SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------
FORM 8-K/A
AMENDMENT NO. 1
TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) April 28, 1997
MARCAM CORPORATION
(Exact Name of Registrant as Specified in Charter)
MASSACHUSETTS 0-18674 04-2711580
(State of Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
95 WELLS AVENUE, NEWTON, MA 02159
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (617) 965-0220
<PAGE>
This Amendment No. 1 on Form 8-K/A to the Current Report on Form 8-K dated
April 28, 1997 (the "Report") is being filed to amend the unaudited pro forma
consolidated financial statements of Marcam Solutions, Inc. filed as Exhibit
99.1 to the Report and to amend Management's Discussion and Analysis of Pro
Forma Financial Condition and Results of Operations filed as Exhibit 99.2 to the
Report. Exhibits 99.1 and 99.2 are hereby amended and restated in their
entirety.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired. None.
------------------------------------------
(b) Pro Forma Financial Information. None.
--------------------------------
(c) Exhibits.
---------
Exhibit No. Description
- ----------- -----------
99.1 The following unaudited pro forma consolidated financial
statements:
Pro Forma Consolidated Balance Sheet as of March 31, 1997
(Unaudited)
Pro Forma Consolidated Statements of Operations for the
fiscal year ended September 30, 1996 (Unaudited) and the six
months ended March 31, 1997 (Unaudited)
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
99.2 Management's Discussion and Analysis of Pro Forma Financial
Condition and Results of Operations
<PAGE>
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 hereunto duly authorized.
MARCAM CORPORATION
Date: July 3, 1997 By: /s/ George A. Chamberlain, 3d
---------------------------------
George A. Chamberlain, 3d
Chief Financial Officer
MARCAM SOLUTIONS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On April 28, 1997, the Board of Directors of Marcam Corporation (the
"Company") decided to divide the Company into two separate publicly traded
corporations: one of which will operate the portion of the business relating to
the Company's PRISM, Protean and Avantis product lines, Marcam Solutions, Inc.
("Marcam Solutions"), and one of which will operate the portion of the business
relating to its MAPICS product line, MAPICS, Inc. ("MAPICS"). To effect the
separation, the Company will transfer to Marcam Solutions substantially all of
the business, assets and liabilities relating to the PRISM, Protean and Avantis
product lines and will contribute an aggregate of $39.0 million in cash to
Marcam Solutions. Of this cash contribution, the Company currently expects that
up to the total amount of the $39.0 million may initially be represented by a
promissory note (the "Note"). All of the shares of common stock of Marcam
Solutions will be distributed pro rata to the Company's stockholders of record
on a date to be set by the Company's Board of Directors (the "Distribution"). In
connection with the Distribution, the Company intends to change its name to
"MAPICS, Inc." and will continue the operations relating to the MAPICS product
line.
The historical consolidated financial statements for Marcam Solutions are
identical to the historical (pre-Distribution) consolidated financial statements
of the Company. The unaudited pro forma consolidated financial statements
of Marcam Solutions are presented as if Marcam Solutions had been operated as a
separate entity, principally by deducting the financial position and operating
results of MAPICS from the historical consolidated financial statements of
the Company. The unaudited pro forma consolidated balance sheet of Marcam
Solutions as of March 31, 1997 presents the financial position of Marcam
Solutions assuming the Distribution and certain other transactions had occurred
on March 31, 1997. All material adjustments required to reflect the Distribution
and certain other transactions are set forth in the columns labeled "Pro Forma
Disposal of MAPICS, Inc." and "Other Pro Forma Adjustments." The unaudited pro
forma consolidated statements of operations of Marcam Solutions for the year
ended September 30, 1996 and for the six months ended March 31, 1997 present the
results of operations of Marcam Solutions assuming the Distribution and certain
other transactions had occurred on October 1, 1995 and include all material pro
forma adjustments necessary for this purpose.
The unaudited pro forma consolidated financial statements of Marcam
Solutions should be read in conjunction with the historical consolidated
financial statements of the Company included in the Company's Annual Report on
Form 10-K for the year ended September 30, 1996 as well as the combined
financial statements of MAPICS included in the Company's Registration Statement
on Form S-3 filed with the Securities and Exchange Commission on April 30, 1997.
The pro forma data is for informational purposes only and may not necessarily
reflect future results of operations and financial position or what the results
of operations or financial position would have been had Marcam Solutions been
operating as a separate entity.
After the Distribution, the consolidated financial statements of Marcam
Solutions will reflect a disposal of the assets and liabilities of MAPICS as of
the date of the Distribution and will not be restated to remove the effects of
the prior operating results of MAPICS.
<PAGE>
MARCAM SOLUTIONS, INC.
Pro Forma Consolidated Balance Sheet
March 31, 1997
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Marcam Disposal of Other Marcam
Corporation MAPICS, Pro Forma Solutions, Inc.
Historical (a) Inc. (b) Adjustments Pro Forma
---------------- ------------- ------------------ ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents .................. $ 20,047 $ (852) $ 19,195
Accounts receivable, net ............... 47,848 (21,141) 26,707
Prepaid expenses and other current
assets ................................. 8,653 (1,032) 7,621
Note receivable from MAPICS, Inc. ...... -- -- $ 39,000(d) 39,000
-------- ---------- ---------- --------
Total current assets .................. 76,548 (23,025) 39,000 92,523
Property and equipment, net ............ 10,257 (2,813) -- 7,444
Computer software costs, net ............ 30,787 (15,741) -- 15,046
MAPICS intangible costs, net ............ 5,067 (5,067) -- --
Other assets ........................... 2,606 -- -- 2,606
-------- ---------- ---------- --------
Total assets ........................... $125,265 $ (46,646) $ 39,000 $117,619
======== ========== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................ $ 10,642 $ (4,412) $ 6,230
Accrued expenses and other current
liabilities ........................... 36,949 (11,415) 25,534
Deferred revenue ........................ 46,681 (21,197) 25,484
-------- ---------- --------
Total current liabilities ............ 94,272 (37,024) 57,248
Long-term debt ........................... 25,473 -- $ (25,000)(c) 473
Deferred income taxes .................. 824 (394) 394(e) 824
-------- ---------- ---------- --------
Total liabilities ..................... 120,569 (37,418) (24,606) 58,545
Stockholders' equity:
Preferred stock ........................ 325 -- (325)(g) --
Common stock ........................... 115 -- (41)(g) 74
Additional paid-in capital ............ 77,268 -- 63,972(c,d,e,g) 141,240
Accumulated deficit ..................... (71,211) (9,228) -- (80,439)
Unamortized deferred compensation ...... (345) -- -- (345)
Cumulative translation adjustment ...... (1,456) -- -- (1,456)
-------- ---------- ---------- --------
Total stockholders' equity ............ 4,696 (9,228) 63,606 $ 59,074
-------- ---------- ---------- --------
Total liabilities and stockholders'
equity .............................. $125,265 $ (46,646) $ 39,000 $117,619
======== ========== ========== ========
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
<PAGE>
MARCAM SOLUTIONS, INC.
Pro Forma Consolidated Statement of Operations
Year ended September 30, 1996
(In thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Marcam Disposal of Other Marcam
Corporation MAPICS, Pro Forma Solutions, Inc.
Historical (a) Inc. (b) Adjustments Pro Forma
---------------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
License ........................... $ 93,137 $ (45,341) $ 47,796
Services ........................... 108,287 (32,261) 76,026
---------- ---------- ----------
Total revenues ..................... 201,424 (77,602) 123,822
---------- ---------- ----------
Operating expenses:
Cost of license revenues ............ 16,669 (6,913) 9,756
Cost of services revenues ......... 69,493 (9,499) $ (1,653)(f) 58,341
Selling and marketing ............... 82,790 (27,851) (2,290)(f) 52,649
Product development ............... 27,680 (6,398) -- 21,282
General and administrative ......... 9,987 (5,965) 3,943(f) 7,965
Restructuring charges ............... 10,600 -- -- 10,600
---------- ---------- ----------- ----------
Total operating expenses ......... 217,219 (56,626) -- 160,593
---------- ---------- ----------- ----------
Operating loss ..................... (15,795) (20,976) -- (36,771)
Litigation settlement ............... (3,250) -- -- (3,250)
Interest and other income ............ 1,443 -- -- 1,443
Interest and other expense ......... (4,138) -- -- (4,138)
---------- ---------- ----------- ----------
Loss before income tax expense ...... (21,740) (20,976) -- (42,716)
Income tax expense .................. 4,586 (8,076) 7,650(e) 4,160
---------- ---------- ----------- ----------
Net loss ........................... $ (26,326) $ (12,900) $ (7,650) $ (46,876)
========== ========== =========== ==========
Net loss per common share ............ $ (2.31) $ (6.79)
========== ==========
Weighted average number of common
shares outstanding .................. 11,384 6,900
========== ==========
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
<PAGE>
MARCAM SOLUTIONS, INC.
Pro Forma Consolidated Statement of Operations
Six months ended March 31, 1997
(In thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Marcam Disposal of Other Marcam
Corporation MAPICS, Pro Forma Solutions, Inc.
Historical (a) Inc. (b) Adjustments Pro Forma
---------------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
License ........................... $ 38,084 $ (25,328) $ 12,756
Services ........................... 51,467 (18,837) 32,630
-------- --------- ---------
Total revenues ..................... 89,551 (44,165) 45,386
-------- --------- ---------
Operating expenses:
Cost of license revenues ............ 8,676 (4,129) 4,547
Cost of services revenues ......... 29,118 (5,301) $ (1,307)(f) 22,510
Selling and marketing ............... 36,757 (14,834) (1,613)(f) 20,310
Product development ............... 15,679 (4,969) -- 10,710
General and administrative ......... 4,316 (4,360) 2,920(f) 2,876
-------- --------- ----------- ---------
Total operating expenses ......... 94,546 (33,593) -- 60,953
-------- --------- ----------- ---------
Operating loss ..................... (4,995) (10,572) -- (15,567)
Interest and other income ............ 615 -- -- 615
Interest and other expense ......... (2,035) -- -- (2,035)
-------- --------- ----------- ---------
Loss before income tax expense ...... (6,415) (10,572) -- (16,987)
Income tax expense .................. 2,001 (4,071) 3,782(e) 1,712
-------- --------- ----------- ---------
Net loss ........................... $ (8,416) $ (6,501) $ (3,782) $ (18,699)
======== ========= =========== =========
Net loss per common share ............ $ (0.73) $ (2.54)
======== =========
Weighted average number of common
shares outstanding .................. 11,459 7,355
======== =========
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Pro Forma Consolidated Financial Statements
(UNAUDITED)
a) Identical to the consolidated financial statements filed on Form 10-Q with
the Securities and Exchange Commission on May 9, 1997 under the registrant
name "Marcam Corporation."
b) To give effect to the disposal of MAPICS as if it occurred on March 31, 1997
for the pro forma balance sheet presentation and on October 1, 1995 for
the pro forma statements of operations presentation.
c) To give effect to the deemed transfer for accounting purposes of Marcam's
$25.0 million 9.82% Subordinated Notes due 2001 (the "Subordinated Notes")
to MAPICS.
d) To give effect to the $39.0 million promissory note from MAPICS used to
capitalize Marcam Solutions.
e) To reverse the effect of the federal and state tax provisions of MAPICS,
which were calculated on a separate-return basis, and the resultant
deferred tax liability.
f) To reclassify general and administrative expenses of MAPICS to conform to
Marcam's historical presentation.
g) To give effect to the distribution of one share of Marcam Solutions Common
Stock for each two shares of Marcam Common Stock and of five shares of
Marcam Solutions Common Stock for each share of Marcam Series D and Series
E Preferred Stock, summarized with other equity account adjustments as
follows (in thousands):
<TABLE>
<CAPTION>
Preferred Common Additional
Stock, Stock, Paid-in Accumulated
Par Value Par Value Capital Deficit
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Marcam Corporation Historical .............................. $ 325 $115 $ 77,268 $ (71,211)
Exchange of 325 shares of preferred stock for 1,625
shares of Marcam Solutions Common Stock .................. (325) 16 309 --
Exchange of 11,497 shares of common stock for 5,749
shares of Marcam Solutions Common Stock .................. -- (57) 57 --
Contributed capital from MAPICS and debt transfer ......... -- -- 64,000 --
Reversal of deferred tax liability adjustment of MAPICS ... -- -- (394) --
Pro forma disposal of MAPICS .............................. -- -- -- (9,228)
----- ---- -------- ---------
Marcam Solutions, Inc. Pro Forma ........................... -- $ 74 $141,240 $ (80,439)
===== ==== ======== =========
</TABLE>
h) Costs approximating $2.5 million to be incurred in connection with the
spin-off and recorded within the next twelve months have not been
considered in the pro forma presentation of the statements of operations.
Other costs approximating $1.75 million to be incurred and recorded by
Marcam Solutions in connection with the prepayment of the Subordinated
Notes by MAPICS have not been considered in the pro forma presentation of
the statements of operations.
i) Pro forma book value per common share for Marcam Solutions as of March 31,
1997 is $8.01.
j) The calculation of pro forma weighted average number of shares outstanding
includes the weighted average number of common shares outstanding of Marcam
for the respective periods, adjusted to give effect to the distribution of
one share of Marcam Solutions Common Stock for each two shares of Marcam
Common Stock and of five shares of Marcam Solutions Common Stock for each
share of Marcam Series D and Series E Preferred Stock. The calculation does
not include the effect of common equivalent shares from the assumed
exercise of stock options and warrants of Marcam because their inclusion
would be antidilutive.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF MARCAM SOLUTIONS
On April 28, 1997, the Board of Directors of Marcam Corporation (the
"Company") decided to divide the Company into two separate publicly traded
corporations: one of which will operate the portion of the business relating to
the Company's PRISM, Protean and Avantis product lines, Marcam Solutions, Inc.
("Marcam Solutions"), and one of which will operate the portion of the business
relating to its MAPICS product line, MAPICS, Inc. ("MAPICS"). To effect the
separation, the Company will transfer to Marcam Solutions substantially all of
the business, assets and liabilities relating to the PRISM, Protean and Avantis
product lines and will contribute an aggregate of $39.0 million in cash to
Marcam Solutions. Of this cash contribution, the Company currently expects that
up to the total amount of the $39.0 million may initially be represented by a
promissory note (the "Note"). All of the shares of common stock of Marcam
Solutions will be distributed pro rata to the Company's stockholders of record
on a date to be set by the Company's Board of Directors (the "Distribution"). In
connection with the Distribution, the Company intends to change its name to
"MAPICS, Inc." and will continue the operations relating to the MAPICS product
line.
The following discussion and analysis should be read in conjunction with
"Marcam Solutions, Inc. Pro Forma Consolidated Financial Statements" and notes
thereto included as Exhibit 99.1 to this Current Report on Form 8-K. The
discussion herein contains forward-looking statements that involve risks and
uncertainties, such as statements of Marcam Solutions' plans, objectives,
expectations and intentions. The cautionary statements made herein should be
read as being applicable to all related forward-looking statements wherever they
appear herein. Marcam Solutions' actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
difference include, among others, recent operating losses, lack of liquidity,
variability of quarterly results, challenge of developing new products and
responding to technological change, dependence on IBM's AS/400 system and
competition, as well as those discussed elsewhere herein.
The following discussion and analysis relates to Marcam Solutions on a pro
forma basis, giving effect to the Distribution. The unaudited pro forma
consolidated financial data for Marcam Solutions included herein are presented
as if Marcam Solutions had been operated as a separate entity, principally by
deducting the financial position and operating results of MAPICS.
The following table sets forth unaudited pro forma statement of operations
data for Marcam Solutions for each of the four quarters in fiscal 1996 and the
first two quarters in fiscal 1997 and the percentage of Marcam Solutions' total
pro forma revenues represented by each item for the respective quarter. This
unaudited pro forma quarterly information has been prepared on the same basis as
the pro forma information presented in Exhibit 99.1 to this Current Report on
Form 8-K and in Marcam Solutions' opinion, includes all adjustments necessary
for a fair presentation of the information for the quarters presented. The pro
forma operating results for any quarter are not necessarily indicative of
results for any future period.
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31,
1995 1996 1996 1996 1996 1997
---------- ------------- ------------- ---------- ---------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating Results:
Revenues:
License ........................... $ 11,808 $ 9,099 14,276 $ 12,613 $ 5,992 $ 6,764
Services ........................... 19,572 21,106 18,780 16,568 16,376 16,254
-------- --------- --------- -------- -------- --------
Total revenues .................. 31,380 30,205 33,056 29,181 22,368 23,018
Operating expenses:
Cost of license revenues ............ 2,924 2,436 2,055 2,341 2,119 2,428
Cost of services revenues ......... 14,520 16,976 14,210 12,635 11,429 11,081
Selling and marketing ............... 13,411 13,608 14,198 11,432 9,671 10,639
Product development ............... 5,302 5,203 5,857 4,920 5,076 5,634
General and administrative ......... 1,693 2,710 1,809 1,753 1,260 1,616
Restructuring charges ............... -- -- 8,300 2,300 -- --
-------- --------- --------- -------- -------- --------
Total operating expenses ......... 37,850 40,933 46,429 35,381 29,555 31,398
-------- --------- --------- -------- -------- --------
Operating loss ..................... (6,470) (10,728) (13,373) (6,200) (7,187) (8,380)
Litigation settlement ............... -- (3,250) -- -- -- --
Interest and other income ............ 380 555 260 248 322 293
Interest and other expense ......... (968) (969) (953) (1,248) (1,022) (1,013)
-------- --------- --------- -------- -------- --------
Loss before income tax expense ...... (7,058) (14,392) (14,066) (7,200) (7,887) (9,100)
Income tax expense .................. 784 988 1,022 1,366 880 832
-------- --------- --------- -------- -------- --------
Net loss ........................... $(7,842) $ (15,380) $ (15,088) $(8,566) $(8,767) $ (9,932)
======== ========= ========= ======== ======== ========
Percentage of Total Revenues:
Revenues:
License ........................... 37.6% 30.1% 43.2% 43.2% 26.8% 29.4%
Services ........................... 62.4 69.9 56.8 56.8 73.2 70.6
Total revenues ..................... 100.0 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of license revenues ............ 9.3 8.1 6.2 8.0 9.5 10.6
Cost of services revenues ......... 46.3 56.2 43.0 43.3 51.1 48.1
Selling and marketing ............... 42.7 45.0 43.0 39.2 43.2 46.2
Product development ............... 16.9 17.2 17.7 16.8 22.7 24.5
General and administrative ......... 5.4 9.0 5.5 6.0 5.6 7.0
Restructuring charges ............... -- -- 25.1 7.9 -- --
-------- --------- --------- -------- -------- --------
Total operating expenses ......... 120.6 135.5 140.5 121.2 132.1 136.4
-------- --------- --------- -------- -------- --------
Operating loss ..................... (20.6) (35.5) (40.5) (21.2) (32.1) (36.4)
Litigation settlement ............... -- (10.7) -- -- -- --
Interest and other income ............ 1.2 1.8 0.8 0.8 1.4 1.3
Interest and other expense ......... (3.1) (3.2) (2.9) (4.3) (4.6) (4.4)
-------- --------- --------- -------- -------- --------
Loss before income tax expense ...... (22.5) (47.6) (42.6) (24.7) (35.3) (39.5)
Income tax expense .................. 2.5 3.3 3.1 4.7 3.9 3.6
-------- --------- --------- -------- -------- --------
Net loss ........................... (25.0%) (50.9%) (45.7%) (29.4%) (39.2%) (43.1%)
======== ========= ========= ======== ======== ========
</TABLE>
<PAGE>
Foresight Software Divestiture. This financial data includes the results
of Marcam Solutions' Foresight Software, Inc. ("Foresight") subsidiary through
June 30, 1996, the date of divestiture. This divestiture resulted in reductions
in revenues and expenses in the subsequent quarters. Revenues from Foresight
for the quarters ended December 31, 1995, March 31, 1996, and June 30, 1996
were $2.6 million, $5.4 million, and $3.1 million, respectively. Total direct
expenses of Foresight for the same periods were $4.1 million, $5.6 million, and
$4.4 million, respectively.
License Revenues. License revenues are derived from licensing Marcam
Solutions' Protean, PRISM and Avantis products. License revenues consist of
one-time fees paid by customers when they initially license products.
Additional license fee revenues are generated when customers license additional
modules, upgrade the computers on which the products operate, or increase the
number of licensed users. License revenues were $47.8 million for the fiscal
year ended September 30, 1996 and $12.8 million for the six months ended March
31, 1997.
While Marcam Solutions licensed Protean products to certain early adopters
in 1994, 1995 and 1996, in the first two quarters of 1997 there were no
significant Protean license revenues. Management believes that this
circumstance was due to customers' preferences to purchase an integrated
solution from a single vendor. In an effort to address this customer
preference, Marcam Solutions introduced Release 2.1 of the Protean product on
January 31, 1997, which expanded functionality and added the ability to
integrate with certain other vendors financial applications. In addition,
Marcam Solutions has announced the availability of Protean financial
applications in late 1997 and Customer Order Management in mid-1998. Marcam
Solutions believes this expanded functionality and ability to integrate with
products from other software vendors provides Marcam Solutions with a
competitive offering. Marcam Solutions expects to recognize license revenues
from licensing Protean products during the fiscal quarter ending June 30, 1997.
During the past six quarters, PRISM license revenues have varied
significantly and generally have been declining. Quarterly license revenues
fluctuate significantly due to periodic large transactions, among other things.
Management believes that PRISM license revenues have also been adversely
affected by the introduction of the Protean product line, which utilized sales
and marketing resources which otherwise would have been devoted to the PRISM
product line. To address these issues, Marcam Solutions intends to refocus its
sales and marketing efforts on opportunities to license additional products to
existing PRISM customers and to license PRISM products to new mid-size process
manufacturing customers.
Avantis products are licensed both as stand-alone solutions and as part of
a broader ERP solution. Avantis license revenues have been declining slightly
as sales of Avantis.Pro licenses have not offset reductions in the AS/
400-based host offerings. Management believes that the introduction of enhanced
versions of the Avantis.Pro products designed to make them more competitive
will create opportunities to increase license revenues.
Services Revenues. Services revenues are derived from the sale of product
support, implementation and consulting services. Services revenues were $76.0
million for the year ended September 30, 1996 and $32.6 million for the six
months ended March 31, 1997.
Product support is offered to licensed customers generally based on
agreements that are billed annually, with revenue recognized on a pro rata
basis during the contract period. Support revenues result from the installed
base of customers who contract for product support services. Support revenues
thus are dependent over the long-term on new licenses of products. During the
last six quarters, support revenues have been relatively constant as new
customers' installations have offset modest attrition in the installed base.
Other services include assisting customer implementation of licensed
software, providing custom programming and systems integration services, and
providing educational material and instruction in the use of licensed software.
Services revenues for implementation and consulting are recognized as the
services are provided. These service revenues are closely related to license
revenues and thus have declined in recent periods in concert with the decline
in license revenues. Management expects these service revenues to continue to
fluctuate in direct relation with license revenues.
In addition, the decline in services revenues in the fourth fiscal quarter
of 1996 reflected the divestiture of Foresight.
Cost of License Revenues. Cost of license revenues consists of
amortization of capitalized software development and translation costs and
product royalties. The most significant portion is amortization, which has been
relatively constant during the last six quarters. Product royalties result when
Marcam Solutions licenses from its solution partners certain complementary
software products which are integrated into Marcam Solution's product
offerings. When a solution partner product is licensed to a customer, Marcam
Solutions pays a royalty to the solution partner. Product royalties thus vary
in direct relation to the third party content of license revenues.
<PAGE>
Cost of Services Revenues. Cost of services revenues consists primarily of
personnel costs related to Marcam Solutions support operations. Cost of
services revenues varies depending on the mix of services revenues between
product support and other services. Cost of product support tends to be
relatively constant, and the cost of other services tends to vary in concert
with service revenue. The cost of services revenues generally declined during
the last six quarters reflecting the decrease in services revenues and,
beginning in the fourth fiscal quarter of 1996, the divestiture of Foresight.
Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of salaries and commissions for sales and marketing personnel and
commissions paid to affiliates. Marcam Solutions markets its products and
services primarily through a direct sales force in North America and major
European markets, and both directly and indirectly through affiliates in other
parts of the world. Affiliates earn sales commissions based on license revenues
generated. Due to the relatively large portion of these expenses attributable
to Marcam Solutions' direct sales and marketing activities, these expenses are
relatively fixed and, consequently, are expected to fluctuate as a percentage
of revenue as a result of fluctuations in revenues. Marcam Solutions' customers
are often large multinational organizations that require significant resources.
In 1996, Marcam Solutions converted its direct sales operations in Latin
America and Asia Pacific to affiliate channels. However, management has chosen
to maintain a sales and marketing infrastructure in other major markets in
order to be positioned for growth. As a result of these actions and lower than
expected license revenues, these expenses have represented a relatively high
percentage of license revenues during the last six quarters.
Product Development. Product development expense includes the cost to
research, design, test and document Marcam Solutions' software products,
including the translation into various foreign languages. Gross research and
development expenditures in 1996 and the first six months of 1997 were $27.1
million and $13.6 million, respectively. The amounts of software development
cost capitalized were $5.8 million and $2.9 million for the same periods,
respectively. The ERP application market is highly competitive, and software
products must be constantly improved to be competitive. Marcam Solutions has
been investing aggressively in the development of its Protean and Avantis.Pro
products, and expects that significant continued investment is necessary.
Summary. Marcam Solutions' management believes that achievement of
profitability and positive cash flows from operations as soon as possible is
essential. Management currently believes that a combination of cost reductions
and increased revenues is necessary to achieve this result. Marcam Solutions'
business and operating expense structure have been reviewed to identify
opportunities for cost reductions. As a result, actions have been initiated to
reduce operating expenses and to write off certain intangible assets. These
actions, together with the costs associated with the Distribution, will result
in a charge of approximately $22.0 million in the fiscal quarter ending June 30,
1997. Of this amount, approximately $7.5 million relates principally to
reductions in staffing throughout the business except the Protean and Avantis
development organizations, and the closing of certain European facilities. An
additional $12.0 million of this charge relates to the write-off of the
capitalized software development costs relating to the Protean and Avantis.Pro
product lines. This write-off resulted from lower than expected revenue from
these product lines during fiscal 1997 and the continuing uncertainty regarding
market acceptance of, and significant revenue generation from, these product
lines in the near future. Marcam Solutions believes the introduction of enhanced
versions of its Protean and Avantis.Pro products will provide it with more
competitive offerings, which it currently expects will generate increasing
revenues over the longer term. Further, the currently anticipated costs
associated with the Distribution are $2.5 million.
In addition to the cost reduction actions, Marcam Solutions has undertaken
a number of actions designed to increase revenues, including introducing
enhanced versions of its Protean and Avantis.Pro products designed to make them
more competitive and refocusing its sales and marketing efforts on the PRISM
product line. Management currently believes that significant increases in
Protean license revenues are required to offset the costs of maintaining the
distribution channel and development activities relating to the Protean product
line. There can be no assurances, however, that these actions will result in
increased revenues or that, when combined with cost reductions, will result in
Marcam Solutions' achieving profitability or positive cash flows from
operations. Failure to achieve profitability or positive cash flows from
operations would materially and adversely affect Marcam Solutions' financial
condition.
Liquidity and Capital Resources. On a pro forma basis, Marcam Solutions
has incurred net losses of $46.9 million and $18.7 million for the fiscal year
ended September 30, 1996 and the six months ended March 31, 1997, respectively.
At March 31, 1997, on a pro forma basis, Marcam Solutions' accumulated deficit
was $19.4 million. It is currently expected that quarterly net losses will
continue through at least the first quarter of fiscal 1998 (which ends on
December 31, 1997). There can be no assurance that Marcam Solutions will be
profitable thereafter or that profitability, if achieved, will be sustained. In
order to support the anticipated growth of its business, Marcam Solutions
expects to continue to invest in its marketing and sales and product
development activities. Marcam Solutions' expenses for these and other
activities are based in significant part on its expectations regarding future
revenues and are fixed to a large extent in the short term. Marcam Solutions
may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfalls.
<PAGE>
Marcam Solutions has used cash during fiscal years 1996 and 1997 to fund
strategic investments, in particular substantial expenditures for marketing and
selling activities and for new product development, and operating losses.
During the remainder of 1997 and 1998, Marcam Solutions currently intends to
make similar investments. In addition, Marcam Solutions currently expects to
use approximately $9.0 million in cash to fund the restructuring actions to be
taken in the third quarter of 1997 and the costs of the Distribution. Marcam
Solutions' objective is to fund these investments, restructuring actions and
costs and any losses primarily with cash from improved operations, any
available cash transferred to Marcam Solutions by Marcam and proceeds from
payment of the Note. Marcam Solutions' ability to generate cash from operations
depends upon, among other things, revenue growth, completion and market
acceptance of its Protean and Avantis.Pro products, improvements in operating
productivity, and payment terms and collection of accounts receivable. There
can be no assurance that Marcam Solutions' operations will generate sufficient
cash to finance its activities. Until operations improve to meet its cash
requirements, Marcam Solutions will need to rely on existing cash resources and
payments on the Note.
Marcam currently intends to repay the Note with a portion of the net
proceeds from an underwritten public offering of the common stock of MAPICS (the
"Proposed MAPICS Public Offering") or a debt financing which would be
consummated in lieu of or in combination with the Proposed MAPICS Public
Offering (the "Proposed Debt Financing"). On April 30, 1997, Marcam filed a
Registration Statement on Form S-3 with the Commission relating to the Proposed
MAPICS Public Offering. The Proposed MAPICS Public Offering is conditioned upon
the completion of the Distribution and will not occur until after the
Distribution, if at all. Marcam is also currently negotiating with a number of
lenders regarding the Proposed Debt Financing. There can be no assurance that
the Proposed MAPICS Public Offering, the Proposed Debt Financing or a
combination thereof will be completed. If neither the Proposed MAPICS Public
Offering nor the Proposed Debt Financing is completed, MAPICS will be required
to repay the Note from its other cash resources, including cash generated from
operations and borrowings under its revolving credit facility. Absent the
Proposed MAPICS Public Offering, the Proposed Debt Financing or a combination
thereof, there can be no assurance that MAPICS will have sufficient cash
resources to make the scheduled payments on the Note on a timely basis or that
such payments will satisfy Marcam Solutions' cash requirements. Under such
circumstances, MAPICS and Marcam Solutions would be required to borrow money to
satisfy all or a portion of their cash requirements. MAPICS' failure to make the
payments on the Note as scheduled would have a material adverse effect on the
financial condition of Marcam Solutions. After the Distribution is completed,
MAPICS will not be obligated to provide Marcam Solutions with any additional
funding other than through the payment of the Note. See "The Distribution
Proposal--The Asset Transfers."
Marcam Solutions currently anticipates that cash from operations, its
available cash and payments on the Note will be sufficient to fund its
operations and other cash needs through at least fiscal year 1998. If, however,
such sources prove insufficient, Marcam Solutions will be required to make
changes in operations or seek additional debt or equity financing. Marcam
Solutions currently believes that, after completion of the Distribution, its
borrowing capacity will be limited to revolving lines of credit with borrowing
availability based on qualifying accounts receivable. There can be no
assurances that such a revolving line of credit or any other additional debt or
equity financing will be available or available on terms acceptable to Marcam
Solutions. The continued occurrence of operating losses by Marcam Solutions or
the failure of MAPICS to make timely payments under the Note would have a
material adverse effect on Marcam Solutions' business, financial condition and
results of operations.
