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 March 31, 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
MARCAM CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2711580
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
95 Wells Avenue, Newton, Massachusetts 02159
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 965-0220
--------------
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 [ ]
The number of shares outstanding of the registrant's Common Stock, $.01 Par
Value, as of May 6, 1997, was 11,497,260 shares.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements
MARCAM CORPORATION
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,047 $ 21,817
Accounts receivable, net of allowances of $2,446 at
March 31, 1997 and $2,472 at September 30, 1996 47,848 50,602
Prepaid expenses and other current assets 8,653 6,132
-------- --------
Total current assets 76,548 78,551
-------- --------
Property and equipment, net 10,257 10,954
Computer software costs, net 30,787 31,292
MAPICS intangible costs, net 5,067 5,325
Other assets 2,606 6,080
--------- --------
Total assets $125,265 $132,202
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,642 $ 13,496
Accrued expenses and other current liabilities 36,949 41,272
Deferred revenue 46,681 39,235
-------- --------
Total current liabilities 94,272 94,003
-------- --------
Long-term debt 25,473 25,764
Deferred income taxes 824 761
-------- --------
Total liabilities 120,569 120,528
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000 shares authorized Series D
Convertible Preferred Stock, 225 shares issued and
outstanding (liquidation preference of $22,500) 225 225
Series E Convertible Preferred Stock, 100 shares issued and
outstanding (liquidation preference of $10,000) 100 100
Common stock, $.01 par value; 30,000 shares authorized;
11,497 and 11,431 shares issued and outstanding at
March 31, 1997 and September 30, 1996 115 114
Additional paid-in capital 77,268 76,602
Accumulated deficit (71,211) (62,795)
Unamortized deferred compensation (345) (585)
Cumulative translation adjustment (1,456) (1,987)
-------- --------
Total stockholders' equity 4,696 11,674
-------- --------
Total liabilities and stockholders' equity $125,265 $132,202
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
MARCAM CORPORATION
Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License $17,815 $18,151 $38,084 $41,408
Services 25,989 29,275 51,467 56,021
------- -------- --------- ---------
Total revenues 43,804 47,426 89,551 97,429
------- -------- ------- -------
Operating expenses:
Cost of license revenues 3,999 3,781 8,676 8,386
Cost of services revenues 14,533 19,441 29,118 36,538
Selling and marketing 18,395 19,905 36,757 40,773
Product development 8,115 6,954 15,679 13,627
General and administrative 2,363 3,227 4,316 5,421
------- ---------- ----------- ----------
Total operating expenses 47,405 53,308 94,546 104,745
------- ------- ------- --------
Operating loss (3,601) (5,882) (4,995) (7,316)
Litigation settlement - (3,250) - (3,250)
Interest and other income 293 555 615 935
Interest and other expense (1,013) (969) (2,035) (1,937)
------- -------- --------- ---------
Loss before income tax expense (4,321) (9,546) (6,415) (11,568)
Income tax expense 1,000 1,213 2,001 2,041
------- -------- --------- ---------
Net loss $(5,321) $(10,759) $ (8,416) $(13,609)
======== ========= ========= =========
Net loss per share $ (0.46) $ (0.94) $ (0.73) $ (1.20)
======== ========= =========== =========
Weighted average number of shares outstanding 11,482 11,407 11,459 11,358
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
MARCAM CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,416) $(13,609)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,074 7,671
Provision for bad debts 1,481 1,114
Deferred income taxes 63 (378)
Changes in operating assets and liabilities:
Accounts receivable 820 275
Prepaid expenses and other assets 155 (2,628)
Accounts payable (2,677) (678)
Accrued expenses and other current liabilities (3,498) (2,350)
Deferred revenue 8,440 15,677
------- --------
Net cash provided by operating activities 5,442 5,094
------- --------
Cash flows from investing activities:
Purchases of property and equipment (2,149) (2,599)
Additions to computer software costs (5,199) (6,577)
Purchases of short-term investments - (6,909)
Proceeds from sale of short-term investments - 1,963
------- --------
Net cash used for investing activities (7,348) (14,122)
------- --------
Cash flows from financing activities:
Principal payments on debt and capital lease obligations (263) (249)
Proceeds from stock option exercises 240 553
Common stock issued under Employee Stock Purchase Plan 427 369
------- --------
Net cash provided by financing activities 404 673
Effect of exchange rate changes on cash and cash equivalents (268) (112)
------- --------
Net decrease in cash and cash equivalents (1,770) (8,467)
Cash and cash equivalents at beginning of the period 21,817 27,312
------- --------
Cash and cash equivalents at end of the period $20,047 $ 18,845
======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
MARCAM CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated 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 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 Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
The results of operations for the three and six months ended March 31, 1997
are not necessarily indicative of the results to be expected for the full year.
Certain amounts have been reclassified to conform with current period
presentation.
(2) 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.
(3) Subsequent Event
----------------
On April 28, 1997, the Board of Directors of Marcam Corporation decided to
divide the Company into two separate corporations: one of which will operate the
portion of the business relating to its PRISM, Protean and Avantis product lines
and one of which will operate the portion of the business 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 markets, to better serve
existing customers and to finance its business. In connection with the
separation, Marcam Corporation will change its name to MAPICS, Inc. ("MAPICS")
and will continue the operations relating to the MAPICS product line.
To effect the separation, Marcam Corporation will transfer to a newly
formed corporation, Marcam Solutions, Inc. ("Marcam Solutions"), substantially
all of the business, assets and liabilities relating to its PRISM, Protean and
Avantis product lines and will contribute an aggregate of $42.0 million in cash.
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 stockholders of
Marcam Corporation (the "Distribution").
5
<PAGE>
The Distribution is conditioned upon, among other things, (i) approval by
the stockholders of Marcam Corporation 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.
The Company currently intends to repay the Note and the Company's
outstanding 9.82% Subordinated Notes due 2001 with an aggregate principal amount
of $25.0 million (the "Subordinated Notes") with 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. On April 30, 1997, Marcam filed a Registration Statement on Form
S-3 with the Commission relating to the Proposed MAPICS Public Offering. The
Company currently expects the Distribution and Proposed MAPICS Public Offering
to be completed during the fourth fiscal quarter ended September 30, 1997.
Prior to the Distribution, MAPICS and Marcam Solutions intend to enter 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, a domestic and
international facilities agreement and a tax sharing agreement.
6
<PAGE>
PART I.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
- --------
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, fluctuations
in quarterly results, particularly resulting from lengthy sales cycles, the
variable size of the Company's transactions with customers and relatively fixed
expenses in the short term; successful development and enhancement of the
Company's products; market acceptance of the Company's products; availability of
funds for the continued financing of the Company's operations and development
activities; and the highly competitive nature of the Company's markets. Further
information on potential factors that could affect the Company's financial
results are included in filings made by the Company from time to time with the
Securities and Exchange Commission (the "Commission"), including in the section
entitled "Factors Affecting Future Performance" contained in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1996
(0-18674).
Marcam is a worldwide provider of enterprise applications and services for
manufacturing companies. The Company's products offer comprehensive business
planning and control solutions to customers' production, logistics, asset
management and financial requirements.
The Company's revenues have been derived from licensing its Protean, PRISM,
Avantis and MAPICS products. For the first three quarters of 1996, the Company
also derived revenues from its subsidiary, Foresight Software, Inc.
("Foresight") and its MXP product line, which was divested effective as of June
30, 1996. Each of these product lines support different customers' technology
strategies. The Protean products, which utilize advanced object technology,
tools and databases, are platform independent. PRISM and MAPICS products provide
customer solutions implemented on the IBM AS/400. The Avantis products provide
customer solutions implemented on both the IBM AS/400 and open systems,
utilizing object technology.
Marcam also derives revenue from the sale of product support and related
services. Product support is offered to licensed customers generally based on
agreements that are billed annually, with revenues recognized on a pro rata
basis during the contract period. Services include assisting with customer
implementation of licensed software, providing custom programming and system
integration services, and providing educational material and instruction in the
use of licensed software. Services revenues are generally tied to license
revenues and are recognized as the services are delivered.
For the quarter ended March 31, 1997, the Company recorded a net loss of
$5,321,000. The net loss included an operating loss of $3,601,000. The Company's
revenues for the quarter ended March 31, 1997 were less than management
expected. The expenditures during the quarter, particularly the significant
continued investment in the development of Protean and underutilized channel
costs, had been based on expected revenues. The revenue shortfall,
7
<PAGE>
combined with the relatively fixed nature of the expenses over the short term,
resulted in the loss. While the Company's AS/400 based businesses were
profitable overall, these profits were insufficient to cover losses in Protean
due to development and underutilized channel costs. The results for the quarter
ended March 31, 1997 also reflect savings resulting from expense control and the
restructuring efforts implemented during the second half of fiscal 1996.
On April 28, 1997, the Board of Directors of Marcam Corporation decided to
divide the Company into two separate corporations: one of which will operate the
portion of the business relating to its PRISM, Protean and Avantis product lines
and one of which will operate the portion of the business 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 markets, to better serve
existing customers and to finance its business. In connection with the
separation, Marcam Corporation will change its name to "MAPICS, Inc." ("MAPICS")
and will continue the operations relating to the MAPICS product line.
To effect the separation, Marcam Corporation will transfer to a newly
formed corporation and wholly owned subsidiary of Marcam Corporation, Marcam
Solutions, Inc. ("Marcam Solutions"), substantially all of the business, assets
and liabilities relating to its PRISM, Protean and Avantis product lines and
will contribute an aggregate of $42.0 million in cash. 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 stockholders of Marcam
Corporation (the "Distribution").
The Company currently intends to repay the Note and the Company's
outstanding 9.82% Subordinated Notes due 2001 with an aggregate principal amount
of $25.0 million (the "Subordinated Notes") with 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, Marcam filed a Registration
Statement on Form S-3 with the Commission relating to the Proposed MAPICS Public
Offering. The Company currently expects the Distribution and Proposed MAPICS
Public Offering to be completed during the fourth fiscal quarter ended September
30, 1997.
The Company has initiated new reviews of its operating expense structure to
assess the efficiency and effectiveness of its operations and to identify
opportunities to improve profitability. The actions, if any, which result from
these reviews will primarily be initiated in the third quarter of 1997.
Results of Operations
- ---------------------
Total revenues decreased 7.6% to $43,804,000 from $47,426,000 and decreased
8.1% to $89,551,000 from $97,429,000 for the three- and six-month periods ended
March 31, 1997, respectively, as compared to the same periods in 1996. Total
revenues excluding revenues from the Foresight product line, which was divested
effective as of June 30, 1996, increased 4.2% from $42,027,000 for the
three-month period ended March 31, 1997, as compared to the same period in 1996.
Total revenues excluding revenues from the Foresight product line for the
six-month period ended March 31, 1997 were consistent with revenues for the same
period in 1996. License revenues decreased 1.9% to $17,815,000 from $18,151,000
and decreased 8.0% to $38,084,000 from $41,408,000 for the three- and six-month
periods ended March 31, 1997, respectively, as compared to the same periods in
1996. License revenues excluding revenues
8
<PAGE>
from the Foresight product line increased 17.9% from $15,108,000 and increased
3.4% from $36,844,000 for the three- and six-month periods ended March 31, 1997,
respectively, as compared to the same period in 1996. The increase in license
fee revenues for the three- and six-month periods ended March 31, 1997 as
compared to the same periods in 1996 was primarily due to strong MAPICS license
revenue, particularly within North America and Europe, offset by lower license
revenue of PRISM.
Services revenues decreased 11.2% to $25,989,000 from $29,275,000 and
decreased 8.1% to $51,467,000 from $56,021,000 for the three- and six-month
periods ended March 31, 1997, respectively, as compared to the same periods in
1996. Services revenues excluding revenues from the Foresight product line
decreased 3.5% from $26,919,000 and decreased 2.1% from $52,579,000 for the
three- and six-month periods ended March 31, 1997, respectively, as compared to
the same period in 1996. The decrease in services revenues for both the three-
and six-month periods ended March 31, 1997, was primarily due to decreased
implementation consulting and customization revenues for the PRISM products
which were partially offset by increased customer support revenues.
Cost of license revenues represented 22.5% and 22.8% of license revenues
for the three- and six-month periods ended March 31, 1997, respectively, as
compared to 20.8% and 20.3% for the same periods in 1996, respectively. The
increase in cost of license revenues as a percentage of license revenues for the
three- and six-month periods ended March 31, 1997 as compared to the same
periods in 1996 was due to increased amortization of capitalized software
translation costs relating to non-U.S. markets and increased amortization of
capitalized software development costs related to the MAPICS and Protean
products. The percentage increase is also attributable to the decrease in
license revenues for the three- and six-month periods ended March 31, 1997 as
compared to the same periods in 1996.
Cost of services revenues represented 55.9% and 56.6% of services revenues
for the three- and six-month periods ended March 31, 1997, respectively, as
compared to 66.4% and 65.2% for the same periods in 1996. The improvement in
cost of services revenues as a percentage of services revenues for the three-
and six-month periods ended March 31, 1997 as compared to the same periods in
1996 was primarily due to cost savings from expense control and the
restructuring efforts implemented during the second half of fiscal year 1996.
The improvement in cost of services revenues as a percentage of services
revenues is also due to a $2,000,000 special provision for estimated services
contract losses which was recorded within the three-month period ended March 31,
1996.
Selling and marketing expense decreased $1,510,000, or 7.6%, and
$4,016,000, or 9.9%, for the three- and six-month periods ended March 31, 1997,
respectively, as compared to the same periods in 1996. These decreases were
primarily related to the costs associated with the Foresight product line, which
was divested effective as of June 30, 1996. The decreases related to the
Foresight product line divestiture more than offset the increased marketing
expenditures in 1997 related to the PRISM, Protean, Avantis and MAPICS product
lines.
Gross research and product development expenditures for the three- and
six-month periods ended March 31, 1997 were $10,759,000 and $20,878,000,
respectively, as compared to $10,041,000 and $20,204,000 for the same periods in
1996. The increase in gross research and product development expenses for the
three- and six-months ended March 31, 1997 as compared to the same periods in
1996 is primarily due to increased development costs for the MAPICS and
9
<PAGE>
Protean product lines partially offset by lower spending to translate and
localize software products for international sale, and no development costs in
1997 related to the divested Foresight product line. Development spending for
the PRISM product line during the three- and six-month periods ended March 31,
1997 was consistent with the level of spending during the same periods in 1996.
Computer software costs capitalized were $2,644,000 and $5,199,000 for the
three- and six-month periods ended March 31, 1997, respectively, representing
24.6% and 24.9% of gross research and development expenditures. Computer
software costs capitalized during the three- and six-month periods ended March
31, 1996 were $3,087,000 and $6,577,000, respectively, representing 30.7% and
32.6% of gross research and development expenditures. The decrease as a
percentage of gross expenditures was due primarily to lower translation efforts
in 1997 and a lower amount of software development expenditure qualifying for
capitalization.
Therefore, product development expenses were $8,115,000 and $15,679,000 for
the three- and six-month periods ended March 31, 1997, respectively,
representing 18.5% and 17.5% of total revenues. For the three- and six-month
periods ended March 31, 1996, product development expenses were $6,954,000 and
$13,627,000, respectively, representing 14.7% and 14.0% of total revenues. The
increases for the three- and six-month periods ended March 31, 1997,
respectively, as compared to the same periods in 1996 were primarily related to
the continuing investment in all of the Company's products and lower amounts of
costs qualifying for capitalization.
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, decreased by $864,000 and
$1,105,000 for the three- and six-month periods ended March 31, 1997,
respectively, as compared to the same periods in 1996. The decrease was
primarily due to a $1,000,000 special provision in 1996 for additional contract
claims and legal costs.
During the second quarter of fiscal 1996, the Company reached an agreement
in principle to settle the shareholder class action litigation which was brought
against the Company in August 1994. Of the $5,750,000 settlement, the Company
contributed $2,750,000 from its own funds, with the remainder provided by
insurance. The Company recorded a charge in the three-month period ended March
31, 1996 of $3,250,000 to cover the settlement and other related expenses.
Interest and other income decreased $262,000 and $320,000 for the three-and
six-month periods ended March 31, 1997, respectively, as compared to the same
periods in 1996. These decreases were primarily related to interest earned on
lower cash balances during the 1997 periods as compared to the 1996 periods.
The income tax expense for the three- and six-month periods ended March 31,
1997 was $1,000,000 and $2,001,000, respectively. The income tax expense for the
three- and six-month periods ended March 31, 1996 was $1,213,000 and $2,041,000,
respectively. The expense in each period was primarily due to foreign
withholding taxes and income taxes on income generated in foreign jurisdictions,
for which U.S. tax credit utilization is currently uncertain. There was no tax
benefit recorded for losses generated in the U.S. during these periods due to
the uncertainty of realizing such benefits.
10
<PAGE>
Selected Pro Forma Information
- ------------------------------
Total revenues related to the PRISM, Protean and Avantis product lines
decreased 23.8% to $23,018,000 from $30,205,000 and decreased 26.3% to
$45,386,000 from $61,585,000 for the three- and six-month periods ended March
31, 1997, respectively, as compared to the same periods in 1996. Total revenues
excluding the revenues from the Foresight product line, which was divested
effective June 30, 1996, decreased 7.2% from $24,806,000 and decreased 15.3%
from $53,580,000 for the three- and six-month periods ended March 31, 1997,
respectively, as compared to the same periods in 1996. The decreases in revenues
are primarily due to decreases in PRISM and Protean license and implementation
service revenues. The decrease in PRISM and Protean license and implementation
service revenues is primarily due to fewer large transactions for the PRISM
products as well as the inability to capture market opportunities for the new
Protean licenses due to its customers' preference to purchase an integrated
solution from a single vendor. Support revenues, excluding the Foresight product
line support revenues, for the three- and six-month period ended March 31, 1997
were consistent with the same periods in 1996.
Total operating expenses related to the PRISM, Protean and Avantis product
lines decreased 23.3% to $31,398,000 from $40,933,000 and decreased 22.6% to
$60,953,000 from $78,783,000 for the three- and six-month periods ended March
31, 1997, respectively, as compared to the same periods in 1996. Total expenses
excluding the expenses from the Foresight product line, which was divested
effective June 30, 1996, decreased 11.3% from $35,402,000 and decreased 13.5%
from $69,153,000. The decrease in operating expenses excluding Foresight-related
expenses is due to decreased variable costs for sales, marketing and
implementation services attributable to the decrease in license and
implementation services revenues. The decrease in operating costs is also due to
costs savings realized from restructuring activity during the last half of
fiscal year 1996. For the three-month periods ended March 31, 1997 and 1996, pro
forma net loss related to the PRISM, Protean and Avantis product lines was
$9,932,000 and $15,380,000, respectively. For the six-month periods ended March
31, 1997 and 1996, pro forma net loss related to the PRISM, Protean and Avantis
product was $18,699,000 and $23,222,000, respectively.
Total revenues related to the MAPICS product line increased 20.7% to
$20,786,000 from $17,221,000 and increased 23.2% to $44,165,000 from $35,844,000
for the three- and six-month periods ended March 31, 1997, respectively, as
compared to the same periods in 1996. The increase in revenues is primarily due
to an increase in license revenues to new customers and increases in services
revenues because of an increased installed base of customers.
Total operating expenses related to the MAPICS product line increased 29.3%
to $16,007,000 from $12,375,000 and increased 29.4% to $33,593,000 from
$25,961,000 for the three- and six-month periods ended March 31, 1997,
respectively, as compared to the same periods in 1996. The increase in operating
expenses is primarily attributable to increased variable sales and marketing
costs because of increased revenues. In addition, operating expenses have
increased due to higher software development expenses on related to the MAPICS
products during the three- and six-month periods ended March 31, 1997, compared
to the same period in 1996. For the three-month periods ended March 31, 1997 and
1996, pro forma net income related to the MAPICS product line was $2,938,000 and
$2,980,000, respectively. For the six-month periods ended March 31, 1997 and
1996, pro forma net income for the MAPICS product line was $6,501,000 and
$6,078,000, respectively.
11
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company has funded its activities primarily from cash generated from
operations, from borrowings and from equity financing.
Current assets decreased $2,003,000 at March 31, 1997 to $76,548,000 from
$78,551,000 at September 30, 1996. This decrease was primarily due to lower cash
and accounts receivable balances partially offset by higher prepaid expenses and
other current assets. The decrease in cash is attributable to cash used to fund
operating losses, restructuring-related payments and investments in software
development and fixed assets. The decrease in accounts receivable is primarily
due to decreased revenues for the three-month period ended March 31, 1997 as
compared to the three-month period ended September 30, 1996. The increase in
prepaid expenses and other current assets is primarily related to increased
general insurance prepayments and a reclassification of certain long-term other
assets to current assets due to their scheduled realization.
Current liabilities increased $269,000 at March 31, 1997 to $94,272,000
from $94,003,000 at September 30, 1996. The increase was primarily due to the
increase in deferred revenue, which resulted from the annual billing of the
majority of the Company's maintenance contracts. The maintenance contracts
period for the PRISM, Protean and Avantis products is predominantly from January
to December, with the billing occurring in January of every year. The revenues
from these maintenance contracts are deferred and recognized ratably over the
contract period. The increase in deferred revenues was partially offset by
decreases in accounts payable and accrued expenses and other current
liabilities. These decreases were primarily due to reductions in restructuring
reserves and affiliate commissions payable. As a result of the decrease in
current assets and the increase in current liabilities, the working capital
deficit increased by $2,272,000 from a working capital deficit of $15,452,000 at
September 30, 1996 to a working capital deficit of $17,724,000 at March 31,
1997.
During the six-month period ended March 31, 1997, operating activities
provided approximately $5,442,000 of cash, as support fees received more than
offset operating expenses and cash outlays for restructuring expenditures and
affiliate fees. During the same period, investing activities used approximately
$7,348,000 of cash primarily for the purchase of fixed assets and expenditures
for software development. Financing activities during the same period provided
$404,000 of cash primarily from proceeds received from the sale of stock to
employees, partially offset by payments made on capitalized leases.
At March 31, 1997, the Company had outstanding $25,000,000 in aggregate
principal amount of 9.82% unsecured Subordinated Notes due April 30, 2001. The
terms of the subordinated debt contain financial covenants which, among other
things, require the maintenance of certain financial ratios, limit the ability
to incur additional debt, and preclude the payment of dividends. The Company
currently is in compliance with these covenants, as amended.
The Company has a revolving credit line, as amended in May 1997, of
$20,000,000, with borrowing availability equal to 80% of qualifying accounts
receivable. Borrowings under this facility bear interest at a designated prime
rate plus 1% per annum. This credit facility expires August 31, 1997. The
Company's obligations under this credit facility are secured by liens on
substantially all of the Company's assets. Additionally, this credit facility
contains covenants which, among other things, impose certain limitations or
prohibitions on the Company with respect to additional 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
12
<PAGE>
the Company's property or assets. At March 31, 1997, the Company had no
borrowings outstanding under this credit facility.
The Company has used cash during fiscal years 1997, 1996 and 1995 to fund
strategic investments, in particular substantial expenditures for new product
development, and operating losses. For the first two quarters of fiscal 1997 and
for fiscal years 1996 and 1995, the Company's gross product development
expenditures were $20,878,000, $39,913,000, and $41,140,000, respectively.
During the remainder of fiscal year 1997, the Company currently intends to
continue to make investments in product development and may need to continue
funding operating losses. The Company's objective is to fund these investments
primarily with cash from improved operations. The Company's timely ability to
generate cash from operations depends upon, among other things, revenue growth,
completion and market acceptance of new 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 the Company's operations will generate
sufficient cash to finance these activities. Until operations improve to meet
its cash requirements, the Company will need to rely on existing cash resources
and borrowings under its credit facility. The Company currently anticipates that
its available cash and borrowing capacity will be sufficient to fund operations
in 1997. If, however, such sources prove insufficient in 1997, or over the
longer term, the Company will be required to make changes in operations or seek
additional debt or equity financing. There can be no assurance that additional
debt or equity financing will be available or available with terms acceptable to
the Company. In addition, there can be no assurance that the Proposed MAPICS
Public Offering will be successful or completed by the current fiscal year
ending September 30, 1997.
13
<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
The Annual Meeting of Stockholders was held on February 12, 1997. Present
in person or by proxy were 12,823,368 shares out of the 14,728,914 shares of the
Common Stock, on an as converted basis, issued and outstanding, and one share of
the Company's Series C Preferred Stock, as of the close of business on the
record date. At such meeting, Paul Margolis, John Campbell and William E. Ford
were elected as Class III directors to the Board of Directors for three-year
terms. Mr. Margolis and Mr. Campbell were elected by the holders of all classes
and series of the Company's outstanding capital stock, voting together as a
single class. The voting for Mr. Margolis was 10,416,516 shares for his election
and 2,406,858 shares against, with no abstentions. The voting for Mr. Campbell
was 12,357,416 shares for his election and 465,952 against, with no abstentions.
Mr. Ford was elected as a Class III director by the holders of the Series D
Preferred Stock, voting as a separate series. The voting for Mr. Ford was
225,000 shares for his election and zero shares against, with no abstentions.
Edward J, Kfoury is a Class I director whose term expires in 1998, and Richard
S. Hickok and William O. Grabe are Class II directors whose term expires in
1999.
The proposal to amend the 1994 Stock Plan to increase the number of shares
of Common Stock which may be issued pursuant to said plan from 2,000,000 to
3,250,000 was ratified by the shareholders. The vote was 6,703,745 shares to
amend the plan with 4,187,819 shares against and 27,112 abstentions.
The proposal to amend the 1991 Non-Employee Director Stock Option Plan (i)
to provide for an automatic grant of an option to purchase 20,000 shares of
Common Stock as of the date that a person either (a) is first elected to the
Board of Directors and is neither an employee nor an officer of the Company at
such time, or (b) while continuing to serve on the Board of Directors, ceases to
serve as an employee or officer of the Company; and (ii) to provide that each
option issued pursuant to said plan on or after January 1, 1997 shall vest in
equal installments over a four-year period was ratified by the stockholders. The
vote was 12,048,694 shares to amend the Plan with 438,083 shares against and
43,986 abstentions.
The selection of Coopers & Lybrand L.L.P. by the Board of Directors as
auditors for the fiscal year ending September 30, 1997 was ratified by the
stockholders. The vote was 12,800,368 shares for their selection, with 5,146
shares against and 17,854 abstentions.
14
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Letter Agreement and Release dated February 26, 1997 between Marcam
Corporation and Mr. Robert Cramer
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
15
<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.
MARCAM CORPORATION
May 9, 1997 /s/ George A. Chamberlain, 3d
- ------------- --------------------------------
Date George A. Chamberlain, 3d
Chief Financial Officer
(Principal Financial and Accounting
Officer)
16
<PAGE>
EXHIBIT INDEX
- -------------
Exhibit
Number Description
- ------ -----------
10.1 Letter Agreement and Release dated February 26, 1997 between
Marcam Corporation and Mr. Robert Cramer
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
17
Exhibit 10.1
- ------------
February 26, 1997
AGREEMENT AND RELEASE
---------------------
Mr. Robert Cramer (hereinafter referred to as "you") has been informed that your
employment with Marcam Corporation (hereinafter referred to as "Marcam" or the
"Company") will end. It is hereby agreed by and between Marcam and you for good
and sufficient consideration more fully described below, that:
1. Employment Status. Unless new employment is obtained sooner, your employment
with the Company shall terminate on August 31, 1997 ("Termination Date"). Until
that time, you will serve as Vice President, Business Development, reporting to
Mike Quinlan. Effective as of the date of this Agreement, you are no longer an
officer of the Company. As of the Termination Date, your salary shall cease and
any entitlement you have or might have under any Company-provided benefit
programs or any oral or written agreement shall terminate, except as required by
federal or state law or otherwise described below.
2. Consideration.
(a) Salary Continuation. The Company shall continue to pay you a total
of $7,692.30 bi-weekly through the Termination Date. The bi-weekly payments will
be made in accordance with the Company's normal payroll practices. All payments
are subject to applicable (if any) federal, state, and local withholding,
payroll and other taxes.
(b) Voice-mail, E-mail and Equipment. You will continue to have access
to Voice-mail, E-mail and the use of your computer through the Termination Date.
An office will be provided on-site at Marcam equipped with a printer and
facsimile machine.
(c) Outplacement Services. If you wish, Marcam will arrange for
Outplacement Services with a consulting company to be decided, for a period of
up to three months beginning at your discretion. If interested, for more
information on these Outplacement Services, please contact Heidi Johnson.
3. Other Benefits.
(a) Health Insurance. The Termination Date shall be treated as a
"qualifying event" under the Consolidated Budget Reconciliation Act of 1985
("COBRA"). You will receive COBRA information under separate cover at the time
of the Termination Date.
(b) Incentive Stock Option Program. As a participant in the Incentive
Stock Option Program, our records indicate that you will have available vested
but unexercised options to purchase 40,000 shares of Marcam Common Stock. The
following table reflects those vested stock options available to you as of the
Termination Date.
1
<PAGE>
Number of Vested Exercise Price Per
Grant Date Shares Share
2/29/96 40,000 $12.875
Pursuant to the terms and conditions of the Stock Plans under which your stock
options have been granted, you must exercise all vested incentive stock options
within ninety (90) days from the Termination Date, after which all such options
expire. All other incentive stock options not yet exercisable will be forfeited
in accordance with their terms.
For further information regarding the incentive stock option program, please
contact Stock Plan, Inc. at (408) 980-6456.
4. Release. In exchange for receiving the monies and other benefits described in
this Agreement, and your continued employment from today through the Termination
Date, you agree and acknowledge that Marcam, its employees, agents,
subsidiaries, affiliates, successors and assigns, have fully and completely
satisfied any obligation to you. By receiving these monies and other benefits,
you hereby release Marcam, its employees, directors, agents, subsidiaries,
affiliates, successors and assigns from any claims arising out of your
employment with Marcam or the termination of that employment.
This release is intended to be all encompassing and to act as a full and total
release of any claims that you may have or have had against Marcam, its
successors, assigns, directors, shareholders, officers, employees and/or agents,
both individually and in their official capacity with Marcam, including, but not
limited to, any federal or state law or regulation dealing with either
employment or employment discrimination such as those laws or regulations
concerning discrimination on the basis of age, race, color, religion, creed,
sex, sexual orientation, national origin, ancestry, marital status, physical or
mental disability, or veteran status or any military service or application for
military service; any contract, whether oral or written, expressed or implied;
or common law.
5. Settlement of Amounts Due Employee. The amounts set forth above in Section 2,
together with any amounts previously provided to you by Marcam, shall be
complete and unconditional payment, settlement, satisfaction and accord with
respect to all obligations and liabilities of Marcam and any of its affiliated
companies (including their respective successors, assigns, shareholders,
officers, directors, employees, and/or agents) to you, and all claims, causes of
action and damages against Marcam and/or any such other parties regarding your
employment with and termination from employment with Marcam, including, without
limitation, all claims for back wages, salary, draws, commissions, bonuses,
vacation pay, expenses, compensation, severance pay, attorney's fees,
compensatory damages, exemplary damages, or other costs or sums.
6. Marcam Files, Documents, and other Property. No later than the Termination
Date, you will return to Marcam all Marcam property in your possession
including, without limitation, credit cards, office keys, files, documents,
manuals, and equipment. In addition, and if applicable, any outstanding travel
advances, unpaid loans, and monies due on corporate credit cards, must be paid
prior to the Termination Date. It is agreed that if you fail to return any such
2
<PAGE>
Marcam property that Marcam may offset any outstanding obligations against any
of the monies to be provided to you under paragraph 2.
7. Confidential and Proprietary Information. The terms and conditions of the
Marcam Corporation Employee Agreement on Ideas, Inventions, Confidential
Information and Non-Competition (the "Employee Agreement") which you signed upon
the commencement of employment, a copy of which is attached to this Agreement,
shall survive the termination of your employment.
8. Non-Disparagement. You agree not to disparage the business, operations,
marketing strategies, pricing policies, affairs and financial condition of
Marcam and/or its successors, assigns, directors, shareholders, officers,
employees and/or agents. Similarly, Marcam and/or its successors, assigns,
directors, shareholders, officers, employees and/or agents agree not to
disparage your business reputation.
9. Termination of Agreement. Marcam will have no further obligation under the
terms of this Agreement if you commence other employment on or before the
Termination Date or if you violate any of the terms of the Agreement.
Specifically, in the event you commence employment with a third party prior to
the Termination Date specified herein, your last date of employment with Marcam
will be the date on which you commence such new employment.
10. Representations.
(a) Except for the Employee Agreement, the foregoing represents the
complete and exclusive agreement and understanding relating to the termination
of your employment and supersedes any and all prior agreement of understanding,
written or oral, between Marcam and you with respect to the subject matter
herein.
(b) You represent that you have read the foregoing Agreement, fully
understand the terms and conditions of such Agreement, and is voluntarily
executing the same. In entering this Agreement, you do not rely on any
representation, promise or inducement made by Marcam, with the exception of the
consideration described in this document.
(c) This Agreement may be executed in any number of counterparts, each
of which shall constitute an original, but which taken together shall constitute
one instrument.
Executed this 26th day of February, 1997.
BY: /s/ Robert A. Cramer
------------------------
Robert A. Cramer
BY: /s/ Michael J. Quinlan
------------------------
Michael J. Quinlan
President and Chief Executive Officer
Marcam Corporation
3
Exhibit 11
- ----------
MARCAM CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET LOSS $(5,321) $(10,759) $(8,416) $(13,609)
======= ======== ======== ========
PRIMARY EARNINGS PER SHARE
- --------------------------
Common stock:
Shares outstanding from beginning
of period 11,439 11,367 11,431 11,271
Pro rata shares:
Exercise of stock options 10 10 10 72
Sales of common stock under
Employee Stock Purchase Plan 33 30 18 15
------- -------- --------- --------
11,482 11,407 11,459 11,358
======= ======== ========= ========
Net loss per share $ (0.46) $ (0.94) $ (0.73) $ (1.20)
======= ======== ========= ========
FULLY DILUTED EARNINGS PER SHARE
- --------------------------------
Common stock:
Shares outstanding from beginning
of period 11,439 11,367 11,431 11,271
Pro rata shares:
Exercise of stock options 10 10 10 72
Sales of common stock under
Employee Stock Purchase Plan 33 30 18 15
------- -------- --------- -------
11,482 11,407 11,459 11,358
======= ======== ========= =======
Net loss per share $ (0.46) $ (0.94) $ (0.73) $ (1.20)
======= ======== ========= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 20,047
<SECURITIES> 0
<RECEIVABLES> 50,294
<ALLOWANCES> 2,446
<INVENTORY> 0
<CURRENT-ASSETS> 76,548
<PP&E> 30,466
<DEPRECIATION> 20,209
<TOTAL-ASSETS> 125,265
<CURRENT-LIABILITIES> 94,272
<BONDS> 25,473
0
325
<COMMON> 115
<OTHER-SE> 4,256
<TOTAL-LIABILITY-AND-EQUITY> 125,265
<SALES> 38,084
<TOTAL-REVENUES> 89,551
<CGS> 8,676
<TOTAL-COSTS> 37,794
<OTHER-EXPENSES> 15,679
<LOSS-PROVISION> 1,481
<INTEREST-EXPENSE> 2,035
<INCOME-PRETAX> (6,415)
<INCOME-TAX> 2,001
<INCOME-CONTINUING> (8,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,416)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
