SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one):
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarter ended June 30, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
--------- ---------
Commission File Number 0-18674
MAPICS, INC.
------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2711580
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5775-D Glenridge Drive, Atlanta, Georgia 30328
- ---------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (404) 705-3000
--------------
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
requirements for the past 90 days.
YES X NO
--- ---
MARCAM CORPORATION, 95 Wells Avenue, Newton, Massachusetts, 02159
-----------------------------------------------------------------
(Former name and address of registrant)
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of August 6, 1997, was 17,596,877 shares.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements
MAPICS, INC.
Combined Balance Sheets
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30, September 30,
1997 1997 1996
-------- -------- ----------
Pro Forma
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 846 $ 1,005 $ 378
Accounts receivable, net of allowances of $1,750 at
June 30, 1997 and $1,240 at September 30, 1996 20,873 20,873 20,518
Prepaid expenses and other current assets 2,752 2,752 487
------ ----- --------
Total current assets 24,471 24,630 21,383
Property and equipment, net 2,806 2,806 2,992
Computer software costs, net 15,795 15,795 15,705
Other intangible costs, net 4,981 4,981 5,325
----- ----- -----
Total assets $48,053 $48,212 $45,405
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 5,225 $ 5,225 $ 5,308
Accrued expenses and other current liabilities 14,527 14,527 11,457
Deferred revenue 21,135 21,135 18,563
------ ------ ------
Total current liabilities 40,887 40,887 35,328
Long-term debt -- 6,406 --
Deferred income taxes 436 436 884
------- -------- --------
Total liabilities 41,323 47,729 36,212
Commitments and contingencies
Divisional equity 6,730 -- 9,193
Stockholders' equity -- 483 --
------- -------- --------
Total liabilities and equity $48,053 $48,212 $45,405
======= ======= =======
</TABLE>
See accompanying Notes to Combined Financial Statements.
2
<PAGE>
MAPICS, INC.
Combined Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License $12,177 $9,810 $37,505 $30,311
Services 9,820 8,319 28,657 23,662
------- ------ -------- ---------
Total revenues 21,997 18,129 66,162 53,973
------- ------ ------- -------
Operating expenses:
Cost of license revenues 2,233 1,429 6,362 4,455
Cost of services revenues 2,877 2,300 8,178 6,873
Selling and marketing 7,439 6,321 22,273 19,349
Product development 2,535 1,415 7,504 4,537
General and administrative 2,052 2,005 6,412 4,217
----- ----- ----- -----
Total operating expenses 17,136 13,470 50,729 39,431
------- ------ ------ -------
Income before income tax expense 4,861 4,659 15,433 14,542
Income tax expense 1,871 1,794 5,942 5,599
------- ------ ------- --------
Net income $ 2,990 $2,865 $ 9,491 $8,943
======= ====== ======= ======
Pro forma net income per common share $ 0.16 $ 0.49
======= =======
Pro forma weighted average number of
common and common equivalent
shares outstanding 19,262 19,297
====== ======
</TABLE>
See accompanying Notes to Combined Financial Statements.
3
<PAGE>
MAPICS, INC.
Combined Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $9,491 $8,943
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,019 562
Amortization 3,649 2,853
Provision for bad debts 949 260
Deferred income taxes (490) 484
Changes in operating assets and liabilities:
Accounts receivable (1,225) (243)
Prepaid expenses and other assets (1,987) (125)
Accounts payable (82) (670)
Accrued expenses and other current liabilities 3,112 (2,425)
Deferred revenue 2,572 2,777
----- ------
Net cash provided by operating activities 17,008 12,416
Cash flows from investing activities:
Purchases of property and equipment (833) (1,074)
Additions to computer software costs (3,753) (5,138)
------- -------
Net cash used for investing activities (4,586) (6,212)
Cash flows from financing activities:
Net transfers to Marcam Corporation (11,954) (6,232)
-------- -------
Net cash used for financing activities (11,954) (6,232)
-------- -------
Net increase (decrease) in cash 468 (28)
Cash at beginning of the period 378 226
--- ----
Cash at end of the period $ 846 $ 198
====== =====
</TABLE>
See accompanying Notes to Combined Financial Statements.
4
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements
(Unaudited)
(1) Reporting Entity
----------------
On July 29, 1997, Marcam Corporation spun off in a tax-free distribution
the portion of its business relating to its PRISM, Protean and Avantis product
lines. In connection with the distribution, Marcam Corporation transferred to
Marcam Solutions, Inc. ("Marcam Solutions"), a new wholly owned subsidiary of
Marcam Corporation, substantially all of the business, assets and liabilities
relating to its PRISM, Protean and Avantis product lines and an aggregate of
$39.0 million in cash in exchange for (i) the assumption by Marcam Solutions of
certain liabilities and obligations relating to the business to be conducted by
Marcam Solutions, (ii) a number of shares of common stock of Marcam Solutions
sufficient for Marcam Corporation to make the distribution and (iii) warrants to
purchase an aggregate of 500,000 shares of common stock of Marcam Solutions.
Marcam Corporation distributed all of its ownership interest in Marcam Solutions
by means of a distribution on July 29, 1997 to its stockholders of record on
July 23, 1997 (the "Distribution"). In connection with the Distribution, Marcam
Corporation changed its name from "Marcam Corporation" to "MAPICS, Inc."
("MAPICS" or the "Company"). MAPICS will continue the operations relating to the
MAPICS product line.
Although the common stock of Marcam Solutions was distributed to Marcam
Corporation's stockholders, the Distribution is being recorded for accounting
purposes as a disposal by Marcam Solutions of the business conducted by MAPICS,
due to the relative significance of the business conducted by Marcam Solutions.
The financial statements of MAPICS for reporting periods after the Distribution
will consist solely of the separate financial statements of MAPICS and will not
correspond to the historical consolidated financial statements of Marcam
Corporation.
(2) Basis of Presentation
---------------------
The accompanying unaudited combined financial statements of MAPICS in this
Form 10-Q have been prepared using Marcam Corporation's historical basis in the
assets and liabilities and historical results of operations related to the
MAPICS product lines. These combined financial statements generally reflect the
financial position, results of operations, and cash flows of MAPICS as if it
were a separate entity for the periods presented. Certain costs and expenses
presented in these financial statements have been allocated based on
management's estimates of the costs of services provided to MAPICS by Marcam
Corporation. Management believes that these allocations are reasonable. However,
the financial information included herein may not necessarily reflect the
combined financial position, results of operations, and cash flows of MAPICS in
the future, or what they would have been had MAPICS been a separate entity
during the periods presented.
The accompanying unaudited combined financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). As permitted by the rules of the
Commission applicable to quarterly reports on Form 10-Q, these notes are
condensed and do not contain all disclosures required by generally
5
<PAGE>
accepted accounting principles. In the opinion of management, these financial
statements contain all adjustments (consisting of only normal, recurring
adjustments) necessary to present fairly the Company's financial position,
results of operations and cash flows as of the dates and for the periods
indicated. While the Company believes that the disclosures presented are
adequate to make these financial statements not misleading, these financial
statements should be read in conjunction with the Company's audited financial
statements and related notes included in the Company's final prospectus filed
with the Securities and Exchange Commission on July 30, 1997 pursuant to Rule
424(b)(4) of the Securities Act of 1933.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for a full year.
(3) Subsequent Events
-----------------
On July 25, 1997, Marcam Corporation borrowed $64.0 million (the "Debt
Financing"). The net proceeds from the Debt Financing were used to
make the $39.0 million transfer by Marcam Corporation to Marcam Solutions in
connection with the Distribution and to repay Marcam Corporation's $25 million
9.82% Subordinated Notes due 2001 (the "Subordinated Notes"). The indebtedness
incurred in the Debt Financing bore interest at the rate of 9.0% and was payable
on August 4, 1997. For accounting purposes, the financial statements of MAPICS
will reflect the assumption and repayment of the Subordinated Notes, excluding
the prepayment penalty and accrued interest that will be recorded by Marcam
Solutions.
During August 1997, the Company executed a senior secured revolving credit
and term loan facility. The Company may borrow up to $15 million for general
corporate purposes under the revolving credit facility and has borrowed the
maximum amount available of $6.4 million under the term loan facility. The
current borrowing under the term loan facility bears interest at the rate of
9.0% . The principal of the term loan under the credit facility is be payable in
installments beginning on September 30, 1998 and ending on December 31, 1999.
Any revolving credit loans under the credit facility will mature on June 30,
2000. The facility provides for prime and LIBOR based interest rate options. As
of August 11, 1997, no borrowings were outstanding under the revolving credit
facility. The borrowing availability for revolving credit loans and the rate of
interest vary depending upon specified financial ratios. The credit facility
contains covenants which, among other things, require that the Company maintain
certain financial ratios and impose certain limitations or prohibitions on the
Company with respect to the occurrence of indebtedness, liens, capital leases;
the payment of dividends on, and the redemption or repurchase of, capital stock
of the Company; investments and acquisitions; the merger of consolidation of the
Company with any person or entity; and the disposition of any of the Company's
properties or assets.
During August 1997, the Company consummated an underwritten public offering
of 6.9 million shares of its common stock (the "Offering"), raising net proceeds
of approximately $55.7 million, after deducting offering costs. The proceeds of
the Offering and borrowings of $6.4 million under the term loan credit facility
were used to repay the $64.0 million indebtedness from the Debt Financing.
6
<PAGE>
Prior to the Distribution, Marcam Corporation and Marcam Solutions entered
into various agreements providing for the separation of the product lines and
governing various ongoing relationships between the two companies, including a
distribution agreement, a general services agreement and a tax sharing
agreement.
(4) Pro Forma Balance Sheet Presentation
------------------------------------
The accompanying pro forma unaudited combined balance sheet as of June 30,
1997 gives effect to the following events occurring subsequent to the balance
sheet date: (i) the borrowing of $64.0 million in connection with the Debt
Financing, (ii) the capital contribution of $39.0 million by the Company to
Marcam Solutions, (iii) the assumption and repayment of Marcam Corporation's
$25.0 million Subordinated Notes, (iv) the Distribution, (v) the Offering and
the initial cash proceeds of $55.7 million therefrom, (vi) the repayment of the
$64.0 million indebtedness incurred in the Debt Financing and (vii) the
borrowing of $6.4 million under the term loan credit facility. The pro forma
balance sheet does not give effect to the future payment of offering costs which
are estimated to be $2.0 million.
(5) Commitments and Contingencies
-----------------------------
The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's future
financial position or results of operations.
Pursuant to the tax sharing agreement between Company and Marcam Solutions,
Marcam Solutions is generally responsible for certain state, local and foreign
taxes for periods ending on or before the date of the Distribution, and the
Company is responsible for all other taxes for such periods. In addition, the
Company is generally liable for any taxes arising out of the Distribution.
(6) Income Taxes
------------
Historically, the operations represented by MAPICS have been included in
the consolidated U.S. Federal and certain state and foreign income tax returns
filed by Marcam Corporation. Income tax expense has been calculated on a
separate-return basis. Income taxes paid by Marcam Corporation on behalf of
MAPICS are included in divisional equity. After the Distribution, MAPICS will
file separate income tax returns.
(7) Unaudited Pro Forma Net Income Per Share
----------------------------------------
Unaudited pro forma net income per share gives effect to the Distribution.
The calculation of pro forma weighted average number of shares outstanding
includes (i) the weighted average number of common shares outstanding of Marcam
Corporation (11,498,000 shares and
7
<PAGE>
11,472,000 shares, respectively, for the three- and nine-month periods ended
June 30, 1997); (ii) the weighted average number of common equivalent shares
from the assumed exercise of dilutive stock options, warrants and convertible
preferred stock of Marcam Corporation (3,431,000 shares and 3,492,000 shares,
respectively, for the three- and nine-month periods ended June 30, 1997), and
(iii) the number of shares of common stock from the public offering of MAPICS
common stock whose proceeds are deemed to be used to pay the capital
contribution of $39.0 million to Marcam Solutions, based on the offering price
of $9.00 per share (4,333,000 for the three- and nine-month periods ended June
30, 1997). Pro forma fully diluted net income per share does not differ
materially from reported pro forma primary net income per share.
8
<PAGE>
PART I.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
combined financial statements and related notes thereto appearing elsewhere
herein. This discussion in this report contains forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
report should be read as being applicable to all related forward-looking
statements wherever they appear in this report. Factors that may cause such a
difference include but are not limited to those discussed in the section
entitled "Risks Factors" contained in the Company's final prospectus filed with
the Securities and Exchange Commission on July 30, 1997 pursuant to Rule
424(b)(4) of the Securities Act of 1933. The Company's actual results could
differ materially from those discussed herein.
Overview
- --------
The MAPICS product line was initially introduced by International Business
Machines Corporation ("IBM") in 1978 to provide integrated application software
for accounting, manufacturing and logistics for mid-size manufacturers. In
February 1993, Marcam Corporation acquired the exclusive marketing and licensing
rights to the MAPICS products from IBM and began managing the development and
support of the MAPICS products. In September 1995, Marcam Corporation acquired
all of the outstanding capital stock of the company that owned the MAPICS
products. The combined financial statements and other financial information
included in this document have been prepared using Marcam Corporation's
historical basis in the assets, liabilities and historical results of operations
of the business related to the MAPICS products.
The Company generates revenues primarily from licensing its software. When it
first licenses its software, the Company receives both an initial license fee
and a periodic license fee. The periodic license fee, which is typically paid
annually in advance thereafter, entitles the customer to continue using the
software and to receive certain support services. If a customer does not renew
its periodic license, it is no longer entitled to use the Company's software.
The Company believes this licensing arrangement provides it with recurring
revenues from its installed base of customers and enables customers to take
advantage of new releases and enhancements of its software. Initial license fees
are recorded as license revenues, and periodic license fees are recorded as
services revenues and recognized ratably over the period.
The Company's cost structure is designed so that a significant portion of its
costs vary in direct relation to license revenues, particularly its selling and
marketing expenses and cost of license revenues. The MAPICS products are sold
primarily through the Company's network of independent local affiliates, with
support from the Company's sales management. The Company's single largest
expense is commissions paid to these affiliates, which are based on the revenues
they generate from selling licenses to the MAPICS products. The Company
currently expects that as its affiliates generate increasing license revenues,
selling and marketing expenses will decrease as a percentage of revenues because
of the relatively fixed cost of the Company's direct selling and marketing
activities. The affiliates, not the Company, provide the Company's customers
with consulting and implementation services relating to the MAPICS products. As
a result,
9
<PAGE>
the Company neither receives revenues from providing consulting and
implementation services, nor bears the fixed costs inherent in maintaining a
services business.
In Japan and certain Eastern European countries, the Company utilizes resellers
rather than affiliates to distribute the MAPICS products and the Company records
as license revenues the net royalties received from the resellers without any
corresponding commission expenses. From 1994 to 1996, net royalties received
from such resellers decreased from 17.0% to 1.3% of total license revenues. The
Company's strategy has been to replace these resellers with affiliates in order
to provide the Company with a more direct relationship with its customers. This
shift generally has resulted in an increase in selling and marketing expense as
a percentage of revenues and a decrease in the operating margin percentage. The
Company believes that the proportion of reseller sales to total license revenues
will remain relatively constant for the foreseeable future.
Cost of license revenues consists primarily of royalties paid to Solution
Partners with respect to products licensed by the Company and amortization of
software development costs. The Company expects that cost of license revenues
will vary based on the mix of products licensed during the applicable period
between Company-developed products and Solution Partner-developed products. The
Company licenses from its Solution Partners complementary software products
which have been integrated into the MAPICS product line. When the Company
licenses a Solution Partner product to a customer, the Company pays a royalty to
the Solution Partner. As a result, a significant portion of its cost of license
revenues varies in direct relation to license revenues based on Solution
Partners' products. Through its Solution Partner arrangements, the Company has
been able to both enhance the functionality of its existing products and
introduce new products utilizing this variable cost approach to expand its
product offerings. During the past three fiscal years, the mix of products
licensed by the Company has included increasing percentages of Solution Partner
products, which has resulted in both increasing revenues and royalty costs.
The Company's capitalized software development costs result primarily from
internal software development activities and the translation of software into
various foreign languages. The Company has typically amortized its capitalized
software development and translation costs over five years. As of June 30, 1997,
the Company's balance sheet reflected approximately four years of accumulated
capitalized software development costs, because the Company did not begin
capitalizing software until the acquisition of the exclusive marketing and
licensing rights to the MAPICS products in February 1993. Consequently, the
Company currently expects amortization of these costs to continue to increase
through fiscal 1998, when five years of software development costs will have
been capitalized. In addition, in fiscal 1997 the Company made a decision to
amortize its 1997 and future translation expenditures over a revised useful life
of two years rather than five years. This decision resulted, beginning in the
first quarter of fiscal 1997, and will continue to result, in an increase in
amortization expense compared with fiscal 1996.
In the U.S. and Canada, the Company is the provider of support services
(primarily via telephone) to its customers. Elsewhere, the Company engages local
affiliates to provide varying degrees of support services for a fee. For certain
Solution Partner-developed products, the Solution Partners provide varying
levels of support for a fee. The costs of the Company's direct support services
and the fees paid to affiliates and Solution Partners for providing support
services are recorded as costs of services revenues.
In 1996, the Company reduced its level of spending on product development
activities other than translation of products ("core product development")
because, at the time, Marcam Corporation
10
<PAGE>
anticipated that the MAPICS products would use certain technologies being
developed in connection with its Protean and Avantis product lines.
Subsequently, the Company determined that such a development strategy was not
consistent with the demands of its target market and commenced a revised
development strategy which will allow future platform independence. The Company
anticipates continuing its efforts to develop additional versions of certain of
its applications to run on Microsoft's NT server platforms. The Company does not
believe that the product development expenses associated with such additional
versions will materially affect results of operations or liquidity. The Company
currently anticipates that core product development expenditures will increase
as a percentage of revenues to levels more consistent with those of 1994 and
1995. Costs of establishing technological feasibility of computer software
products are charged to product development expense as they are incurred.
Consequently, the Company's operating results may be affected adversely by
significant changes in the level of product development investments.
Certain expenses presented in the combined financial statements and other
financial information included in this report have been allocated based on
management's estimates of the cost of services provided to the Company by Marcam
Corporation. The Company's management believes that these allocations are
reasonable. The combined financial statements and other financial information
included in this document, however, may not necessarily reflect the combined
financial position, results of operations and cash flows of the Company had it
operated as a separate entity during the periods presented, or what they may be
in the future.
Results of Operations
- ---------------------
Nine Months ended June 30, 1997 Compared to Nine Months ended June 30, 1996
Revenues. The Company generates revenues from licensing its software. Total
revenues increased 22.6% to $66.2 million for the nine months ended June 30,
1997 from $54.0 million for the nine months ended June 30, 1996. License
revenues increased 23.7% to $37.5 million for the nine months ended June 30,
1997 from $30.3 million for the nine months ended June 30, 1996. This increase
resulted primarily from an increase of license sales to new customers, and to a
lesser extent, an increase of license sales to existing customers for new sites,
upgraded systems and additional modules, particularly in the U.S., Canada and
the Europe, Middle East and Africa region ("EMEA"). Services revenues increased
21.1% to $28.7 million for the nine months ended June 30, 1997 from $23.7
million for the nine months ended June 30, 1996, principally due to the increase
in the Company's installed customer base and additional optional support
offerings that were made available in the second quarter of fiscal 1996 in EMEA
to customers who had historically licensed MAPICS products from IBM without
support services.
Cost of License Revenues. Cost of license revenues consists primarily of
royalties paid to Solution Partners with respect to products licensed by the
Company and amortization of capitalized software development costs. Cost of
license revenues increased 42.8% to $6.4 million for the nine months ended June
30, 1997 from $4.5 million for the nine months ended June 30, 1996. These costs
increased as a percentage of license revenues to 17.0% from 14.7% for the nine
months ended June 30, 1997 and 1996, respectively. These increases were
primarily due to increased royalty costs as the volume of Solution Partner
products licensed by the Company increased from the 1996 period to the 1997
period and increased amortization of capitalized software development and
translation costs which resulted from the increased capitalized software asset.
Cost of Services Revenues. Cost of services revenues consists primarily of
personnel costs related to the ongoing maintenance and support of the MAPICS
products, fees paid to affiliates outside the U.S. and Canada to provide certain
support services in those regions, and the fees paid to Solution Partners to
provide similar services with respect to their products. Cost of services
revenues increased 19.0% to $8.2 million for the nine months ended June 30, 1997
from $6.9 million for the nine months ended June 30, 1996, primarily as a result
of the increased fees paid to affiliates and Solution Partners for providing
support services. As a percentage of services revenues, these costs decreased to
28.5% from 29.0% for the nine months ended June 30, 1997 and 1996, respectively.
This decrease resulted primarily from the relatively fixed personnel costs in
the Company's support services organization which were offset in part by the
increased fees paid to Solution Partners and affiliates for support services in
the 1997 period.
Selling and Marketing. Selling and marketing expenses consist primarily of
commissions paid to the Company's independent affiliates, compensation for the
Company's sales and marketing personnel and direct costs associated with the
Company's marketing campaigns. Selling and marketing expenses increased 15.1% to
$22.3 million for the nine months ended June 30, 1997 from $19.3 million for the
nine months ended June 30, 1996. This increase in the 1997 period was due
primarily to increased commissions earned by affiliates on increased license
revenues. As a percentage of revenues, selling and marketing expenses decreased
to 33.7% from 35.9% for the nine months ended June 30, 1997 and 1996,
respectively. This decrease resulted primarily from the Company's direct selling
and marketing costs being relatively fixed in nature.
11
<PAGE>
Product Development. Product development expenses consist primarily of
compensation for software engineering personnel and independent contractors
retained to assist in the Company's product development efforts. Costs of
establishing technological feasibility of computer software products are charged
to product development expense as they are incurred. Thereafter, certain
software development costs and the cost of translating software products into
different foreign languages are capitalized in accordance with the Statement of
Financial Accounting Standards No. 86. Capitalized software development costs
are amortized over the useful lives of such products, which are generally five
years (except for translation expenditures capitalized in 1997 which are being
amortized over two years). Amortization expense is charged to cost of license
revenues.
Overall, product development expenses increased 65.4% to $7.5 million for the
nine months ended June 30, 1997 from $4.5 million for the nine months ended June
30, 1996 and increased as a percentage of revenues to 11.3% from 8.4% for the
nine months ended June 30, 1997 and 1996, respectively. These increases resulted
primarily from lower costs qualifying for capitalization in 1997 than in 1996
due to the Company's core development efforts and an overall increase in gross
product development expenditures. See "Overview."
Gross core development expenditures increased 27.8% to $9.1 million for the nine
months ended June 30, 1997 from $7.1 million for the nine months ended June 30,
1996. This increase was primarily due to increased development expenditures as a
result of the Company's change in product development strategy. See "Overview."
The amounts of core development expenditures capitalized for the nine months
ended June 30, 1997 and 1996 were $1.7 million and $2.8 million, respectively,
representing 20.0% and 36.9% of gross core development expenditures during those
periods. The amounts of development expenditures capitalized during the period
decreased because a higher proportion of development expenditures were related
to the establishment of technological feasibility of the products under the
Company's revised development strategy. Gross translation expenditures decreased
15.4% to $2.2 million for the nine months ended June 30, 1997 from $2.6 million
for the nine months ended June 30, 1996. Translation expenditures are typically
project related and the timing of these expenditures is subject to change from
period to period. The amounts of translation costs capitalized for the nine
months ended June 30, 1997 and 1996 were $2.1 million and $2.4 million,
respectively, representing 94.6% and 92.9%, respectively, of gross translation
expenditures during those periods.
General and Administrative. General and administrative expenses consist
primarily of salaries of executive, financial, legal and administrative
personnel, outside professional and service fees and provisions for bad debts.
General and administrative expenses increased 52.1% to $6.4 million for the nine
months ended June 30, 1997 from $4.2 million for the nine months ended June 30,
1996 due primarily to increases in facilities and personnel costs in EMEA during
the first six months of 1997 as compared to the same period in 1996. General and
administrative expenses represented 9.7% of revenues for the nine months ended
June 30, 1997 as compared to 7.8% for the nine months ended June 30, 1996. The
level of general and administrative expenses for the 1996 period was relatively
low because the Company recorded less bad debt expense due to available
reserves.
Provision for Income Taxes. Income tax expense represented 38.5% of income
before tax expense for the nine months ended June 30, 1997 and 1996. The
effective tax rates for both periods exceeded the statutory federal rate largely
due to the impact of state income taxes, but were partially offset by research
and experimentation credits.
12
<PAGE>
Three Months ended June 30, 1997 Compared to Three Months ended June 30, 1996
Revenues. Total revenues increased 21.3% to $22.0 million for the three months
ended June 30, 1997 from $18.1 million for the three months ended June 30, 1996.
License revenues increased 24.1% to $12.2 million for the three months ended
June 30, 1997 from $9.8 million for the three months ended June 30, 1996. This
increase resulted primarily from an increase of license sales to new customers,
and also an increase of license sales to existing customers for new sites,
upgraded systems and additional modules, particularly in the U.S. and Canada.
Services revenues increased 18.0% to $9.8 million for the three months ended
June 30, 1997 from $8.3 million for the three months ended June 30, 1996
principally due to the increase in the Company's installed customer base.
Cost of License Revenues. Cost of license revenues increased 56.2% to $2.2
million for the three months ended June 30, 1997 from $1.4 million for the three
months ended June 30, 1996. These costs increased as a percentage of license
revenues to 18.3 % from 14.6 % for the three months ended June 30, 1997 and
1996, respectively. These increases were primarily due to increased royalty
costs as the volume of Solution Partner products licensed by the Company
increased from the 1996 period to the 1997 period and increased amortization of
capitalized software development and translation costs which resulted from the
increased capitalized software asset.
Cost of Services Revenues. Cost of services revenues increased 25.1% to $2.9
million for the three months ended June 30, 1997 from $2.3 million for the three
months ended June 30, 1996, primarily as a result of the increased fees paid to
affiliates and Solution Partners for providing support services. As a percentage
of services revenues, these costs increased to 29.3 % from 27.7 % for the three
months ended June 30, 1997 and 1996, receptively. The increase resulted
primarily from the increased fees paid to Solution Partners and affiliates for
support services and increased costs of personnel and facilities in the
Company's North American support services organization in the 1997 period.
Selling and Marketing. Selling and marketing expenses increased 17.7% to $7.4
million for the three months ended June 30, 1997 from $6.3 million for the three
months ended June 30, 1996. This increase in the 1997 period was due primarily
to increased commissions earned by affiliates on increased license revenues. As
a percentage of revenues, selling and marketing expenses decreased to 33.8% from
34.9% for the three months ended June 30, 1997 and 1996, respectively. This
decrease resulted primarily from the Company's direct selling and marketing
costs being relatively fixed in nature.
Product Development. Product development expenses increased 79.2% to $2.5
million for the three months ended June 30, 1997 from $1.4 million for the three
months ended June 30, 1996 and increased as a percentage of revenues to 11.5 %
from 7.8 % for the three months ended June 30, 1997 and 1996, respectively.
These increases resulted primarily from lower costs qualifying for
capitalization in 1997 than in 1996 due to the Company's core development
efforts and an overall increase in gross development expenditures. See
"Overview."
Gross core development expenditures increased 59.1% to $3.0 million for the
three months ended June 30, 1997 from $1.9 million for the three months ended
June 30, 1996. This increase was primarily due to increased development
expenditures as a result of the Company's change in product development
strategy. See "Overview." The amounts of core development expenditures
13
<PAGE>
capitalized for the three months ended June 30, 1997 and 1996 were $0.6 million
each, representing 18.7% and 30.9% of gross core development expenditures during
those periods. The amounts of development expenditures capitalized during the
period decreased as a percentage of gross core development expenditures because
a higher proportion of development expenditures were related to the
establishment of technological feasibility of products under the Company's
revised development strategy. Gross translation expenditures increased 28.7% to
$0.9 million for the three months ended June 30, 1997 from $0.7 million for the
three months ended June 30, 1996. Translation expenditures are typically project
related and the timing of these expenditures is subject to change from period to
period. The amounts of translation costs capitalized for the three months ended
June 30, 1997 and 1996 were $0.8 million and $0.6 million respectively,
representing 95.9% and 90.3% of gross translation expenditures during those
periods.
General and Administrative. General and administrative expenses increased 2.3%
to $2.1 million for the three months ended June 30, 1997 from $2.0 million for
the three months ended June 30, 1996. This increase was due to slightly higher
costs related to personnel and facilities. General and administrative expenses
represented 9.3% of revenues for the three months ended June 30, 1997 as
compared to 11.1% for the three months ended June 30, 1996. The decrease as a
percentage of revenues was due primarily to the relatively fixed cost nature of
general and administrative expenses.
Provision for Income Taxes. Income tax expense represented 38.5% of income
before tax expense for the three months ended June 30, 1997 and 1996. The
effective tax rates for both periods exceeded the statutory federal rate largely
due to the impact of state income taxes, partially offset by research and
experimentation credits.
Liquidity and Capital Resources
- -------------------------------
The Company has funded its operations and capital expenditures primarily through
cash generated from operations. Historically, the Company has remitted its
excess cash from operations to Marcam Corporation. During the nine months ended
June 30, 1997, the Company transferred net cash of $12.0 million to Marcam
Corporation. As of June 30, 1997, the Company had $0.85 million of cash and a
working capital deficit of $16.4 million.
Cash provided by operations was $17.0 million for the nine months ended June 30,
1997. During the nine months ended June 30, 1997, working capital changes
included an increase in deferred revenue as a result of growth in services
revenues and an increase in accrued expenses due to increased affiliate
commissions and employee bonuses payable. These increases were offset partially
by an increase in accounts receivable and prepaid expenses.
Cash used for investing activities was $4.6 million for the nine months ended
June 30, 1997. During the nine months ended June 30, 1997, the Company used cash
for investing activities primarily related to software development and
translation and purchases of property and equipment.
On July 25, 1997, Marcam Corporation borrowed $64.0 million (the "Debt
Financing"). The net proceeds from the Debt Financing were used to make the
$39.0 million cash transfer by Marcam Corporation to Marcam Solutions in
connection with the Distribution and to repay Marcam Corporation's $25 million
of 9.82% Subordinated Notes due 2001 (the "Subordinated Notes"). The
indebtedness incurred in the Debt Financing bore interest at the rate of 9.0%
and was payable on August 4, 1997.
14
<PAGE>
During August 1997, the Company consummated an underwritten public offering of
6.9 million shares of its common stock (the "Offering"), raising net proceeds of
approximately $55.7 million, after deducting offering costs. The proceeds of the
Offering and borrowings of $6.4 million under the term loan credit facility
described below were used to repay the $64.0 million indebtedness from the Debt
Financing.
During August, 1997, the Company executed a senior secured revolving credit
and term loan facility. The Company may borrow up to $15 million for general
corporate purposes under the revolving credit facility and has borrowed the
maximum amount available of $6.4 million under the term loan facility. The
current borrowing under the term loan facility bears interest at the rate of
9.0% . The principal of the term loan under the credit facility is be payable in
installments beginning on September 30, 1998 and ending on December 31, 1999.
Any revolving credit loans under the credit facility will mature on June 30,
2000. The facility provides for prime and LIBOR based interest rate options. As
of August 11, 1997, no borrowings were outstanding under the revolving credit
facility. The borrowing availability for revolving credit loans and the rate of
interest vary depending upon specified financial ratios.
The credit facility contains covenants which, among other things, requires that
the Company maintain certain financial ratios and imposes certain limitations or
prohibitions on the Company with respect to the occurrence of indebtedness,
liens and capital leases; the payment of dividends on, and the redemption or
repurchase of, capital stock of the Company; investments and acquisitions; the
merger or consolidation of the Company with any person or entity; and the
disposition of any of the Company's properties or assets. The Company's
obligations under the credit facility are secured by liens on substantially all
of the Company's assets.
In connection with the Debt Financing, Marcam Corporation's $20.0 million
revolving credit facility was terminated on July 25, 1997.
Pursuant to the tax sharing agreement between the Company and Marcam Solutions,
Marcam Solutions is generally responsible for certain state, local and foreign
taxes for periods ending on or before the date of the Distribution, and the
Company is responsible for all other taxes for such periods. In addition, the
Company is generally liable for any taxes arising out of the Distribution. Taxes
arising out of the Distribution, principally foreign income taxes, are currently
expected to approximate $0.7 million.
As of June 30, 1997, the Company did not have any material commitments for
capital expenditures. The Company anticipates that its capital requirements for
the last three months of fiscal 1997 will be approximately $0.7 million. The
Company's aggregate minimum lease payments for the remainder of fiscal 1997 are
expected to be $0.3 million.
The Company believes that the cash flows from operations and available
borrowings will be sufficient to meet the Company's working capital and capital
expenditure needs at least until the end of fiscal year 1998.
15
<PAGE>
PART II.
ITEM 1. Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these other legal matters will have a material adverse effect on the Company's
future financial position or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
On July 17, 1997, a Special Meeting of Stockholders of Marcam Corporation
was held. Present in person or by proxy were 13,441,300 shares out of the
14,785,010 shares of the Common Stock, on an as converted basis issued and
outstanding, as of the close on the record date.
The proposal to approve the distribution by Marcam Corporation of all of
the outstanding shares of common stock, par value $.01 per share (the "Marcam
Solutions Common Stock"), of Marcam Solutions, Inc., a Delaware corporation and
wholly owned subsidiary of Marcam Corporation (Marcam Solutions), to Marcam
Corporation stockholders on the record date for the distribution and certain
related asset transfers and reorganization transactions, including the transfer
by Marcam to Marcam Solutions of the business, assets, and liabilities of the
portion of Marcam's business related to the PRISM, Protean and Avantis product
lines and an aggregate of $39 million in cash (collectively, the
"Distribution"), was approved by the stockholders. The vote was 11,096,601
shares to approve the Distribution with 12,940 shares against and 11,741
abstentions.
The proposal to approve the amendment to Marcam Corporation's Restated
Articles of Organization to change the name of Marcam Corporation from "Marcam
Corporation" to "MAPICS, Inc." was approved by the shareholders. The vote was
11,274,377 shares to approve the amendment with 8,061 shares against and 15,436
abstentions.
The proposal to approve an amendment to Marcam Corporation's Restated
Articles of Organization to increase the number of shares of Marcam
Corporation's common stock, par value $.01 per share, that the Company is
authorized to issue from 30,000,000 shares to 50,000,000 shares was approved by
the shareholders. The vote was 13,360,930 shares to approve the amendment with
65,284 shares against and 15,086 abstentions.
16
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company (Marcam Corporation) filed a Current Report on form 8-K with
the Securities and Exchange Commission dated April 28, 1997, which reported
pursuant to Item 5 certain pro forma financial information for Marcam Solutions,
Inc. to be formed as a wholly owned subsidiary of Marcam Corporation, which was
amended on July 3, 1997.
17
<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, thereunto duly authorized.
MAPICS, Inc.
August 14, 1997 /s/ William J. Gilmour
- ------------------ ----------------------------------
Date William J. Gilmour
Chief Financial Officer
(Principal Financial and Accounting
Officer)
18
<PAGE>
EXHIBIT INDEX
- -------------
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 846
<SECURITIES> 0
<RECEIVABLES> 22,623
<ALLOWANCES> 1,750
<INVENTORY> 0
<CURRENT-ASSETS> 24,471
<PP&E> 6,052
<DEPRECIATION> 3,246
<TOTAL-ASSETS> 48,053
<CURRENT-LIABILITIES> 40,887
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,730
<TOTAL-LIABILITY-AND-EQUITY> 48,053
<SALES> 37,505
<TOTAL-REVENUES> 66,162
<CGS> 6,362
<TOTAL-COSTS> 14,540
<OTHER-EXPENSES> 7,504
<LOSS-PROVISION> 949
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,433
<INCOME-TAX> 5,942
<INCOME-CONTINUING> 9,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,491
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
