UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ----------------
FORM 10-Q
- ----------------
(MarkOne)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1999
Or
[ ] Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____ to ____
Commission file number: 333-38177
MADE2MANAGE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1665080
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9002 Purdue Road, Indianapolis, IN 46268
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 532-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes [X] No [ ]
As of October 31, 1999, there were 4,624,783 shares of Common Stock, no par
value, outstanding.
1
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MADE2MANAGE SYSTEMS, INC.
FORM 10-Q
TABLE OF CONTENTS
<S> <C> <C>
PART I FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets --
As of September 30, 1999 and December 31, 1998......................................... 3
Condensed Consolidated Statements of Operations --
For the three and nine months ended September 30, 1999 and 1998........................ 4
Condensed Consolidated Statements of Cash Flows --
For the nine months ended September 30, 1999 and 1998.................................. 5
Notes to Condensed Consolidated Financial Statements................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 7
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk............................. 17
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K....................................................... 18
Signatures............................................................................. 18
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
MADE2MANAGE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<S> <C> <C>
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $10,271 $15,496
Marketable securities......................................................... 4,800 1,150
Trade accounts receivable, net................................................ 6,751 9,113
Prepaid expenses and other 750 796
Deferred income taxes......................................................... 551 551
-------- --------
Total current assets....................................................... 23,123 27,106
Property and equipment, net....................................................... 4,650 3,509
Purchased technology, net......................................................... 1,509 1,803
Excess of costs over net assets acquired and other intangibles, net............... 1,251 1,476
-------- --------
Total assets............................................................... $30,533 $33,894
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 656 $ 990
Accrued liabilities........................................................... 253 1,411
Accrued compensation and related expenses..................................... 1,151 2,256
Deferred revenue.............................................................. 8,026 7,961
-------- --------
Total current liabilities.................................................. 10,086 12,618
Deferred revenue.................................................................. 503 821
Deferred income taxes............................................................. 517 517
-------- --------
Total liabilities.......................................................... 11,106 13,956
-------- --------
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized, no shares
issued and outstanding in 1999 and 1998.................................... -- --
Common stock, no par value; 10,000,000 shares authorized, 4,624,783 and
4,523,278 issued and outstanding in 1999 and 1998, respectively............ 21,711 21,417
Accumulated deficit........................................................... (2,284) (1,479)
-------- --------
Total shareholders' equity................................................. 19,427 19,938
-------- --------
Total liabilities and shareholders' equity................................. $30,533 $33,894
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
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<CAPTION>
MADE2MANAGE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<S> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
Revenues:
Software.................................................. $ 2,159 $ 4,162 $10,722 $10,256
Services.................................................. 3,941 2,872 12,323 7,096
Hardware.................................................. 313 254 855 515
-------- -------- -------- --------
Total revenues.......................................... 6,413 7,288 23,900 17,867
-------- -------- -------- --------
Costs of revenues:
Software.................................................. 316 265 1,124 670
Amortization of purchased technology...................... 98 66 295 66
Services.................................................. 2,133 1,499 6,613 3,711
Hardware.................................................. 199 162 571 338
-------- -------- -------- --------
Total costs of revenues................................. 2,746 1,992 8,603 4,785
-------- -------- -------- --------
Gross profit............................................ 3,667 5,296 15,297 13,082
-------- -------- -------- --------
Operating expenses:
Sales and marketing....................................... 2,972 2,670 8,819 6,782
Product development....................................... 1,701 1,090 4,826 2,792
General and administrative................................ 1,059 889 3,133 2,260
Amortization of acquired intangibles...................... 75 50 225 50
Acquired in-process technology............................ -- 1,890 -- 1,890
-------- -------- -------- --------
Total operating expenses................................ 5,807 6,589 17,003 13,774
-------- -------- -------- --------
Operating loss................................................ (2,140) (1,293) (1,706) (692)
Other income, net............................................. 140 122 428 448
-------- -------- -------- --------
Income before income taxes.................................... (2,000) (1,171) (1,278) (244)
Income tax benefit (provision)................................ 740 (255) 473 (536)
-------- -------- -------- --------
Net loss...................................................... $(1,260) $(1,426) $ (805) $ (780)
======== ======== ======== ========
Per share amounts - basic and diluted:
Net loss per share...................................... $ (0.27) $ (0.33) $ (0.18) $ (0.18)
======== ======== ======== ========
Average number of shares................................ 4,618 4,333 4,588 4,275
======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
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MADE2MANAGE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<S> <C> <C>
Nine Months Ended
September 30,
-------------------
1999 1998
-------- --------
Operating activities:
Net loss........................................................................ $ (805) $ (780)
Adjustments to reconcile net income to net cash provided by operating activities:
Acquired in-process technology charge........................................ -- 1,890
Depreciation and amortization of property and equipment...................... 1,094 682
Amortization of acquisition related intangible assets........................ 519 115
Provision for doubtful accounts.............................................. 425 426
Loss on disposition of property and equipment................................ -- 34
Deferred income taxes........................................................ -- 433
Changes in assets and liabilities:
Trade accounts receivable................................................. 1,937 (1,756)
Prepaid expenses and other................................................ 46 (139)
Accounts payable.......................................................... (334) 268
Accrued liabilities....................................................... (1,158) 123
Accrued compensation and related expenses................................. (1,105) 100
Deferred revenue.......................................................... (253) 1,843
-------- --------
Net cash provided by operating activities.................................... 366 3,239
-------- --------
Investing activities:
Acquisition of Bridgeware, Inc. net of cash acquired............................ -- (3,479)
Purchases of property and equipment............................................. (2,235) (1,882)
Purchases of marketable securities.............................................. (9,900) (3,328)
Sales of marketable securities.................................................. 6,250 --
-------- --------
Net cash used by investing activities........................................ (5,885) (8,689)
-------- --------
Financing activities:
Proceeds from issuance of common stock.......................................... 142 --
Proceeds from exercise of stock options......................................... 152 115
Payments on long term obligations............................................... -- (111)
-------- --------
Net cash provided by financing activities.................................... 294 4
-------- --------
Change in cash and cash equivalents................................................. (5,225) (5,446)
Cash and cash equivalents, beginning of period...................................... 15,496 16,805
-------- --------
Cash and cash equivalents, end of period............................................ $10,271 $11,359
======== ========
Supplemental disclosures:
Cash paid for:
Interest expense............................................................. $ -- $ 4
Income taxes................................................................. 907 248
Non-cash investing activities - issuance of 91,135 shares of common stock for
Bridgeware, Inc. acquisition................................................. -- 997
<FN>
See accompanying notes.
</FN>
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MADE2MANAGE SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
Made2Manage Systems, Inc. (the "Company") develops, markets and supports
business management systems for small and midsize manufacturing companies
located primarily in the United States. The Company is dependent upon its
primary product, Made2Manage for Windows, which is a fully integrated, Microsoft
Windows based business software system for manufacturing companies.
2. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements
and should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1998 Annual Report to Shareholders. In
management's opinion, this information has been prepared on the same basis as
the annual financial statements and includes all adjustments (consisting only of
normal and recurring adjustments) necessary for a fair presentation of the
information.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany balances have been eliminated.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
The operating results for the interim periods are not necessarily indicative of
the results of operations for the full year.
3. Cash Equivalents and Marketable Securities
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents. Marketable securities consist of
debt instruments with maturities between three and twelve months and are
classified as available-for-sale. Cash equivalents and marketable securities are
valued at cost which approximates market value.
4. Net Income per Share
Net income per share ("EPS") is determined in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share", and
is based upon the weighted average number of common and common equivalent shares
outstanding for the period. Diluted common equivalent shares include stock
options (using the treasury stock method) as prescribed by SFAS No. 128. Under
the treasury stock method the assumed proceeds from the exercise of stock
options are applied solely to the repurchase of common stock. Common stock
equivalents of approximately 305,000 and 434,000 for the three and nine months
ended September 30, 1999, respectively, and 721,000 and 731,000 for the three
and nine months ended September 30, 1998, respectively, were not included in the
diluted calculations because, due to the net losses, they were anti-dilutive.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains certain "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended. These statements reflect our expectations regarding our
strategic plans, future growth, results of operations, performance, business
prospects and opportunities. Words such as, "estimates," "believes,"
"anticipates," "plans" and similar expressions may be used to identify these
forward-looking statements, but are not the exclusive means of identifying these
statements. These statements reflect our current beliefs and are based on
information currently available to us. Accordingly, these statements are subject
to known and unknown risks, uncertainties and other factors that could cause our
actual growth, results, performance and business prospects and opportunities to
differ from those expressed in, or implied by, these statements. In light of the
uncertainties inherent in any forward-looking statement the inclusion of a
forward-looking statement herein should not be regarded as a representation by
us that our plans and objectives will be achieved. Actual results or events
could differ materially from those anticipated in any forward-looking statements
for the reasons discussed in this section, in the "Business Environment and Risk
Factors" section below, and elsewhere in this report, or for other reasons. We
are not obligated to update or revise these forward-looking statements to
reflect new events or circumstances or otherwise. Additional information
concerning factors that could cause actual results to differ materially from
those in the forward-looking statements is contained in the Company's SEC
reports, including the report on Form 10-K for the year ended December 31, 1998.
Overview
We develop, market, license and support Made2Manage, an open architecture,
standards-based, client/server ERP software solution for small and midsize
manufacturers engaged in engineer-to-order, make-to-order, assemble-to-order,
make-to-stock and mixed styles of production. We have developed manufacturing
software applications for this market since our inception in 1986. Our first
generation of Made2Manage, designed for PC networks running the DOS operating
system on Novell networks, was introduced in 1988, and we introduced a UNIX
version of Made2Manage in 1990. We ceased offering the DOS and UNIX versions to
new customers in 1995 and 1994, respectively, and in June 1999, we discontinued
supporting existing DOS and UNIX versions. As of September 30, 1999, 354 DOS and
UNIX customers had upgraded to the Windows version of Made2Manage for
significantly discounted license fees.
In August 1998, we acquired Bridgeware, Inc., a company that offers advance
planning and scheduling software, for a combination of cash ($3.5 million) and
common stock ($1.0 million), for a total cost of the acquisition of $4.5
million. In connection with this acquisition, we recorded a $1.9 million
in-process technology charge. The remaining costs of the acquisition are
recorded as assets and are expected to be amortized over lives of five and seven
years.
Our revenues are derived from software licenses, services and hardware. Software
revenues are generated from licensing software to new customers, from the
conversion of existing DOS or UNIX customers to the Windows version, and from
current customers increasing the number of licensed users and from licensing new
applications. We recognize revenue from software license fees and hardware upon
shipment to the customer following execution of a sales agreement. Service
revenues are generated from annual fees paid by customers to receive support
services and software upgrades and also from implementation, education and
consulting services. Support is typically purchased as part of the initial sales
agreement and is renewable annually. Support fees are recognized ratably over
the term of the agreement. Service revenues from implementation, education and
consulting services are generally included in the initial agreement. We
recognize revenue from these services as they are performed. Hardware revenues
are generated from the sale of bar-coding and data collection equipment used in
connection with Made2Manage and constitute a relatively small component of total
revenues.
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Software revenues for a particular quarter depend substantially on orders
received and products shipped in that quarter. Furthermore, large orders may be
significant to operating income in the quarter in which the corresponding
revenue is recognized.
Results of Operations
The following table sets forth the percentage of total revenues and percent
increase or decrease from the prior dollar amount represented by certain items
included in our statements of operations for the periods indicated.
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<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Nine months Ended
September 30, Percent September 30, Percent
------------------- Increase ------------------ Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
-------- ------- ---------- ------- ------- ----------
Revenues:
Software............................. 33.7% 57.1% (48.1)% 44.9% 57.4% 4.5%
Services............................. 61.4 39.4 37.2 51.5 39.7 73.7
Hardware............................. 4.9 3.5 23.2 3.6 2.9 66.0
------- ------- ------- -------
Total revenues.................... 100.0 100.0 (12.0) 100.0 100.0 33.8
------- ------- ------- -------
Cost of revenues:
Software............................. 4.9 3.6 19.2 4.7 3.7 67.8
Amortization of purchased technology. 1.5 .9 48.5 1.2 .4 347.0
Services............................. 33.3 20.6 42.3 27.7 20.8 78.2
Hardware............................. 3.1 2.2 22.8 2.4 1.9 68.9
------- ------- ------- -------
Total costs of revenues........... 42.8 27.3 37.9 36.0 26.8 79.8
------- ------- ------- -------
Gross profit ..................... 57.2 72.7 (30.8) 64.0 73.2 16.9
------- ------- ------- -------
Operating expenses:
Sales and marketing.................. 46.3 36.6 11.3 36.9 38.0 30.0
Product development.................. 26.5 15.0 56.1 20.2 15.6 72.9
General and administrative........... 16.5 12.2 19.1 13.1 12.6 38.6
Amortization of acquired intangibles. 1.2 .7 50.0 .9 .3 350.0
Acquired in-process technology....... -- 25.9 NM -- 10.6 NM
------- ------- ------- -------
Total operating expenses.......... 90.5 90.4 (11.9) 71.1 77.1 23.4
------- ------- ------- -------
Operating loss........................... (33.3) (17.7) 65.5 (7.1) (3.9) 146.5
Other income, net ....................... 2.2 1.6 14.8 1.8 2.5 (4.5)
------- ------- ------- -------
Income before income taxes............... (31.1) (16.1) 70.8 (5.3) (1.4) 423.8
Income tax benefit (provision)........... 11.5 (3.5) NM 1.9 (3.0) NM
------- ------- ------- -------
Net loss................................. (19.6)% (19.6)% (11.6) (3.4)% (4.4)% 3.2
======= ======= ======= =======
<FN>
NM - Not meaningful.
</FN>
</TABLE>
Comparison of Three and Nine months Ended September 30, 1999 and 1998
Revenues
Revenues are derived from software license fees, service and support fees and
hardware sales. For the three months ended September 30, 1999, total revenues
decreased by $875,000, or 12.0%, to $6.4 million from $7.3 million for the three
months ended September 30, 1998. The decrease was due to a lower volume of
license transactions. For the nine months ended September 30, 1999, total
revenues increased by $6.0 million, or 33.8%, to $23.9 million from $17.9
million for the nine months ended September 30, 1998. The increase was primarily
due to increased delivery of implementation, education and support services and,
to a lesser extent, a greater volume of license transactions and sales of new
software modules. We have not historically recognized significant annual
revenues from any single customer.
Although revenues have increased in 1999 over 1998, we believe during the three
months ended September 30, 1999, we were adversely impacted by the industry-wide
trend of delays in new business system purchases due to the Year 2000 market
dynamics, as manufacturers delayed major business system purchases. See
"Business Environment and Risk Factors - Year 2000 Market Dynamics" for a
description of Year 2000 market dynamics and potential revenue impact.
8
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Software Revenues. For the three months ended September 30, 1999, software
revenues decreased by $2.0 million , or 48.1%, to $2.2 million from $4.2 million
for the three months ended September 30, 1998. Software license revenues
constituted 33.7% and 57.1% of total revenues for the three months ended
September 30, 1999 and 1998, respectively. The decrease in software license
revenues for the three months ended September 30,1999 was due to a lower volume
of license transactions. For the nine months ended September 30, 1999, software
revenues increased by $466,000, or 4.5%, to $10.7 million from $10.3 million for
the nine months ended September 30, 1998. Software license revenues constituted
44.9% and 57.4% of total revenues for the nine months ended September 30,1999
and 1998, respectively. The increase in software license revenues in 1999 was
primarily due to a greater volume of license transactions. Software revenues as
a percent of total revenues decreased in 1999 mainly as a result of reduced
demand for enterprise business systems due to industry-wide Year 2000 market
dynamics.
Services Revenues. For the three months ended September 30, 1999, services
revenues increased by $1.1 million, or 37.2%, to $3.9 million from $2.9 million
for the three months ended September 30, 1998. These revenues constituted 61.4%
and 39.4% of total revenues for the three months ended September 30, 1999 and
1998, respectively. For the nine months ended September 30, 1999, services
revenues increased by $5.3 million, or 73.7%, to $12.3 million from $7.1 million
for the nine months ended September 30, 1998. These revenues constituted 51.5%
and 39.7% of total revenues for the nine months ended September 30, 1999 and
1998, respectively. The increases in the dollar amounts recognized in the three
and nine months ended September 30, 1999 were due to increased (i) support fees
from an expanded user base, (ii) delivery of implementation, consulting, and
customization services offerings and (iii) delivery of educational offerings.
Hardware Revenues. For the three months ended September 30, 1999, hardware
revenues increased by $59,000, or 23.2%, to $313,000 from $254,000 for the three
months ended September 30, 1998. These revenues constituted 4.9% and 3.5% of
total revenues for the three months ended September 30, 1999 and 1998,
respectively. For the nine months ended September 30, 1999, hardware revenues
increased by $340,000, or 66.0%, to $855,000 from $515,000 for the nine months
ended September 30, 1998. We limit the type of hardware equipment we sell to
certain bar-coding and data collection equipment necessary to utilize certain
features of Made2Manage.
Costs of Revenues
Costs of revenues include costs for software, services, hardware and
amortization of purchased technology. For the three months ended September 30,
1999, total costs of revenues increased by $754,000, or 37.9%, to $2.7 million
from $2.0 million for the three months ended September 30, 1998. For the nine
months ended September 30, 1999, total costs of revenues increased by $3.8
million, or 79.8%, to $8.6 million from $4.8 million for the nine months ended
September 30, 1998. For the three and nine months ended September 30, 1999,
total costs of revenues represented 42.8% and 36.0%, respectively, of total
revenues compared to 27.3% and 26.8% for the three and nine months ended
September 30, 1998, respectively. The increases in 1999 over 1998 are due
principally to the lower percent of total revenues generated by software
licenses, which have a higher gross profit than other revenues, and amortization
of purchased technology in 1999.
Costs of Software Revenues. For the three months ended September 30, 1999 and
1998, costs of software revenues totaled $316,000 and $265,000, respectively,
resulting in gross profit margins of 85.4% and 93.6% of software revenues,
respectively. For the nine months ended September 30, 1999 and 1998, costs of
software revenues were $1.1 million and $670,000, respectively, resulting in
gross profit margins of 89.5% and 93.5% of software revenues, respectively. The
decrease in gross profit in 1999 was due to costs for upgrades to Made2Manage
v3.0 for a portion of our client base and, to a lesser extent, an increase in
the amount of revenue from lower margin third party software products. The v3.0
upgrade includes costs for completely new documentation and Microsoft
development tools and database.
9
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Amortization of Purchased Technology. The expense results from amortizing costs
associated with technology purchased in the acquisition of Bridgeware, Inc.
which occurred in August 1998. The costs are amortized on a straight-line basis
over the estimated useful life.
Costs of Services Revenues. For the three months ended September 30, 1999 and
1998, costs of services revenues totaled $2.1 million and $1.5 million,
respectively, resulting in gross profits of 45.9% and 47.8% of service revenues,
respectively. For the nine months ended September 30,1999 and 1998 costs of
services revenues were $6.6 million and $3.7 million, respectively, resulting in
gross profits of 46.3% and 47.7%, respectively. The dollar increases were due
primarily to the growth in our installed customer base and related services
revenue, which resulted in an increase in the staffing levels for technical
support, implementation, consulting and education services.
Costs of Hardware. For the three months ended September 30, 1999 and 1998, costs
of hardware revenues totaled $199,000 and $162,000, respectively. The gross
profit from hardware was 36.4% and 36.2% of hardware revenues for the three
months ended September 30, 1999 and 1998, respectively. For the nine months
ended September 30, 1999 and 1998, costs of hardware revenues were $571,000 and
$338,000, respectively. Gross profit from hardware was 33.2% and 34.4% for the
nine months ended September 30, 1999 and 1998, respectively.
Operating Expenses
Sales and Marketing Expenses. For the three months ended September 30, 1999 and
1998, sales and marketing expenses were $3.0 million and $2.7 million,
respectively, representing 46.3% and 36.6% of total revenues, respectively. The
increase in sales and marketing expenses as a percent of revenue for the three
months ended September 30,1999 is primarily due to the impact of lower software
revenue. For the nine months ended September 30, 1999 and 1998, sales and
marketing expenses were $8.8 million and $6.8 million, respectively,
representing 36.9% and 38.0% of total revenues, respectively. The increase in
sales and marketing expenses for the nine months ended September 30, 1999 was
primarily due to increased (i) staffing as we expanded our field sales force and
marketing staff, (ii) marketing activities, including promotional activities and
(iii) travel expenses related to sales and marketing efforts.
Product Development Expenses. For the three months ended September 30, 1999 and
1998, product development expenses were $1.7 million and $1.1 million,
respectively, representing 26.5% and 15.0% of total revenues, respectively. The
increase in development expenses as a percent of revenue for the three months
ended September 30,1999 is primarily due to the impact of lower revenue. For the
nine months ended September 30, 1999 and 1998, development expenses were $4.8
million and $2.8 million, respectively, representing 20.2% and 15.6% of total
revenues, respectively. The increase in development expenses results from
increased staffing. We did not capitalize any software development costs during
these periods.
General and Administrative Expenses. For the three months ended September
30,1999 and 1998, general and administrative expenses were $1.1 million and
$889,000, respectively, representing 16.5% and 12.2% of total revenues,
respectively. The increase in general and administrative expenses as a percent
of revenue for the three months ended September 30,1999 is mainly due to the
impact of lower software revenue. For the nine months ended September 30 1999
and 1998, general and administrative expenses were $3.1 million and $2.3
million, respectively, representing 13.1% and 12.6% of total revenues,
respectively. The dollar increases resulted primarily from additional costs
incurred to support the growth of the Company's operations and, to a lesser
extent, as a result of the addition of personnel.
Amortization of Acquired Intangibles. The expense results from amortizing excess
costs over net assets acquired and assembled workforce related to the
acquisition of Bridgeware which occurred in August 1998. The costs are amortized
on a straight-line basis over the estimated useful life.
10
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Acquired In-Process Technology. This charge in 1998 of $1.9 million is a result
of the amounts assigned to in-process technology in connection with the
acquisition of Bridgeware which occurred in August 1998.
Other Income, Net
For the three months ended September 30, 1999 and 1998, other income, net was
$140,000 and $122,000, respectively, representing 2.2% and 1.6% of total
revenues, respectively. For the nine months ended September 30, 1999 and 1998,
other income, net was $428,000 and $448,000, respectively, representing 1.8% and
2.5% of total revenues. The decrease in other income in 1999 compared to 1998
was due primarily to a greater proportion of interest earned on tax-free
investments.
Income Tax Provision
For the three and nine months ended September 30,1999 the income tax benefit
effective rate was 37.0%. For the three and nine months ended September 30, 1998
the effective tax provision rate was 35.5% and 32.6%, respectively, excluding
the non-deductible charge of $1.9 million for acquired in-process technology in
connection with the acquisition of Bridgeware. The effective rate is higher in
1999 due to the impact of non-deductible excess costs over net assets acquired
that resulted from the Bridgeware acquisition.
Liquidity and Capital Resources
We have funded our operations to date primarily through equity capital,
including our initial public offering of Common Stock in December 1997, debt and
cash generated from operations. As of September 30, 1999, we had $15.1 million
of cash, cash equivalents and marketable securities.
Cash provided by operations was $366,000 in the first nine months of 1999,
compared to $3.2 million of cash provided by operations in the first nine months
of 1998. Cash provided by operations in 1999 was impacted mainly by depreciation
and amortization and a reduction in accounts receivable, offset by the net loss,
a reduction of accrued liabilities, including the payment of estimated taxes,
and payment of accrued compensation. Cash used in investing activities was
primarily due to the purchase of computer and telephone equipment and office
furniture and aggregated $2.2 million and $1.9 million in 1999 and 1998,
respectively. Additionally, cash was used to invest in marketable securities
with maturities from three months to one year.
At September 30, 1999, we had working capital of $13.0 million, including
accounts receivable, net, of $6.8 million. The average accounts receivable days'
outstanding was 95 days as of September 30, 1999 and was 87 days at December 31,
1998. Deferred revenue was $8.5 million at September 30, 1999 compared to $8.8
million at December 31, 1998. Deferred revenue is related to support agreements
and contracted services, and the current portion of deferred revenue is expected
to be recognized as revenue during the next twelve months.
We have a revolving credit agreement with a commercial bank which expires on
March 31, 2000, borrowings under which bear interest at the prime rate (8.25% at
September 30, 1999). Loans under the revolving credit agreement are limited, in
the aggregate, to $2 million. We have not borrowed under the revolving line of
credit.
We believe that cash and cash equivalents, cash flow from operations and credit
commitments will be sufficient to meet our currently anticipated working capital
and capital expenditure requirements at least through 2000.
Year 2000 Compliance
The Year 2000 issue relates to whether computer systems will properly recognize
and process information relating to dates in and after the year 2000. These
systems could fail or produce erroneous results if they cannot adequately
process dates beyond the year 1999 and are not corrected. Significant
uncertainty exists in the software industry concerning the potential
consequences that may result from the failure of software to adequately address
the Year 2000 issue.
11
<PAGE>
The Year 2000 issue potentially impacts us in the following principal areas: (i)
software products, including third party products we resell; (ii) internal
technology systems; (iii) noninternal technology systems that contain embedded
computer devices; and (iv) the business systems of resellers and key suppliers.
Software Products. We continually test our newly developed software for Year
2000 compliance. As of this date, all Made2Manage Systems, Inc. products
currently marketed are believed to be fully compliant. Our legacy DOS and UNIX
products are not year 2000 compliant and no further sales, distribution or
development of these products is, to our knowledge, taking place. We notified
customers of these prior versions in 1996, and subsequently, of this
non-compliance and customers were offered significantly discounted pricing and
implementation assistance to migrate to the current Year 2000 compliant Windows
version.
We have requested certification of Year 2000 compliance from providers of third
party products that we re-sell. Based on responses, we believe all third party
products sold by the Company are fully compliant. Despite the assurances we have
received, it is possible that our software and third party products we resell
may contain undetected errors or defects associated with Year 2000 date
functions.
Year 2000 errors from either our products or third party products may result in
delay or loss in revenue, diversion of development resources, damage to our
reputation, and increased services costs. Any occurrence of these may result in
lost business or negatively impact our operating results and financial
condition.
Internal Technology Systems. We use a combination of our own software and other
commercially available software for our internal operations. At this time, based
on the results of our analysis, we believe that there will be no significant
costs associated with the Year 2000 issue for our internal operations. We
believe we have identified non-compliant technology products and corrective
action plans are being implemented as needed to mitigate disruption of internal
operations associated with the Year 2000 issue.
Noninternal Technology Systems. Noninternal technology systems include security
systems, elevators, and other systems that contain computer or computer like
devices used to control the operation of machinery or equipment. We completed
our assessment of noninternal technology systems and do not believe any
significant Year 2000 issues exist.
Resellers and Key Suppliers. The Company has inquired about the Year 2000
readiness of its resellers and suppliers. The results of our inquiries indicate
no material impact on our ability to conduct business due to reseller or key
supplier Year 2000 issues. No one reseller is responsible for a material amount
of the Company's license fees.
We are expensing all costs related to year 2000 issues. We do not expect that
the total costs of evaluation and compliance to be material.
Inflation
We believe that inflation has not had a material impact on our operations.
Accounting Pronouncements
In February 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. SOP 98-1, which
is effective for the Company beginning January 1, 1999, does not materially
affect our financial position or results of operations.
12
<PAGE>
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions," which will retain
the limitation of SOP 97-2 on what constitutes vendor specific objective
evidence of fair value. SOP 98-9 will be effective for transactions entered into
in fiscal years beginning after March 15, 1999. We believe that our current
revenue recognition policies and practices are consistent with the provision of
the new guidance.
Business Environment and Risk Factors
In addition to other information contained in this report, the following factors
could affect our actual results and could cause such results to differ
materially from those achieved in the past or expressed in our forward looking
statements.
Fluctuations of Quarterly Operating Results; Seasonality
We have experienced in the past, and expect to experience in the future,
significant fluctuations in quarterly operating results. A substantial portion
of our software license revenue in each quarter is from licenses signed and
product shipped in that quarter, and such revenues historically have been
recorded largely in the third month of a quarter, with a concentration of
revenues mostly in the last week of that third month. Accordingly, our quarterly
results of operations are difficult to predict, and delays in closings of sales
or product delivery near the end of a quarter could cause quarterly revenues
and, to a greater degree, net income to fall substantially short of anticipated
levels. In addition, we have experienced a seasonal pattern in our operating
results, with the fourth quarter typically having the highest total revenues and
operating income and the first quarter having historically reported lower
revenues and operating income compared to the fourth quarter of the preceding
year.
Other factors, many of which are beyond our control, that may contribute to
fluctuations in quarterly operating results include the size of individual
orders, the timing of product introductions or enhancements by us and our
competitors, competition and pricing in the manufacturing software industry,
market acceptance of new products, reduction in demand for existing products,
the shortening of product life cycles as a result of new product introductions
by us or our competitors, product quality problems, personnel changes,
conditions or events in the manufacturing industry, and general economic
conditions.
The sales cycle for Made2Manage typically ranges from three to nine months.
However, license signing may be delayed for a number of reasons outside of our
control. Since software is generally shipped as orders are received, we have
historically operated without significant backlog. Because our operating
expenses are based on anticipated revenue levels and a high percentage of our
expenses are relatively fixed in the short term, small variations in the timing
of revenue recognition can cause a significant fluctuation in operating results
from quarter to quarter and may result in unanticipated quarterly earnings
shortfalls or losses. In addition, we currently intend to increase operating
expenses in anticipation of continued growth and to fund expanded product
development efforts. To the extent such expenses precede, or are not
subsequently followed by, increased revenues, our business, financial condition
and results of operations could be materially and adversely affected.
Year 2000 Market Dynamics
We believe the Year 2000 planning cycle has reduced current demand for
enterprise business systems. In addition, each customer's evaluation of its need
to achieve Year 2000 compliance with other internal systems may lengthen the
sales cycle. We believe that certain customers and potential customers are
engaged in testing and correcting system Year 2000 problems, and such customers
may choose to defer system investments during 1999, negatively impacting our
revenues. Additionally, prior year sales may have been increased due to
customers' need to address Year 2000 issues. Such Year 2000 demand will be
reduced in 1999 due to the lead time required to implement new systems, possibly
negatively impacting our revenues. Our sales cycles may lengthen in 1999 and
future years due to lessened urgency of customers' system investment decisions.
Because Year 2000 related impacts on customer purchasing decisions are
unprecedented, we have a limited ability to determine the impact of the Year
2000 market dynamics on our quarter-to-quarter revenues.
13
<PAGE>
Product and Market Concentration
Our revenues are currently derived from licenses of Made2Manage, including
optional modules, licensing of Bridgeware's Advanced Planning and Scheduling
products and third-party software, and related support, services and hardware.
In our near term, Made2Manage and related services are expected to continue to
account for substantially all of the revenues. Accordingly, any event that
adversely affects the sale of Made2Manage, such as competition from other
products, significant quality problems, incompatibility with third party
hardware or software products, negative publicity or evaluation, reduced market
acceptance of, or obsolescence of the hardware platforms on, or software
environments in, which Made2Manage operates, could have a material adverse
effect on our business, financial condition and results of operations.
Our business depends substantially upon the software expenditures of small and
midsize manufacturers, which in part depend upon the demand for such
manufacturers' products. A recession or other adverse event affecting
manufacturing industries in the United States could impact such demand, forcing
manufacturers in our target market to curtail or postpone capital expenditures
for business information systems. Any adverse change in the amount or timing of
software expenditures by our target customers could have a material adverse
effect on our business, financial condition and results of operations.
Dependence on Third Party Technologies
Made2Manage uses a variety of third party technologies, including operating
systems, tools and other applications developed and supported by Microsoft
Corporation ("Microsoft"). There can be no assurance that Microsoft will
continue to support the operating systems, tools and other applications utilized
by Made2Manage or that they will continue to be widely accepted in our target
market. Made2Manage relies heavily on Microsoft's Visual Studio, and there can
be no assurance that Microsoft will not discontinue or otherwise fail to support
Visual Studio or any of its components. In addition, we use a number of other
programming tools and applications, including ActiveX, OLE, ODBC, OLEDB and
Internet Information Server.
We sublicense various third party products, including Microsoft Visual FoxPro,
Microsoft Project, products from Powerway, Best Software, and FRx and bar code
hardware and software. There can be no assurance that these third party vendors
will continue to support these technologies or that these technologies will
retain their level of acceptance among manufacturers in our target market. The
occurrence of any of these events could have a material adverse effect on our
business, financial condition and results of operations.
Product Development
Our growth and future financial performance depend in part upon our ability to
enhance existing applications and to develop and introduce new applications to
incorporate technological advances that satisfy customer requirements or
expectations. As a result of the complexities inherent in product development,
there can be no assurance that either improvements to Made2Manage or
applications that we develop in the future will be delivered on a timely basis
or ultimately accepted in the market. Any failure by us to anticipate or respond
adequately to technological development or end-user requirements, or any
significant delays in product development or introduction, could damage our
competitive position and have a material adverse effect on our business,
financial condition and results of operations.
Dependence on Key Personnel
Our success depends to a significant extent upon a number of key employees,
including members of senior management. No employee is subject to an employment
contract. Our ability to implement business strategy is substantially dependent
on our ability to attract, on a timely basis, and retain skilled personnel,
especially sales, service, support and development personnel. Competition for
such personnel is intense, and we compete for such personnel with numerous
companies, including larger, more established companies with significantly
greater financial resources. There can be no assurance that we will be
successful in attracting and retaining skilled personnel. The loss of the
services of one or more of the key employees or the failure to attract and
retain qualified employees could have a material adverse effect on our business,
financial condition and results of operations.
14
<PAGE>
Management of Growth; International Expansion
We have experienced rapid growth in our business and operations. While we have
managed this growth to date, there can be no assurance that we will be able to
effectively do so in the future. Our ability to manage growth successfully is
contingent upon a number of factors including our ability to implement and
improve operational, financial and management information systems and to
motivate and effectively manage employees. While we plan to distribute
Made2Manage in international markets, we have no significant experience in
international markets and there can be no assurance that such expansion can be
successfully accomplished. If we are unable to manage future growth effectively,
our business, financial condition and results of operations would be materially
and adversely affected.
Risks Associated with Acquisitions
As part of our business strategy, we expect to review acquisition prospects that
would complement our existing product offerings, augment market coverage or
enhance technological capabilities or that may otherwise offer growth
opportunities. Acquisitions could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities or
amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect operating results and/or the price of
our common stock. Acquisitions entail numerous risks, including difficulties in
the assimilation of acquired operations, technologies and products, diversion of
management's attention from other business concerns, risks of entering markets
in which we have no or limited prior experience and potential loss of key
employees of acquired organizations. No assurance can be given as to our ability
to successfully integrate any businesses, products, technologies or personnel
that might be acquired in the future, and the failure to do so could have a
material adverse effect on our business and financial condition or results of
operations.
Insufficient Customer Commitment
To obtain the benefits of Made2Manage, customers must commit resources to
implement and manage the product and to train their employees in the use of the
product. The failure of customers to commit sufficient resources to those tasks
or to carry them out effectively could result in customer dissatisfaction with
Made2Manage. If a significant number of customers became dissatisfied, our
reputation could be tarnished and our business, financial condition and results
of operations could be materially and adversely affected.
Competition
The business management applications software market is intensely competitive,
rapidly changing and significantly affected by new competitors, new product
offerings and other market activities. We face competition from a variety of
software vendors, including application software vendors, software tool vendors
and relational database management systems vendors. A number of companies offer
Windows compatible products that are directed at the market for ERP systems. The
technologies we use to develop Made2Manage are generally available and widely
known and include technologies developed by Microsoft. There can be no assurance
that competitors will not develop products based on the same technology upon
which Made2Manage is based.
Our competitors include a large number of software and system vendors, many of
which are public companies. In addition, there are numerous international,
national and regional vendors that offer alternative systems. Several software
companies that have traditionally marketed ERP systems to larger manufacturers
have announced initiatives to market ERP systems to midsize manufacturers.
Compared to us, many of the existing competitors, as well as a number of
potential competitors, have significantly greater financial, technical and
marketing resources and a larger installed base of customers. There can be no
assurance that such competitors will not offer or develop products that are
superior to Made2Manage or that achieve greater market acceptance. If such
competition were to result in significant price declines or loss of market share
for Made2Manage, our business, financial condition and results of operation
would be adversely affected.
15
<PAGE>
Relationships with Value Added Resellers
We distribute our software products through a direct sales force and a network
of value added resellers ("VARs"). A significant portion of licenses of
Made2Manage sold to new customers is sold by VARs. If some or all of the VARs
reduce their efforts to sell Made2Manage, promote competing products or
terminate their relationships with us, our business, financial condition and
results of operation would be materially and adversely affected. Furthermore,
VARs frequently develop strong relationships with their customers, so if VARs
criticize us or our products to their customers, our reputation could be
damaged, which could have a material adverse effect on our business, financial
condition or results of operations.
Product Liability and Lack of Insurance
We market, sell and support software products used by manufacturers to manage
their business operations and to store substantially all of their operational
data. Software programs as complex as those we offer may contain undetected
errors, despite testing , which are discovered only after the product has been
installed and used by customers. There can be no assurance that errors will not
be found in existing or future releases of our software or that any such errors
will not impair the market acceptance of these products. A customer could be
required to cease operations temporarily and some or all of its key operational
data could be lost or damaged if its information systems fail as the result of
human error, mechanical difficulties or quality problems in Made2Manage or third
party technologies utilized by Made2Manage. We have insurance covering product
liability or damages arising from negligent acts, errors, mistakes or omissions;
however there can be no assurance that this insurance will be adequate. A claim
against us, if successful and of a sufficient magnitude, could have a material
adverse effect on our business, financial condition and results of operations.
Dependence on Proprietary Rights; Risk of Infringement
We rely primarily on a combination of trade secret, copyright and trademark
laws, nondisclosure agreements and other contractual provisions and technical
measures to protect our proprietary rights. There can be no assurance that these
protections will be adequate or that competitors will not independently develop
products incorporating technology that is substantially equivalent or superior
to our technology. Furthermore, other than pending United States patent
applications for software included in Made2Manage related to the Material
Requirements Planning regeneration feature and a navigational interface for the
enterprise, we have no patents or patent applications pending, and existing
copyright laws afford only limited protection. In the event that we are unable
to protect our proprietary rights, our business, financial condition and results
of operations could be materially and adversely affected.
There can be no assurance that we will not be subject to claims that our
technology infringes on the intellectual property of third parties, that we
would prevail against any such claims or that a licensing agreement will be
available on reasonable terms in the event of an unfavorable ruling on any such
claim. Any such claim, with or without merit, would likely be time consuming and
expensive to defend and could have a material adverse effect on our business,
financial condition and results of operations.
Substantial Control by Single Shareholder
As of October 31, 1999, Hambrecht & Quist ("H&Q") and its affiliates, as a
group, beneficially owned approximately 19.5% of our outstanding common stock.
As a result, H&Q and its affiliates will be able to exercise significant
influence over all matters requiring shareholder approval, including the
election of directors and approval of significant corporate transactions.
Concentration of stock ownership could also have the effect of delaying or
preventing a change in control.
16
<PAGE>
Effect of Antitakeover Provisions
Our Amended and Restated Articles of Incorporation (the "Articles") authorize
the Board of Directors to issue, without shareholder approval, up to two million
shares of preferred stock with such rights and preferences as the Board of
Directors may determine in its sole discretion. The Company's stock option plans
provide that, unless the Board of Directors or a committee of the our Board of
Directors decides to the contrary, all outstanding options vest and become
immediately exercisable upon a merger or similar transaction. In addition,
certain provisions of Indiana law could have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from
attempting to acquire, control. Further, certain provisions of Indiana law
impose various procedural and other requirements that could make it more
difficult for shareholders to effect certain corporate actions. The foregoing
provisions could discourage an attempt by a third party to acquire a controlling
interest without the approval of management even if such third party were
willing to purchase shares of common stock at a premium over its then market
price.
Possible Volatility of Stock Price
The trading price of our common stock could be subject to wide fluctuations in
response to quarterly variations in operating results, announcements of
technological innovations or new applications by us or our competitors, the
failure of earnings to meet the expectations of securities analysts and
investors, as well as other events or factors. In addition, the stock market has
from time to time experienced extreme price and volume fluctuations which have
particularly affected the market price of many high technology companies and
which often have been unrelated to the operating performance of these companies.
These broad market fluctuations may adversely affect the market price of the
common stock.
Shares Eligible for Future Sale
The sale of a substantial number of shares of our common stock in the public
market could adversely affect the market price of the common stock. As of
October 31, 1999, we had 4,624,783 shares of common stock outstanding, of which,
we believe, 976,793 shares of common stock are "Restricted Shares," which are
subject to volume and other limitations of Rule 144 and Rule 701 restrictions
under the Securities Act. As of October 31, 1999, there were options outstanding
to purchase 1,667,636 shares of common stock at a weighted average price of
$6.89 share under the Company's stock option plans, of which options to purchase
803,944 shares of common stock were then vested and exercisable. We have
reserved 14,900 shares of common stock for future grant under the 1999 Stock
Option Plan. We have reserved 100,000 shares of common stock for issuance under
the Made2Manage Systems, Inc. Employee Stock Purchase Plan (the "Stock Purchase
Plan"). As of October 31, 1999, 24,047 shares have been issued under the Stock
Purchase Plan. We have filed registration statements registering shares of
common stock issued pursuant to the Made2Manage Systems, Inc. Stock Option Plan
and Stock Purchase Plan on January 30, 1998. We filed a registration statement
for the Made2Manage Systems, Inc. 1999 Stock Option Plan which was approved by
shareholders on April 20, 1999. Accordingly, shares issued pursuant to these
plans will be saleable in the public market upon issuance, subject to certain
restrictions.
Absence of Dividends
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We currently intend to retain earnings, if any, for the
development of our business.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
17
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the current period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 10, 1999
MADE2MANAGE SYSTEMS, INC.
/s/David B. Wortman
- -------------------------------------------
David B. Wortman
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/Stephen R. Head
- -------------------------------------------
Stephen R. Head
Vice President, Finance and Administration,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
18
<PAGE>
<TABLE>
<CAPTION>
Index to Exhibits
<S> <C> <C>
Number Assigned in
Regulation S-K Exhibit Number Description of Exhibit
Item 601
(2) 2.0 Stock Purchase Agreement, dated August 3, 1998, among Made2Manage
Systems, Inc. and the stockholders of Bridgeware, Inc.
(Incorporated by reference to September 30, 1998 Form 10-Q).
(3) 3.1 Amended and Restated Articles of Incorporation of Made2Manage
Systems, Inc. (Incorporated by reference to Registration Statement
on Form S-1, Registration No. 333-38177).
3.2 Amended and Restated Code of By-Laws of Made2Manage Systems, Inc.
(Incorporated by reference to Registration Statement on Form S-1,
Registration No. 333-38177).
(4) 4.1 Specimen Stock Certificate for Common stock (Incorporated by
reference to Registration Statement on Form S-1, Registration No.
333-38177).
4.2 Other rights of securities holders - see Exhibits 3.1 and 3.2.
(10) 10.12 Form of Made2Manage Systems, Inc. Stock Option Agreement
(Incorporated by reference to Exhibit 10.16 to Registration
Statement on Form S-1, Registration No. 333-38177).
10.18 Made2Manage Systems, Inc. Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.22 to Registration
Statement on Form S-1, Registration No. 333-38177).
10.27 Best Software, Inc. Linked Software Dealer Agreement by and
between Best Software, Inc. and Made2Manage Systems, Inc. dated
May 14, 1998 (Incorporated by reference to September 30, 1998 Form
10-Q).
10.28 Business Loan Agreement by and between Bank One, Indiana, NA
and Made2Manage Systems, Inc. dated March 19, 1999.
(Incorporated by reference to March 31, 1999 Form 10-Q).
10.29 Promissory Note by and between Bank One, Indiana, NA and
Made2Manage Systems Inc. dated March 19, 1999.
(Incorporated by reference to March 31, 1999 Form 10-Q).
10.30 Made2Manage Systems, Inc. 1999 Stock Option Plan. (Incorporated
by reference to March 31, 1999 Form 10-Q).
(21) 21.1 List of Subsidiaries (Incorporated by reference to December
31,1998 Form 10-K).
(27) 27.1 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MADE2MANAGE SYSTEMS, INC. AS OF AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,271
<SECURITIES> 4,800
<RECEIVABLES> 7,405
<ALLOWANCES> 654
<INVENTORY> 149
<CURRENT-ASSETS> 23,123
<PP&E> 7,541
<DEPRECIATION> (2,891)
<TOTAL-ASSETS> 30,533
<CURRENT-LIABILITIES> 10,086
<BONDS> 0
0
0
<COMMON> 21,711
<OTHER-SE> (2,284)
<TOTAL-LIABILITY-AND-EQUITY> 30,533
<SALES> 855
<TOTAL-REVENUES> 23,900
<CGS> 571
<TOTAL-COSTS> 25,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,278)
<INCOME-TAX> (473)
<INCOME-CONTINUING> (805)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (805)
<EPS-BASIC> (.18)
<EPS-DILUTED> (.18)
</TABLE>
