due to the company's increasing consulting revenue in addition to the number of resources dedicated to consulting and customer support activities. The service margin decreased to 61% for the three months ended October 31, 2001, from 72% for the three months ended October 31, 2000. Sales and Marketing: Sales and marketing expenses increased 29% to $16.4 million for the three months ended October 31, 2001 from $12.7 million for the three months ended October 31, 2000, as a result of the Company's expansion of its worldwide sales force. As a percentage of total revenues, sales and marketing increased to 79% for the three months ended October 31, 2001, from 48% for the three months ended October 31, 2000. General and Administrative: General and administrative expenses increased 63% to $3.7 million for the three months ended October 31, 2001, from $2.3 million for the three months ended October 31, 2000. This increase was primarily due to an increase in employee expenses related to additional headcount, increased communication charges and severance charges incurred in the quarter. As a percentage of total revenues, general and administrative expenses increased to 18% for the three months ended October 31, 2001, from 8% for the three months ended October 31, 2000. Research and Development: Research and development expenses increased 19% to $4.8 million for the three months ended October 31, 2001, from $4.1 million for the three months ended October 31, 2000, primarily due to a reduction in the amount of capitalized software costs. During the three months ended October 31, 2001, the Company did not capitalize any costs related to software development as compared to $797,000 for the three months ended October 31, 2000. Software 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't) development costs are expensed as incurred unless they meet generally accepted accounting criteria for deferral and amortization. Costs were not deferred in the quarter ended October 31, 2001 to the extent they were for the quarter ended October 31, 2000 because fewer projects met the criteria for deferral and where projects did meet the criteria the period between achieving technological feasibility and the general availability of the product was short and the associated costs were minimal. Research and development expense as a percentage of product revenue increased to 54% for the three months ended October 31, 2001, from 24% for the three months ended October 31, 2000. Depreciation and Amortization: Depreciation and amortization increased to $2.9 million for the three months ended October 31, 2001, compared to $2.5 million for the three months ended October 31, 2000. Operating Loss: Operating loss was $13.8 million for the three months ended October 31, 2001, compared to an operating income of $0.5 million for the three months ended October 31, 2000. The increase in operating loss is due to the factors discussed above. Net Investment and Other Income (Expense): Net investment and other income was approximately $279,000 for the three months ended October 31, 2001, compared to $418,000 for the three months ended October 31, 2000. The decrease is due to the decrease in cash and cash equivalents and the lower interest return on investments. Provision for Income Taxes: During the quarter ended October 31, 2001, the Company recorded a provision for domestic capital taxes and foreign jurisdiction income tax of $131,000, compared to $501,000 for the three months ended October 31, 2000. Six Months Ended October 31, 2001, Compared to Six Months Ended October 31, 2000 Revenues Total Revenues: Total revenues decreased 10% to $44.0 million for the six months ended October 31, 2001, from $48.7 million for the six months ended October 31, 2000. Total revenues consisted of 44% product revenue and 56% service revenue for the six months ended October 31, 2001. Product Revenue: Product revenue decreased 36% to $19.1 million for the six months ended October 31, 2001, from $29.9 million for the six months ended October 31, 2000. Product revenue derived from North America, Europe and Rest of World represented 51%, 39% and 10%, respectively, of product revenue for the six months ended October 31, 2001, as compared to 52%, 32% and 16%, respectively, of product revenue for the six months ended October 31, 2000. Product revenue derived from North America decreased 37% to $9.8 million for the six months ended October 31, 2001, from $15.6 million for the six months ended October 31, 2000. Reseller and OEM sales, which represented 40% of North American product revenue, decreased 45% to $3.9 million for the six months ended October 31, 2001, from $7.1 million for the six months ended October 31, 2000 due primarily to the economic slowdown in North America and lower than expected revenues from the United States government. Product revenue from direct sales, which represented 60% of North American product revenue, decreased 31% to $5.9 million for the six months ended October 31, 2001, from $8.6 million for the six months ended October 31, 2000. Product revenue derived from Europe decreased 20% to $7.5 million for the six months ended October 31, 2001, from $9.4 million for the six months ended October 31, 2000, due to decreased license revenue from the United Kingdom, where a significant sale had taken place in the prior fiscal year's first quarter. Product revenue derived from the Rest of World decreased 63% to $1.8 million for the six months ended October 31, 2001, from $4.9 million for the six months ended October 31, 2000, primarily due to decreased reseller revenue from Japan and Australia. Service Revenue: Service revenue increased 31% to $24.7 million for the six months ended October 31, 2001, from $18.8 million for the six months ended October 31, 2000. For the six months ended October 31, 2001, maintenance and 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't) support revenue increased 13% to $15.0 million from $13.2 million for the six months ended October 31, 2000. The Company's consulting revenue increased 74% to $9.7 million for the six months ended October 31, 2001, from $5.6 million for the six months ended October 31, 2000. The increase in consulting revenue was a direct result of sales efforts to increase the amount and size of ongoing professional service projects over the past year. Costs and Expenses Total Costs and Expenses: Total costs and expenses were $64.6 million for the six months ended October 31, 2001, an increase of 23% from $52.6 million for the six months ended October 31, 2000. Cost of Product: Cost of product decreased 16% to $3.5 million for the six months ended October 31, 2001, from $4.1 million for the six months ended October 31, 2000. These costs represent 18% and 14% of product revenue for the six months ended October 31, 2001 and October 31, 2000, respectively. The decrease is related to a decrease in amortization of capitalized software costs. During fiscal year 2001, the company wrote down the value of certain capitalized software costs. The write-down was attributable to management's analysis that the life cycles of some of its products had come to an end. Total capitalized software costs charged to cost of product revenue decreased 73% to $436,000 for the six months ended October 31, 2001, from $1.6 million for the six months ended October 31, 2000. Total bad debt expense decreased 36% to $891,000 for the six months ended October 31, 2001, from $1.4 million for the six months ended October 31, 2000. Cost of Service: Cost of service increased 82% to $9.6 million for the six months ended October 31, 2001, from $5.3 million for the six months ended October 31, 2000 due to the Company's increasing consulting revenue in addition to the number of resources dedicated to consulting and customer support activities. The service margin decreased to 61% for the six months ended October 31, 2001, from 72% for the six months ended October 31, 2000. Sales and Marketing: Sales and marketing expenses increased 19% to $30.1 million for the six months ended October 31, 2001 from $25.4 million for the six months ended October 31, 2000, as a result of the Company's expansion of its worldwide sales force. As a percentage of total revenues, sales and marketing increased to 69% for the six months ended October 31, 2001, from 52% for the six months ended October 31, 2000. General and Administrative: General and administrative expenses increased 28% to $6.0 million for the six months ended October 31, 2001, from $4.7 million for the six months ended October 31, 2000. This increase was primarily due to an increase in employee expenses related to additional headcount, increased communication charges and severance charges incurred during the second quarter. As a percentage of total revenues, general and administrative expenses increased to 14% for the six months ended October 31, 2001, from 10% for the six months ended October 31, 2000. Research and Development: Research and development expenses increased 25% to $10.0 million for the six months ended October 31, 2001, from $8.0 million for the six months ended October 31, 2000, primarily due to a reduction in the amount of capitalized software costs. During the six months ended October 31, 2001, the Company did not capitalize any costs related to software development as compared to $1.7 million for the six months ended October 31, 2000. Software development costs are expensed as incurred unless they meet generally accepted accounting criteria for deferral and amortization. Costs were not deferred in the six months ended October 31, 2001 to the extent they were for the six months ended October 31, 2000 because fewer projects met the criteria for deferral and where projects did meet the criteria the period between achieving technological feasibility and the general availability of the product was short and the associated costs were minimal. Research and development expense as a percentage of product revenue decreased to 53% for the six months ended October 31, 2001, from 27% for the six months ended October 31, 2000. Depreciation and Amortization: Depreciation and amortization increased 9% to $5.5 million for the six months ended October 31, 2001 compared to $5.0 million for the six months ended October 31, 2000. Operating Loss: Operating loss was $20.7 million for the six months ended October 31, 2001, compared to an operating loss of $3.9 million for the six months ended October 31, 2000. The increase in operating loss is due to the factors discussed above. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't) Net Investment and Other Income (Expense): Net investment and other income was approximately $358,000 for the six months ended October 31, 2001, compared to $452,000 for the six months ended October 31, 2000. The decrease is due to the decrease in cash and cash equivalents and the lower interest return on investments. Provision for Income Taxes: The Company recorded a provision for domestic capital taxes and foreign jurisdiction income tax of $262,000 during the six months ended October 31, 2001, compared to $659,000 for the six months ended October 31, 2000. Liquidity and Capital Resources As at October 31, 2001, and April 30, 2001, the Company had $29.6 million and $41.4 million of cash and cash equivalents respectively. During the six months ended October 31, 2001, the Company's cash and cash equivalents decreased by approximately $11.8 million. The decrease is primarily due to the Company's use of cash to fund current operations, the purchase of fixed and other assets, the repayment of certain capital lease obligations, a decrease in accounts receivable and an increase in accounts payable. The Company believes that its existing cash and cash equivalents will provide sufficient liquidity to meet the Company's business requirements in the near term. However, should the Company continue to incur operating losses, its ability to meet its liquidity requirements and to raise additional capital through debt or equity financing may be compromised. Operations The Company decreased its investment in the non-cash operating components of working capital decreased during the six months ended October 31, 2001, by approximately $8.6 million primarily due to a decrease in accounts receivable and accrued liabilities and an increase in accounts payable. The decrease in account receivable is related to the decline in the Company's revenue. The Company purchased approximately $2.5 million of fixed assets in the six months ended October 31, 2001 including computer hardware, office equipment, furniture, and leasehold improvements. During the six months ended October 31, 2001, the Company invested $2.1 million in other assets related primarily to the purchase of software. During the six months ended October 31, 2001, the Company generated cash of approximately $236,000 relating to the Company's stock purchase plan. Accounts Receivable and Term Accounts Receivable Total accounts receivable and term accounts receivable decreased $6.5 million to $26.0 million at October 31, 2001 from $32.5 million at April 30, 2001, primarily due to the decrease in the current quarter's revenue, combined with the Company's continued focus on collections. Accounts receivable excluding term accounts receivable decreased to $23.8 million at October 31, 2001, from $28.5 million at April 30, 2001. Term accounts receivable, which are accounts receivable with contracted payment dates exceeding the Company's customary trade terms, decreased by $1.8 million to $2.1 million for the six months ended October 31, 2001, from $4.0 million on April 30, 2001 due to a reduction in the Company's practice of granting extended payment terms. The Company records revenues from irrevocable commitments to purchase products which do not conform to the Company's customary trade terms at the minimum amount receivable less deemed interest ("Term Accounts Receivable"). The Company's Irrevocable Commitment Licenses ("ICLs") are arrangements to use multiple copies of a software product under site licenses with users and to market multiples copies of a software under similar arrangements with resellers. These arrangements always include post-contract customer support ("PCS") and are typically less than a year in duration with a significant portion of the product license fee payable within the Company's normal trade terms. License revenue from arrangements having extended payment term were $287,000 for the three months ended October 31, 2001, and $660,000 in the six months ended October 31, 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't) 2001 compared to $274,000 and $2.4 million for the three and six months ended October 31, 2000 respectively. For the three months ended October 31, 2001, the discount rate used was 6.5%. The Company records Term Accounts Receivable as non-current to the extent that management estimates payment will be received more than one year from the balance sheet date. Payment of Term Accounts Receivable is generally due the earlier of: (i) delivery of the Company's products by the customer to its customers or end users; and (ii) specific dates in the license agreement ("Minimum Payment Dates"). Net additions to non-current Term Accounts Receivable were nil for the three and six months ended October 31, 2001 and 2000. Restructuring On March 17, 1999, the Corporation announced a restructuring plan and recorded a provision for restructuring costs of $30.5 million directed at reducing costs. The key restructuring actions included: o Consolidation of management responsibilities and reduction in headcount; o Closure of redundant facilities; o Reduction in the carrying value of certain capital assets primarily related to past acquisitions; and o Cancellation of certain commitments and other costs. The following table summarizes the activity in the restructuring costs during the three months ended October 31, 2001:

Employee terminations totaled 105 and included 46 in sales and marketing, 40 in research in development, 12 in internal corporate services, and 7 in systems and consulting services. Employee terminations included salary continuance for which the Company was contractually obligated to pay. All employees were terminated on or before April 30, 1999. Facilities costs consisted primarily of $2.1 million and $780,000 related to the closure of the Company's United Kingdom and Toronto facilities, respectively. The provision for redundant facilities included management's best estimates of the total future operating costs of these vacant facilities for the remainder of their respective lease terms. Actual costs could differ from these estimates. During the six months ended October 31, 2001, the Company's liability for vacant facilities was reduced by $96,000. The Company's long-term balance relates to a lease in the United Kingdom which expires April 30, 2010. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't) Other cash costs related primarily to the cancellation of trade shows and other commitments. The remaining obligation relates to a service contract which expires August 31, 2002. During the six months ended October 31, 2001, the Company's liability related to this commitment was reduced by $81,000. Non-cash costs included impairment losses of $21.6 million related to assets held for use. The losses were comprised of $16.6 million related to marketing and distribution rights, $3.1 million related to goodwill and $1.9 million related to other capital assets. Financial Instruments and Credit Facility The Company has entered into receivable purchase agreements with certain third party purchasers. Under the agreements, the Company has the option to sell certain accounts receivable on a recourse basis. The purchasers have recourse in the event of a trade dispute as defined in the receivables purchase agreements. As at October 31, 2001 and April 30, 2001, the outstanding balance of accounts receivable sold under these agreements was approximately US$3.1 million and US$3.6 million, respectively. The recourse obligation is estimated to be nil as the Company believes that none of the receivables sold are at risk of recourse. The Company has a committed $10 million credit facility with the Royal Bank of Canada ("RBC"). This credit facility is made up of a $10 million term loan facility which bears interest at a rate of 1.5% over the Bankers Acceptance rate of RBC from time to time and is payable on August 1, 2002. As at October 31, 2001, the Company had drawn all of the $10 million term loan facility and fixed the interest rate until January 17, 2002, at 3.02%. The Company has granted, as collateral for the $10 million credit facility, a general security agreement over Accelio's assets, including a pledge of the shares of certain subsidiaries. When the Company deems appropriate, Accelio uses forward contracts and purchased options to manage exposures to foreign exchange. The Company's objective is to minimize risk using the most effective methods to eliminate or reduce the impacts of this exposure. Accelio does not enter into financial instruments for speculative or trading purposes. As at October 31, 2001, the Company had no outstanding foreign exchange financial instruments. Recent Accounting Pronouncements On October 3, 2001 the Financial Accounting Standards Board (FASB) issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, that replaces FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, for the disposal of segments of business. Statement 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. The provisions of Statement 144 are effective for financial statements issued or fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. This pronouncement will be effective for the Company's fiscal year beginning May 1, 2002. Management believes the adoption of SFAS No. 144 will not have a significant impact on the Company's financial condition or results of operations. In July 2001, the Financial Accounting Standards Board ("FASB") has issued the Statement of Financial Standards ("SFAS") No.141, Business Combinations, that will require all business combinations to use the purchase method of accounting. This pronouncement is effective for all business combinations initiated after June 30, 2001. The FASB has also issued SFAS No. 142, Goodwill and Other Intangible Assets, which will require intangible assets with an indefinite life and goodwill to be tested for impairment on an annual basis. Goodwill and indefinite life intangibles will no longer be amortized. Intangible assets with a definite life will continue to be amortized over their useful life. This pronouncement will be effective for the Company's fiscal year 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't) beginning May 1, 2002. Management believes the adoption of SFAS No. 141 and SFAS No. 142 will not have a significant impact on the Company's financial condition or results of operations. In June 1998, the FASB issued the Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No.137, which delays the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. Currently, as the Company has no derivative instruments, the adoption of SFAS No. 133 has had no impact on the Company's financial condition or results of operations. 28 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any material legal proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Each year, the Company's shareholders elect the directors of the Company for the ensuing year. At the Company's annual meeting of shareholders held on September 12, 2001 (the "Annual Meeting"), the following individuals were elected to the board of directors: John Gleed, Abraham E. Ostrovsky, Stephen A. Holinski, Paul K. Bates, Patrick J. Martin, A. Kevin Francis and Deborah L. Weinstein. The following proposals, as more particular described in the Company's Management Proxy Circular dated July 21, 2001 were approved at the Company's Annual Meeting

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K During the three months ended October 31, 2001, the Company filed the following reports on Form 8-K: o Report on Form 8K dated September 20, 2001, pursuant to name change from JetForm Corporation to Accelio Corporation. o Report on Form 8K dated October 26, 2001, regarding the restatement of the Company's results for the quarter ended July 31, 2001. 29 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ACCELIO CORP 10-Q