SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------
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>
Item 5. Other Events.
This Form 8-K is being filed to disclose and make publicly available
certain pro forma financial information for Marcam Solutions, Inc. ("Marcam
Solutions"), to be formed as a wholly owned subsidiary of Marcam Corporation
(the "Company").
On April 28, 1997, the Board of Directors 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, and one of which will operate the portion of
the Company's business relating to its MAPICS product line, MAPICS, Inc. 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 $42
million in cash to Marcam Solutions. 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 separation into two independent, publicly traded companies is designed
to enable each to better focus on its core market opportunities, to better serve
its existing customer base and to finance its business.
The Distribution is subject to, among other things, (i) approval by the
stockholders of the Company and (ii) the receipt of a favorable private letter
ruling from the Internal Revenue Service, or, at the option of the Board,
opinions of the Company's special tax counsel and independent accountants, with
respect to the tax-free nature of the Distribution.
<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: May 9, 1997 By: /s/ George A. Chamberlain, 3d
------------------------------
George A. Chamberlain, 3d
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
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 Combined Financial Statements
(Unaudited)
99.2 Management's Discussion and Analysis of Pro Forma
Financial Condition and Results of Operations
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 $42.0 million in cash to
Marcam Solutions. Of this cash contribution, the Company currently expects that
$34.0 million will 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 liabilites 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
Capital contribution receivable from
MAPICS, Inc. ........................ -- -- $ 2,412(d) 2,412
Note receivable from MAPICS, Inc. ...... -- -- 34,000(e) 34,000
--------- ----------- ---------- ---------
Total current assets .................. 76,548 (23,025) 36,412 89,935
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) $ 36,412 $ 115,031
========= =========== ========== =========
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(f) 824
--------- ----------- ---------- ---------
Total liabilities ..................... 120,569 (37,418) (24,606) 58,545
Stockholders' equity:
Preferred stock ........................ 325 -- (325)(h) --
Common stock ........................... 115 -- (81)(h) 34
Additional paid-in capital ............ 77,268 -- 406(h) 77,674
Accumulated deficit ..................... (71,211) (9,228) 61,018(c,d,e,f) (19,421)
Unamortized deferred compensation ...... (345) -- -- (345)
Cumulative translation adjustment ...... (1,456) -- -- (1,456)
--------- ----------- ---------- ---------
Total stockholders' equity ............ 4,696 (9,228) 61,018 $ 56,486
--------- ----------- ---------- ---------
Total liabilities and stockholders'
equity .............................. $ 125,265 $ (46,646) $ 36,412 $ 115,031
========= =========== ========== =========
</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)(g) 58,341
Selling and marketing ............... 82,790 (27,851) (2,290)(g) 52,649
Product development ............... 27,680 (6,398) -- 21,282
General and administrative ......... 9,987 (5,965) 3,943(g) 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(f) 4,160
----------- ----------- ----------- -----------
Net loss ........................... $ (26,326) $ (12,900) $ (7,650) $ (46,876)
=========== =========== =========== ===========
Net loss per common share ............ $ (2.31) $ (4.12)
=========== ===========
Weighted average number of common
shares outstanding .................. 11,384 11,384
=========== ===========
</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)(g) 22,510
Selling and marketing ............... 36,757 (14,834) (1,613)(g) 20,310
Product development ............... 15,679 (4,969) -- 10,710
General and administrative ......... 4,316 (4,360) 2,920(g) 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(f) 1,712
--------- ---------- ----------- ----------
Net loss ........................... $ (8,416) $ (6,501) $ (3,782) $ (18,699)
========= ========== =========== ==========
Net loss per common share ............ $ (0.73) $ (1.63)
========= ==========
Weighted average number of common
shares outstanding .................. 11,459 11,459
========= ==========
</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
Corporation's $25.0 million 9.82% Subordinated Notes due 2001 (the
"Subordinated Notes") to MAPICS.
d) To record a capital contribution receivable from MAPICS in an amount
equivalent to the prepayment penalty and accrued interest to be incurred and
recorded by Marcam Solutions in connection with the repayment of the
Subordinated Notes by MAPICS.
e) To give effect to the $34.0 million promissory note from MAPICS used to
capitalize Marcam Solutions.
f) 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.
g) To reclassify general and administrative expenses of MAPICS to conform to
Marcam Corporation's historical presentation.
h) To give effect to the distribution of one share of Marcam Solutions Common
Stock for each four shares of Marcam Corporation Common Stock and of two and
one-half shares of Marcam Solutions Common Stock for each share of Marcam
Corporation Series D and Series E Preferred Stock.
i) Costs approximating $1.3 million to be incurred in connection with the
spin-off and recorded within 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.
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 $42.0 million in cash to
Marcam Solutions. Of this cash contribution, the Company currently expects that
$34.0 million will 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 table sets forth unaudited pro forma statement of
operations data 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
the Company's 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.
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31,
1995 1996 1996 1996 1996 1997
------------ ----------- ----------- ----------- ----------- ----------
<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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31,
1995 1996 1996 1996 1996 1997
------------ ------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
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>
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 from the historical consolidated financial statements of the
Company.
This financial data includes the results of the Company's 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, the Company
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, the Company has announced the
availability of Protean financial applications in late 1997 and Customer Order
Management in mid-1998. The Company believes this expanded functionality and
ability to integrate with other software vendors provides the Company with a
competitive offering.
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. Management believes
that PRISM license revenues have also been adversely affected by the
introduction of Protean, which utilized resources which otherwise would have
been devoted to the PRISM product line. Marcam Solutions intends to devote more
focused sales and marketing efforts on the PRISM product line.
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.
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.
<PAGE>
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 activities, 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. New service revenues are closely tied to license revenues
and thus have declined in recent periods in concert with the decline in license
revenues.
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.
Cost of Services Revenues. Cost of services revenues consists primarily of
personnel costs related to Company's 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.
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. Sales and marketing costs are
high relative to license revenues. This is principally due to delays in the
realization of significant new product license revenues. Marcam Solutions'
customers are often large multinational organizations that require significant
resources. In 1996, Marcam Solutions converted 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.
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 half 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.
Management believes that achievement of profitability and positive cash
flow as soon as possible is essential. The PRISM and Avantis product lines have
historically provided positive contribution to overall profitability. However,
losses in Protean due principally to underutilized channel costs and development
expenses have more than offset this contribution. Although Marcam Solutions
intends to reduce its costs and must maintain PRISM revenues, the single key
factor to regaining profitability is Protean license revenue growth.
Review of the operating expense structure has been initiated to assess
efficiency and effectiveness, and identify opportunities for cost reductions.
The actions which result from these reviews will be announced and initiated
primarily in the third quarter of 1997.
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.
<PAGE>
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.
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 rest of 1997 and 1998, Marcam Solutions currently intends to make similar
investments. Marcam Solutions' objective is to fund these investments and any
losses primarily with cash from improved operations, available cash transferred
to Marcam Solutions by the Company 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, success in enhancing and selling its current AS/
400-based families of 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.
The Company 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 only if the Proposed MAPICS Public Offering is not completed
promptly after the Distribution (the "Proposed Debt Financing"). On April 30,
1997, the Company filed a Registration Statement on Form S-3 with the Securities
and Exchange Commission relating to the Proposed MAPICS Public Offering. The
Proposed MAPICS Public Offering will not occur until after the Distribution, if
at all. The Company is also currently negotiating with a number of lenders
regarding the Proposed Debt Financing. There can be no assurance that either the
Proposed MAPICS Public Offering or the Proposed Debt Financing 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. While the payment terms of the Note have been
established with consideration for the cash flows of both MAPICS and Marcam
Solutions, absent the Proposed MAPICS Public Offering or the Proposed Debt
Financing, there can be no assurance that MAPICS will have sufficient cash
resources to make the scheduled payments on the Note. MAPICS failure to make the
payments on the Note as scheduled would have a material adverse effect on the
financial condition of Marcam Solutions. Marcam Solutions currently anticipates
that its available cash, payments on the Note and its borrowing capacity will be
sufficient to fund operations 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. There can be
no assurances that additional debt or equity financing will be available or
available on terms acceptable to Marcam Solutions. The continued incurrence of
operating losses or the inability of MAPICS to make payments under the Note,
could have a material adverse effect on Marcam Solution's business, financial
condition and results of operations.
