<PAGE>
================================================================================
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 QUARTERLY PERIOD ENDED MARCH 31, 1999
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: 000-18674
MAPICS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 04-2711580
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
1000 WINDWARD CONCOURSE PARKWAY
ALPHARETTA, GEORGIA 30005
(Address of principal executive offices)
(678) 319-8000
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
SERIES F JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(Title of class)
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 of the registrant's Common Stock outstanding at May 10,
1999 was 18,685,367.
================================================================================
<PAGE>
MAPICS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item PAGE
Number NUMBER
--------- -----------
PART I - FINANCIAL INFORMATION
<S> <C>
1. Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1999
and September 30, 1998...................................................... 3
Condensed Consolidated Statements of Operations for the Three
Months and Six Months Ended March 31, 1999 and 1998......................... 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended March 31, 1999 and 1998........................................ 5
Notes to Condensed Consolidated Financial Statements.......................... 6
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 8
3. Quantitative and Qualitative Disclosures About Market Risk.................... 17
PART II - OTHER INFORMATION
4. Submission of Matters to a Vote of Security Holders........................... 19
6. Exhibits and Reports on Form 8-K.............................................. 19
Signature..................................................................... 20
Exhibit Index................................................................. 21
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MAPICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
------------------- -------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ 26,985 $ 33,442
Accounts receivable, net of allowances of $2,286 at
March 31, 1999 and $1,989 at September 30, 1998............... 36,604 35,879
Prepaid expenses and other current assets........................ 5,507 4,600
Deferred income taxes, net....................................... 1,731 1,462
------------------- -------------------
Total current assets..................................... 70,827 75,383
Property and equipment, net...................................... 5,566 5,038
Computer software costs, net..................................... 20,205 19,554
Other intangible assets, net..................................... 4,034 4,292
Deferred income taxes, net....................................... 1,462 5,775
------------------- -------------------
Total assets............................................. $102,094 $110,042
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 7,463 $ 8,499
Accrued expenses and other current liabilities................... 17,270 23,496
Deferred revenues................................................ 30,172 31,106
------------------- -------------------
Total current liabilities................................ 54,905 63,101
------------------- -------------------
Commitments and contingencies (Note 5)
Shareholders' equity:
Preferred stock, $1.00 par value; 1,000 shares authorized
Series D convertible preferred stock, 125 shares issued
and outstanding (liquidation preference of $9,419)
at March 31, 1999; 225 shares issued and outstanding
(liquidation preference of $16,955) at September 30, 1998.. 125 225
Series E convertible preferred stock, 50 shares issued and
outstanding (liquidation preference of $3,768) at
March 31, 1999; 100 shares issued and outstanding
(liquidation preference of $7,536) at September 30, 1998... 50 100
Common stock, $0.01 par value; 90,000 shares authorized,
20,499 shares issued and 19,453 shares outstanding at
March 31, 1999; 50,000 shares authorized, 18,891 shares
issued and 18,762 shares outstanding at September 30, 1998... 205 189
Additional paid-in capital....................................... 63,093 61,670
Accumulated deficit.............................................. (5,929) (13,962)
Treasury stock-at cost, 1,046 shares at March 31, 1999 and
129 shares at September 30, 1998............................. (10,355) (1,281)
------------------- -------------------
Total shareholders' equity............................... 47,189 46,941
------------------- -------------------
Total liabilities and shareholders' equity............... $102,094 $110,042
=================== ===================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ ----------------------
1999 1998 1999 1998
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
License................................................. $14,397 $16,787 $37,370 $34,943
Services................................................ 15,866 12,221 31,354 23,659
----------- ----------- ---------- ----------
Total revenues.................................. 30,263 29,008 68,724 58,602
----------- ----------- ---------- ----------
Operating expenses:
Cost of license revenues................................ 2,951 3,410 6,546 6,229
Cost of services revenues............................... 4,764 3,428 8,847 6,609
Selling and marketing................................... 11,917 10,655 26,362 21,118
Product development..................................... 4,175 3,581 8,198 7,056
General and administrative.............................. 3,509 2,179 6,425 4,346
----------- ----------- ---------- ----------
Total operating expenses........................ 27,316 23,253 56,378 45,358
----------- ----------- ---------- ----------
Income from operations.................................... 2,947 5,755 12,346 13,244
Other:
Interest income......................................... 337 130 745 195
Interest expense........................................ (14) (14) (29) (28)
----------- ----------- ---------- ----------
Income before income tax expense.......................... 3,270 5,871 13,062 13,411
Income tax expense........................................ 1,259 2,260 5,029 5,163
----------- ----------- ---------- ----------
Net income................................................ $ 2,011 $ 3,611 $ 8,033 $ 8,248
=========== =========== ========== ==========
Net income per common share (basic) (Note 3).............. $ 0.10 $ 0.20 $ 0.41 $ 0.45
=========== =========== ========== ==========
Weighted average number of common shares
outstanding (basic) (Note 3)........................... 20,109 18,477 19,796 18,495
=========== =========== ========== ==========
Net income per common share (diluted) (Note 3).............. $ 0.09 $ 0.16 $ 0.35 $ 0.37
=========== =========== ========== ==========
Weighted average number of common shares and common
equivalent shares outstanding (diluted) (Note 3)....... 22,298 22,738 23,005 22,491
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 8,033 $ 8,248
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.............................................. 1,130 864
Amortization.............................................. 3,714 3,583
Provision for bad debts................................... 402 157
Deferred income taxes..................................... 4,319 3,771
Compensation payable in common stock...................... (231) --
Stock and options issued to non-employees................. 44 --
Loss on disposal of property and equipment................ 67 --
Changes in operating assets and liabilities:
Accounts receivable..................................... (1,127) 3,570
Prepaid expenses and other current assets............... (907) (1,449)
Accounts payable........................................ (1,036) 1,331
Accrued expenses and other current liabilities.......... (6,226) (2,208)
Deferred revenues....................................... (934) 899
------------ ------------
Net cash provided by operating activities............ 7,248 18,766
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment..................... (1,725) (2,101)
Additions to computer software costs.................... (2,825) (3,553)
Purchases of computer software.......................... (1,282) --
------------ ------------
Net cash used for investing activities............... (5,832) (5,654)
------------ ------------
Cash flows from financing activities:
Proceeds from stock options exercised................... 1,074 1,324
Proceeds from employee stock purchases.................. 240 152
Acquisitions of treasury stock.......................... (9,187) (1,281)
------------ ------------
Net cash (used for) provided by financing activities. (7,873) 195
------------ ------------
Net (decrease) increase in cash and cash equivalents........... (6,457) 13,307
Cash and cash equivalents at beginning of period............... 33,442 5,562
------------ ------------
Cash and cash equivalents at end of period..................... $ 26,985 $ 18,869
============ =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
Except for the balance sheet as of September 30, 1998, the accompanying
condensed consolidated financial statements of MAPICS, Inc. and Subsidiaries
(collectively referred to as the "Company") are unaudited; however, in the
opinion of management, these condensed consolidated financial statements contain
all adjustments (consisting of only normal, recurring adjustments) necessary to
present fairly the Company's consolidated financial position, results of
operations and cash flows as of the dates and for the periods indicated. The
condensed 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. While the
Company believes that the disclosures presented are adequate to make these
condensed consolidated financial statements not misleading, these condensed
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and related notes included
in the Company's Annual Report on Form 10-K for the fiscal year ended September
30, 1998 as filed with the Commission.
The Company operates on a fiscal year ending September 30/th/. The results of
operations for the interim periods presented are not necessarily indicative of
the results to be expected for a full year. The accompanying condensed financial
statements are consolidated and consist of the condensed financial statements of
MAPICS, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in the consolidation.
Certain amounts in the 1998 financial statements have been reclassified to
conform to the presentation in the 1999 financial statements.
(2) SIGNIFICANT ACCOUNTING PRINCIPLES
Revenue Recognition
The Company generates a significant portion of its total revenues from
licensing its software, which is conducted principally through a global network
of independent businesses called Affiliates. The Affiliates provide the
principal channel through which the Company's products are sold to its
customers. However, the ultimate customer executes a license agreement directly
with the Company rather than the Affiliate.
The Company generally recognizes revenue from the initial licensing of its
software upon: (i) the signing of a license agreement between the Company and
the ultimate customer; (ii) delivery of the software to the customer or to a
location designated by the customer; (iii) fees being fixed and determinable;
and (iv) determination that collection of the related receivable is probable.
Under the terms of the Company's license agreements, the customer is responsible
for installation and training. Revenue from the licensing of software is
included in license revenues, and the related commissions paid to Affiliates are
included in selling and marketing expenses.
The Company recognizes services revenues from its periodic license fees
ratably over the terms of the periodic license agreements. The periodic license
fee, which is typically payable annually in advance, entitles the customer to
continue using the software and to receive certain support services, as
available.
The Company has no commitment to reimburse the Affiliates for any losses
incurred.
6
<PAGE>
(3) NET INCOME PER COMMON SHARE
Net income per common share (basic) is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Net
income per common share (diluted) is computed by dividing net income by the
weighted average number of common shares and common equivalent shares
outstanding during the period. Common equivalent shares consist of the shares
issuable upon the assumed exercise of dilutive stock options, warrants and
convertible preferred stock. The following table presents the calculations of
basic and diluted net income per common share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
- ----------
Net income.............................................. $ 2,011 $ 3,611 $ 8,033 $ 8,248
============ ============ ============ ============
Denominator:
- ------------
Weighted average number of common shares
outstanding (denominator for net income per
common share (basic)).................................. 20,109 18,477 19,796 18,495
Common share equivalents:
Convertible preferred stock............................ 1,750 3,250 2,162 3,250
Common stock options................................... 216 560 540 420
Common stock warrants.................................. 223 451 507 326
------------ ------------ ------------ ------------
Weighted average number of common shares
and common equivalent shares outstanding
(denominator for net income per common
share (diluted))....................................... 22,298 22,738 23,005 22,491
============ ============ ============ ============
Net income per common share (basic).................... $ 0.10 $ 0.20 $ 0.41 $ 0.45
============ ============ ============ ============
Net income per common share (diluted).................. $ 0.09 $ 0.16 $ 0.35 $ 0.37
============ ============ ============ ============
</TABLE>
(4) OFFICE LEASE
On October 29, 1998, the Company entered into an agreement to lease
approximately 120,000 square feet of new office space (the "New Lease") in
Alpharetta, Georgia, a suburb of Atlanta. The New Lease became effective on
March 1, 1999, at which time the Company vacated its previous office facilities
in Atlanta and assigned the related leases (the "Old Leases") to a third party
who assumed all of the Company's obligations under the Old Leases. The new
office space was required to meet the needs of the Company's growing employee
population.
(5) COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims that 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.
(6) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On October 1, 1998, the Company adopted Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," as amended by SOP 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2." SOP 97-2, as amended, provides
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions and supercedes SOP 91-1, "Software Revenue
Recognition." The adoption of SOP 97-2 did not and is not expected to have a
material impact on the Company's financial position, results of operations or
financial statement disclosures.
On October 1, 1998, the Company adopted Statements of Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 requires public companies to report certain
information about operating
7
<PAGE>
segments in their financial statements and establishes related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 does
not need to be applied to interim financial statements in the initial year of
application; however, comparative information for interim periods in the initial
year of application will be reported in the financial statements for interim
periods after September 30, 1999.
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
SOP 98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use," which is effective for fiscal years beginning after December 15,
1998. The Statement distinguishes accounting for the costs of computer software
developed or obtained for internal use from guidance under SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." The Company will adopt SOP 98-1 on October 1, 1999. The adoption of
SOP 98-1 is not expected to have a material impact on the Company's software
capitalization policies, financial position, results of operations or financial
statement disclosures.
In December 1998, the AcSEC issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions." SOP 98-9,
which amends SOP 97-2, provides additional guidance on revenue recognition for
software arrangements with multiple elements. The Company will adopt SOP 98-9
on October 1, 1999. The adoption of SOP 98-9 is not expected to have a material
impact on the Company's financial position, results of operations or financial
statement disclosures.
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
condensed consolidated financial statements and notes thereto appearing
elsewhere herein. This discussion contains forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. Words such as "anticipate," "believe,"
"could," "estimate," "expect," "intend," "may," "plan," "will," "would" and
similar expressions and variations thereof are intended to identify forward-
looking statements. The Company's actual results could differ materially from
those contemplated by the forward-looking statements contained herein. Factors
that may cause such a difference include, but are not limited to, those
discussed in the cautionary statements contained herein as well as those
discussed in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Factors Affecting Future
Performance" contained in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998 as filed with the Commission. 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.
OVERVIEW
The Company is a business software company whose primary customers are
discrete and batch process manufacturers. The Company delivers enterprise
resource planning ("ERP") software that allows its customers to automate the
manufacturing process and coordinate multiple functions and departments within
their organizations, as well as extend their interactions with their supply
chain partners. The MAPICS XA product line currently consists of more than 50
applications in the areas of Engineering Management, Demand Management,
Operations Management, Resource Planning, Financial Management and Business
Management. The design of the Company's applications allows its customers to
rapidly implement all or a portion of the Company's solution with minimal
disruption to their business. Furthermore, MAPICS solutions enable customers to
leverage existing information technology investments and adopt new technologies
gradually, which lowers costs and increases their return on investment.
The Company generates a significant portion of its total revenues from
licensing its software, which is conducted principally through a global network
of independent businesses called Affiliates. The Affiliates provide the
principal channel through which the Company's products are sold to its
customers. However, the ultimate customer executes a license agreement directly
with the Company rather than the Affiliate. When it first licenses its software,
the Company receives both an initial license fee and a periodic license fee.
Initial license fees are recorded as license revenue and generally recognized
upon: (i) the signing of a license agreement between the Company and the
ultimate customer; (ii) delivery of the software to the customer or to a
location designated by the customer; (iii) fees being fixed and determinable;
and (iv) determination that collection of the related receivable is probable.
Periodic license fees are recorded as services revenue and recognized ratably
over the term of the periodic license agreement. The periodic license fee, which
is typically paid annually in advance, entitles the customer to continue using
the software and to receive certain support services, as available. 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
a source of recurring revenues from its installed base of customers and enables
customers to take advantage of new releases and enhancements of its software.
8
<PAGE>
The Affiliates, rather than the Company, provide the Company's customers with
primarily all of the consulting and implementation services relating to the
MAPICS products. As a result, the Company typically does not generate revenues
from providing these consulting and implementation services.
The Company's cost structure is designed so that a significant portion of the
Company's costs vary in direct relation to license revenues, particularly
commissions paid to Affiliates, which are included in selling and marketing
expenses, and product royalties paid to third party solution providers called
Solution Partners, which are included in cost of license revenues.
In October 1998, the Company announced the worldwide availability of MAPICS XA
Release 5, which includes three new applications and enhancements to 20 of the
existing applications. Release 5 offers a complete solution for the Euro
Conversion and allows companies to maximize the benefits of e-commerce through a
complete Java user interface (eWorkPlace) and an Internet-based customer service
application (COM_Net). Using eWorkPlace, remote or local users can obtain
controlled access to MAPICS applications via an intranet, an extranet or the
Internet. COM_Net helps companies service their customers over the Internet,
enabling them to place orders, review inventory availability, obtain current
pricing and promotional information, specify product configurations and inquire
into the status of an order 24 hours a day, seven days a week.
In March 1999, the Company announced the availability of its Advanced Planning
and Scheduling ("APS") solution, MAPICS XA Wisdom. MAPICS XA Wisdom offers
manufacturers advanced supply chain planning functionality, including
synchronized planning and scheduling of all resources enabling customers to
improve on-time delivery performance, summarized planning and scheduling of
problems with emphasis on eliminating late orders, critical bottlenecks and
material shortages and a decision-support tool providing management with the
ability to compare different customer order fulfillment scenarios.
RESULTS OF OPERATIONS
Total revenues increased 4.3% to $30.3 million for the three months ended
March 31, 1999 from $29.0 million for the three months ended March 31, 1998.
Operating expenses increased 17.5% during the same period due to the incremental
costs of hiring additional personnel throughout the Company as well as the
continued increases in spending for product development activities and selling
and marketing programs. As a result, net income decreased 44.3% to $2.0
million, or $0.09 per share (diluted), for the three months ended March 31, 1999
from $3.6 million, or $0.16 per share (diluted), for the three months ended
March 31, 1998.
The results reflect lower than anticipated revenue growth for the three months
ended March 31, 1999. Management believes the slowing of revenue growth from
the comparable period of the prior year was primarily due to an industry-wide
slowdown in demand for software products and services like those offered by the
Company as a result of increased focus by companies on the Year 2000 issue.
Other factors, including global economic conditions and increased competition,
also contributed to the slowdown in revenue growth. See "--Year 2000 Issue."
As a result of the increased uncertainty about demand for the Company's
products and services amid the rapidly changing conditions in the ERP
marketplace, management has revised the Company's operating plan for the
remainder of the fiscal year with an emphasis on cost reduction. However, since
management cannot predict any future increase or decrease in demand that may
result from the Year 2000 issue, there can be no assurance that these actions
will improve the Company's business, financial condition and results of
operations.
9
<PAGE>
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain line items in the Company's consolidated
statements of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
License............................................. 47.6% 57.9% 54.4% 59.6%
Services............................................ 52.4 42.1 45.6 40.4
-------------- -------------- -------------- --------------
Total revenues.............................. 100.0 100.0 100.0 100.0
-------------- -------------- -------------- --------------
Operating expenses:
Cost of license revenues............................ 9.8 11.8 9.5 10.6
Cost of services revenues........................... 15.7 11.8 12.9 11.3
Selling and marketing............................... 39.4 36.8 38.4 36.1
Product development................................. 13.8 12.3 11.9 12.0
General and administrative.......................... 11.6 7.5 9.3 7.4
-------------- -------------- -------------- --------------
Total operating expenses.................... 90.3 80.2 82.0 77.4
-------------- -------------- -------------- --------------
Income from operations................................ 9.7 19.8 18.0 22.6
Other:
Interest income..................................... 1.1 0.4 1.0 0.3
Interest expense.................................... -- -- -- --
-------------- -------------- -------------- --------------
Income before income tax expense...................... 10.8 20.2 19.0 22.9
Income tax expense.................................... 4.2 7.8 7.3 8.8
-------------- -------------- -------------- --------------
Net income............................................ 6.6% 12.4% 11.7% 14.1%
============== ============== ============== ==============
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues. As previously discussed, total revenues increased 4.3% to $30.3
million for the three months ended March 31, 1999 from $29.0 million for the
three months ended March 31, 1998.
License revenue decreased 14.2% to $14.4 million for the three months ended
March 31, 1999 from $16.8 million for the three months ended March 31, 1998, due
to a volume decrease in license sales to new and existing customers for the
reasons noted above. License sales to new customers (which include both new
named accounts and migrations from the legacy MAPICS I and II products)
decreased 16.8%, and license sales to existing customers decreased 12.8% from
the same period a year ago.
During the three months ended March 31, 1999, license revenue decreased in
North America and the Europe, Middle East and Africa ("EMEA") region while
license revenue increased in the Latin America and Asia Pacific regions.
Operations in (i) North America, (ii) the EMEA region and (iii) the combined
Latin America/Asia Pacific regions accounted for 66%, 24% and 10% of total
license revenue, respectively, during the three months ended March 31, 1999,
compared to 68%, 24% and 8% of total license revenue, respectively, for the
three months ended March 31, 1998. Management believes that the factors
affecting product demand in the ERP marketplace - the Year 2000 issue, economic
conditions and increased competition - are affecting the Company's performance
in each of its primary geographic markets.
Services revenues increased 29.8% to $15.9 million for the three months ended
March 31, 1999 from $12.2 million for the three months ended March 31, 1998
principally due to an increase in the number customers paying periodic license
fees.
The mix of revenues, which historically has favored license revenue in the
range of 55%-65% followed by services revenue in the range of 35%-45%, changed
during the three months ended March 31, 1999 as a result of the significant
decrease in license revenue. During the three months ended March 31, 1999,
license revenue and services revenue comprised 47.6% and 52.4% of total
revenues, respectively, compared to 57.9% and 42.1% of total revenues,
respectively, for the three months ended March 31, 1998.
10
<PAGE>
Cost of License Revenues. Cost of license revenues decreased 13.5% to $3.0
million for the three months ended March 31, 1999 from $3.4 million for the
three months ended March 31, 1998. This increase was primarily the result of a
decrease in product royalty expense due to the decreased volume in license
revenue. Cost of license revenues increased slightly as a percentage of license
revenue to 20.5% for the three months ended March 31, 1999 from 20.3% for the
three months ended March 31, 1998 as a result of proportionally higher
amortization expense in the current period due to the decrease in license
revenue.
Cost of Services Revenues. Cost of services revenues increased 39.0% to $4.8
million for the three months ended March 31, 1999 from $3.4 million for the
three months ended March 31, 1998. This increase resulted from the additional
distribution and support costs associated with the increase in customers,
including: a volume increase in fees payable to Solution Partners for providing
support services related to their products, a volume increase in commissions
payable to Affiliates for support services provided in the EMEA, Latin America
and Asia Pacific regions and the incremental costs associated with hiring
additional customer support personnel in North America and the EMEA region. Cost
of services revenues increased as a percentage of services revenue to 30.0% for
the three months ended March 31, 1999 from 28.1% for the three months ended
March 31, 1998 as a result of proportionally higher fees paid to Affiliates and
Solution Partners in the 1999 period.
Selling and Marketing. Selling and marketing expenses increased 11.8% to
$11.9 million for the three months ended March 31, 1999 from $10.7 million for
the three months ended March 31, 1998. This increase resulted from the
incremental costs associated with hiring additional sales and marketing
personnel and increased spending on selling and marketing programs, offset by a
decrease in commissions payable to Affiliates due to the decreased volume in
license revenue. Selling and marketing expenses as a percentage of total
revenues increased to 39.4% for the three months ended March 31, 1999 from 36.8%
for the three months ended March 31, 1998 as a result of proportionally higher
personnel costs and program costs in the 1999 period.
Product Development. Overall product development expenses increased 16.6% to
$4.2 million for the three months ended March 31, 1999 from $3.6 million for the
three months ended March 31, 1998. As a percentage of total revenues, product
development expenses increased to 13.8% for the three months ended March 31,
1999 from 12.3% for the three months ended March 31, 1998.
Gross core development expenditures increased 17.7% to $5.0 million for the
three months ended March 31, 1999 from $4.2 million for the three months ended
March 31, 1998. This increase was due to the incremental costs associated with
hiring additional development personnel and increased spending on product
development activities to support the on-going effort to re-engineer the
Company's software applications to the Windows NT server platform, while
continuing efforts to expand the MAPICS XA product line. The amounts of core
development expenditures capitalized during the three months ended March 31,
1999 and March 31, 1998 were $943,000 and $660,000, respectively, representing
18.9% and 15.6%, respectively, of gross core development expenditures during
those periods. The amount of core development expenditures capitalized as a
percentage of gross core development expenditures during the three months ended
March 31, 1999 increased because a higher proportion of these expenditures had
reached the technological feasibility stage as compared to those for the three
months ended March 31, 1998. Gross computer software translation expenditures
decreased 55.0% to $603,000 during the three months ended March 31, 1999 from
$1.3 million during the three months ended March 31, 1998. Translation
expenditures are typically project related, and the timing of these expenditures
is subject to change from period to period. The amounts of translation
expenditures capitalized during the three months ended March 31, 1999 and March
31, 1998 were $470,000 and $1.3 million, respectively, representing 77.9% and
99.4%, respectively, of gross translation expenditures during those periods.
The Company generally does not capitalize amounts spent to translate the
Company's software applications into non-core languages. During the three
months ended March 31, 1999, spending on non-core translation increased as a
percentage of gross translation expenditures, which decreased the overall
capitalization percentage.
In addition to the amounts spent on core product development and computer
software translation, the Company spent approximately $646,000 during the three
months ended March 31, 1999 and $0 during the three months ended March 31, 1998
to acquire certain rights to computer software. The amounts spent to acquire
computer software were capitalized and are included in computer software costs.
General and Administrative. General and administrative expenses increased
61.0% to $3.5 million during the three months ended March 31, 1999 from $2.2
million during the three months ended March 31, 1998. General and administrative
expenses as a percentage of total revenues increased to 11.6% during the three
months ended March 31, 1999 from 7.5% during the three months ended March 31,
1998. These increases resulted from the incremental costs associated with hiring
additional personnel and increased facility costs associated with expanding the
Company's operations.
Interest Income. Interest income increased to $337,000 for the three months
ended March 31, 1999 from $130,000 for the three months ended March 31, 1998 due
to an increase in cash and cash equivalents.
11
<PAGE>
Interest Expense. Interest expense, which primarily reflects commitment fees
incurred for unused portions of the Company's revolving credit facility,
remained constant at $14,000 for the three months ended March 31, 1999 and 1998.
Income Tax Expense. Income tax expense represented 38.5% of income before
income tax expense for the three months ended March 31, 1999 and 1998.
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO SIX MONTHS ENDED MARCH 31, 1998
Revenues. Total revenues increased 17.3% to $68.7 million for the six months
ended March 31, 1999 from $58.6 million for the six months ended March 31, 1998.
License revenue increased 6.9% to $37.4 million for the six months ended March
31, 1999 from $34.9 million for the six months ended March 31, 1998, due to a
volume increase in license sales to new customers. License sales to new
customers increased 30.9% over the same period a year ago.
During the six months ended March 31, 1999, license revenue increased in each
of the Company's primary geographic markets. Operations in (i) North America,
(ii) the EMEA region and (iii) the combined Latin America/Asia Pacific regions
accounted for 63%, 25% and 12% of total license revenue, respectively, during
the six months ended March 31, 1999, compared to 66%, 25% and 9% of total
license revenue, respectively, during the six months ended March 31, 1998.
Services revenues increased 32.5% to $31.4 million for the six months ended
March 31, 1999 from $23.7 million for the six months ended March 31, 1998 due to
an increase in the number of customers paying periodic license fees.
Cost of License Revenues. Cost of license revenues increased 5.1% to $6.5
million for the six months ended March 31, 1999 from $6.2 million for the six
months ended March 31, 1998. This increase was primarily the result of an
increase in product royalty expense due to the increased volume in license
revenue and an increase in amortization expense related to computer software
costs. Cost of license revenues decreased slightly as a percentage of license
revenue to 17.5% for the six months ended March 31, 1999 from 17.8% for the six
months ended March 31, 1998 as a result of proportionally lower amortization
expense. The increase in the amortization of computer software costs as a
percentage of license revenue was smaller than such increases in prior periods
due to the decrease in license revenue during the three months ended March 31,
1999 and because a larger proportion of the costs of computer software are now
fully amortized.
Cost of Services Revenues. Cost of services revenues increased 33.9% to $8.8
million for the six months ended March 31, 1999 from $6.6 million for the six
months ended March 31, 1998. This increase resulted from the additional
distribution and support costs associated with the increase in customers,
including: a volume increase in fees payable to Solution Partners for providing
support services related to their products, a volume increase in commissions
payable to Affiliates for support services provided in the EMEA, Latin America
and Asia Pacific regions and the incremental costs associated with hiring
additional customer support personnel in North America and the EMEA region. Cost
of services revenues increased as a percentage of services revenues to 28.2% for
the six months ended March 31, 1999 from 27.9% for the six months ended March
31, 1998 as a result of proportionally higher fees paid to Affiliates and
Solution Partners in the 1999 period.
Selling and Marketing. Selling and marketing expenses increased 24.8% to
$26.4 million for the six months ended March 31, 1999 from $21.1 million for the
six months ended March 31, 1998. This increase resulted from the incremental
costs associated with hiring additional sales and marketing personnel, an
increase in commissions earned by Affiliates due to the increased volume in
license revenue and increased spending on selling and marketing programs. As a
percentage of total revenues, selling and marketing expenses increased to 38.4%
for the six months ended March 31, 1999 from 36.1% for the six months ended
March 31, 1998 as a result of proportionally higher personnel costs and program
costs in the 1999 period.
Product Development. Overall product development expenses increased 16.2% to
$8.2 million for the six months ended March 31, 1999 from $7.1 million for the
six months ended March 31, 1998. As a percentage of total revenues, product
development expenses decreased to 11.9% for the six months ended March 31, 1999
from 12.0% for the six months ended March 31, 1998.
Gross core development expenditures increased 17.6% to $9.7 million for the
six months ended March 31, 1999 from $8.3 million for the six months ended March
31, 1998. This increase was due to the incremental costs associated with hiring
additional development personnel and increased spending on product development
activities to support the on-going effort to re-engineer the Company's software
applications to the Windows NT server platform, while continuing efforts to
expand the MAPICS XA product line. The amounts of core development expenditures
capitalized during the six months ended March 31, 1999 and March 31, 1998
12
<PAGE>
were $1.7 million and $1.2 million, respectively, representing 17.7% and 14.8%,
respectively, of gross core development expenditures during those periods. The
amount of core development expenditures capitalized as a percentage of gross
core development expenditures during the six months ended March 31, 1999
increased because a higher proportion of these expenditures had reached the
technological feasibility stage as compared to those for the six months ended
March 31, 1998. Gross computer software translation expenditures decreased 44.2%
to $1.3 million during the six months ended March 31, 1999 from $2.4 million
during the six months ended March 31, 1998. Translation expenditures are
typically project related, and the timing of these expenditures is subject to
change from period to period. The amounts of translation expenditures
capitalized during the six months ended March 31, 1999 and March 31, 1998 were
$1.1 million and $2.3 million respectively, representing 84.0% and 99.0%,
respectively, of gross translation expenditures during those periods. The
Company generally does not capitalize amounts spent to translate the Company's
software applications into non-core languages. During the six months ended March
31, 1999, spending on non-core translation increased as a percentage of gross
translation expenditures which decreased the overall capitalization percentage.
In addition to the amounts spent on core product development and computer
software translation, the Company spent approximately $1.3 million during the
six months ended March 31, 1999 and $0 during the six months ended March 31,
1998 to acquire certain rights to computer software. The amounts spent to
acquire computer software were capitalized and are included in computer software
costs.
General and Administrative. General and administrative expenses increased
47.8% to $6.4 million during the six months ended March 31, 1999 from $4.3
million during the six months ended March 31, 1998. General and administrative
expenses as a percentage of total revenues increased to 9.3% during the six
months ended March 31, 1999 from 7.4% during the six months ended March 31,
1998. These increases resulted from the incremental costs associated with hiring
additional personnel and increased facility costs associated with expanding the
Company's operations.
Interest Income. Interest income increased to $745,000 for the six months
ended March 31, 1999 from $195,000 for the six months ended March 31, 1998 due
to an increase in cash and cash equivalents.
Interest Expense. Interest expense, which primarily reflects commitment fees
incurred for unused portions of the Company's revolving credit facility,
increased slightly to $29,000 for the six months ended March 31, 1999 from
$28,000 for the six months ended March 31, 1998.
Income Tax Expense. Income tax expense represented 38.5% of income before
income tax expense for the six months ended March 31, 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth a summary of the Company's cash flow activity
for the periods indicated and should be read in conjunction with the Company's
statements of cash flows.
<TABLE>
<CAPTION>
SUMMARY OF CASH FLOWS
--------------------------------------
SIX MONTHS ENDED
MARCH 31,
--------------------------------------
1999 1998
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities.......................... $ 7,248 $ 18,766
Net cash used for investing activities............................. (5,832) (5,654)
Net cash (used for) provided by financing activities............... (7,873) 195
---------------- ---------------
Net (decrease) increase in cash and cash equivalents............ $ (6,457) $ 13,307
=============== ===============
</TABLE>
The Company has funded its operations and capital expenditures primarily with
cash generated from operating activities. As of March 31, 1999, the Company had
cash and cash equivalents of $27.0 million and working capital of $15.9 million.
During the six months ended March 31, 1999, cash and cash equivalents decreased
$6.5 million while working capital increased $3.6 million.
Although earnings for the six months ended March 31, 1999 were similar to
those for the same period a year ago, changes in operating assets and
liabilities had a negative effect on cash flows from operating activities during
the six months ended March 31, 1999. Before the changes in operating assets and
liabilities, net cash provided by operating activities was $17.5 million for the
six months ended March 31, 1999 compared to $16.6 million for the six months
ended March 31, 1998. After the effect of changes in
13
<PAGE>
operating assets and liabilities, as discussed below, net cash provided by
operating activities was $7.2 million for the six months ended March 31, 1999
compared to $18.8 million for the six months ended March 31, 1998.
The change in operating assets and liabilities from period to period is due
primarily to the timing of cash receipts and cash payments. Accounts receivable
increased $1.0 million during the six months ended March 31, 1999 and decreased
$3.6 million during the six months ended March 31, 1998. The Company billed a
significant portion of its annual license revenue in December 1998 and January
1999. Growth in annual license fees, offset by the reduction in license sales,
combined with a slowdown in collections caused accounts receivable to increase
during the six months ended March 31, 1999. In the prior year, the Company had
made a significant improvement in collections on accounts receivable that had
accumulated from strong revenue growth. Accounts payable and accrued expenses
and other current liabilities decreased $7.3 million during the six months ended
March 31, 1999 compared to a decrease of $877 thousand during the six months
ended March 31, 1998. The decrease in accounts payable and accrued expenses and
other current liabilities during the six months ended March 31, 1999 resulted
from the timing of payments to vendors and other service providers and
accelerated payments of commissions to Affiliates during the six months ended
March 31, 1999, continuing the effort to enhance the sales channel by providing
improved cash flow to enable Affiliates to expand their operations.
Net cash used for investing activities during the six months ended March 31,
1999 was $5.8 million compared to $5.7 million during the six months ended March
31, 1998. The Company used cash for computer software development, for computer
software translation and for purchases of property and equipment, reflecting the
incremental investments made in its development activities and the additional
computer equipment and office furniture needed for its expanding operations and
its growing employee population. The slight increase in cash used for investing
activities resulted from a $1.3 million increase in expenditures to acquire
certain rights to computer software to be integrated with the Company's product
offerings, offset by a $728,000 reduction in additions to computer software
costs and a $376,000 reduction in capital expenditures for property and
equipment.
Net cash used for financing activities during the six months ended March 31,
1999 was $7.9 million compared to net cash provided by financing activities
during the six months ended March 31, 1998 of $195,000. The Company spent $9.2
million and $1.3 million to reacquire 928,000 and 128,600 shares of its Common
Stock during the six months ended March 31, 1999 and 1998, respectively. The
Company intends to continue repurchasing its shares, as appropriate, using
available cash and cash equivalents under an expanded stock repurchase program
approved in April 1999 by the Company's board of directors. Offsetting the
amounts spent on the stock repurchase programs, the Company received proceeds of
$1.3 million and $1.5 million from the exercise of stock options and employee
stock purchases during the six months ended March 31, 1999 and 1998,
respectively.
In addition to the cash provided by operating and financing activities,
borrowings of up to $15.0 million, subject to certain limitations, are available
to the Company under a revolving credit facility with a bank. Availability of
revolving credit loans and the rate of interest thereon vary depending upon the
Company's ability to maintain certain financial ratios. As of March 31, 1999,
the Company met all of those financial ratios, although no revolving credit
borrowings have been outstanding under the revolving credit facility since its
inception. The Company pays a quarterly commitment fee for unused portions of
the revolving credit facility. Any outstanding borrowings under the revolving
credit facility will mature on June 30, 2000.
As of March 31, 1999, the Company did not have any material commitments for
capital expenditures.
The Company believes that cash and cash equivalents on hand as of March 31,
1999, together with cash flows from operations and available borrowings under
the Company's revolving credit facility, will be sufficient to maintain its
current level of operations for at least the next 12 months.
YEAR 2000 ISSUE
Many existing computer hardware and software systems are designed to use only
two digits to identify a year in date fields (e.g., "98" for "1998"). These
systems may not properly recognize a year that begins with "20" instead of
"19." If not corrected, these systems could fail or could create erroneous
results when working with dates beyond the year 1999. This is commonly referred
to as the "Year 2000 issue." The Company believes that the Year 2000 issue may
affect the Company in two principal ways: through the Company's products and its
operations.
14
<PAGE>
THE COMPANY'S READINESS STATUS
The Company develops and markets software programs that are date sensitive and
may be affected by the Year 2000 issue. The Company believes that the Year 2000
issue has and will likely continue to affect the demand for the Company's
products and the spending patterns of the Company's customers.
In July 1997, the Company received Information Technology Association of
America 2000 ("ITAA 2000") certification, validating that the Company's
development processes meet the information technology industry's best software
development practices for addressing the Year 2000 issue. MAPICS XA releases
since 1995 and the last release of MAPICS/DB have been converted and tested to
be Year 2000 compliant. The Company believes that the products it currently
produces adequately address the Year 2000 issue. The Company's Solution Partners
have certified to the Company that their products are also Year 2000 compliant.
However, the Company cannot assure that these products or future products that
the Company or its Solution Partners develop contain or will contain all
necessary date code changes or that errors will not be found in these products
at a later time. The costs to resolve any resulting Year 2000 related errors
could have a material adverse impact on the Company's business, financial
condition and results of operations.
Many hardware, operating system and application products developed by third
parties interact or operate with MAPICS applications. In addition, customers or
others may modify MAPICS products after they have been installed. The Company
cannot assess the Year 2000 readiness of these hardware, operating system and
application products or modified MAPICS products. If these products are not Year
2000 compliant, it could adversely affect the performance and functionality of
the Company's applications that work with these products. While the Company
believes that it would not be responsible for these Year 2000 problems, it is
unable to assess the effect they may have on the Company's business, financial
condition and results of operations.
The Company believes that the Year 2000 issue is affecting the demand for Year
2000 enabled hardware and software products, including those offered by the
Company. The Company believes that customers (both existing customers and
potential new customers) have and may continue to defer purchase decisions for
the Company's products since they are required to divert their resources to
address other Year 2000 issues within their businesses. In addition, once
companies have replaced their existing systems that were not Year 2000 enabled,
they may no longer demand products offered by the Company. The Company is unable
to quantify the effect that the demand for Year 2000 enabled products has had on
its current business, financial condition and results of operations and cannot
predict the effect that any increase or decrease in demand will have on the
Company in the future.
The Company principally relies on its MAPICS XA product to support its
internal accounting, payables and invoicing operations. While MAPICS XA has been
converted and tested to be Year 2000 compliant, the Company also relies on third
party systems developed by others for many of its critical internal operations.
If these systems are not Year 2000 compliant, it may have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company's internal operations may also be affected by Year 2000
issues affecting third parties with whom the Company has relationships,
including Affiliates, Solution Partners and other vendors (e.g., utilities,
distributors, banks and other suppliers). A Year 2000 problem affecting one or
more of these third parties may also have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has assembled a Year 2000 taskforce made up of representatives
from the Company's development, marketing, support, information systems,
facilities, finance and legal departments to assess the Year 2000 readiness of
the Company's internal operations and the readiness of third parties on which it
relies. The taskforce has identified and assessed the Year 2000 readiness of
most of the material information technology ("I/T") and non-information
technology ("non-I/T") systems, including fax machines, phone switches and
badge access readers, used internally as part of the Company's operations.
Based on information obtained from third party vendors or testing it has
performed, the Company believes that all such internal systems are Year 2000
ready or that the Company has the appropriate plans in place to achieve timely
Year 2000 readiness for such internal systems. However, the Company's on-going
assessment program may in the future reveal Year 2000 issues that are not
currently identified or fully understood.
The taskforce has also worked to identify those third parties on which the
Company's operations materially rely. This includes the Company's Affiliates,
Solution Partners and other suppliers. The taskforce has gathered written
materials published by such third parties or otherwise communicated directly
with such third parties in order to determine the Year 2000 readiness of their
business operations or the readiness of the products or services they supply to
the Company. While the taskforce has collected many responses and other
materials from such third parties regarding their Year 2000 readiness, the
process is ongoing. The Company expects to gather materials on all third parties
with whom it relies by September 30, 1999. The Company is not certain that the
Year 2000 issue will be properly and timely resolved by all of its suppliers,
Affiliates, or Solution Partners, and if not so resolved, this could have a
material impact on the Company's business, financial condition and results of
operations.
15
<PAGE>
COMPANY COSTS TO ADDRESS THE YEAR 2000 ISSUE
The Company has incurred approximately $330,000 in costs to make its products
and internal systems Year 2000 compliant. It does not expect to incur material
additional costs to remedy any remaining Year 2000 problems with its products
and internal systems. However, the Company cannot currently assess the costs of
remedying problems resulting from the Year 2000 issues of others. If the costs
of remedying these Year 2000 problems prove to be significant, it may have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS
The Company's customer support operations are heavily dependent on the
constant availability of telecommunications equipment and other utilities. As a
result, the Company currently believes that the most reasonably likely worst
case Year 2000 scenario would involve the temporary interruption of electric
power, telephone or other utility supplies to the Company's headquarters or its
other support operations facilities due to a failure of a utility supplier to be
Year 2000 compliant. In addition, despite assurances and testing, it is also
possible that the Company's internal systems or those of its Affiliates or its
suppliers may not be Year 2000 ready. Such failure could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, "business interruption" litigation may arise out of the Year
2000 issue. The Company is not aware of any possible claim against it arising
from instances of business interruption. However, the Company is uncertain how
it may be affected by any such litigation. In particular, many of the Company's
applications that are currently in use but were sold before the Company's 1995
application releases are not Year 2000 enabled. The Company no longer supports
these applications. While the Company has made Year 2000 enabled replacement
software available to most customers using older applications, it cannot assure
that all of these customers are aware of the Year 2000 issue or that they have
adopted these replacements or other remedies. In addition, it cannot assure that
these customers will not bring Year 2000-related claims against the Company
which, with or without merit, could be time consuming and expensive for the
Company to defend or resolve. Any adverse outcome in any such litigation could
subject the Company to significant liability. As a result, business interruption
litigation could have a material adverse effect on the Company's business,
financial condition and results of operations.
CONTINGENCY PLANS
While the Company has not established a contingency plan to address the most
reasonably likely worst case scenario described above, it is developing
contingency plans to address other potential scenarios.
The Company believes that it may receive increased requests for support and
assistance from its customers during the period of time immediately preceding
and following January 1, 2000. Accordingly, the Company is developing
contingency plans which will increase the available development and customer
support resources during this time, including resources belonging to Affiliates
which provide customers with local support. The Company expects this plan to be
complete by October 31, 1999. Since the Company has not received responses from
all suppliers on which it relies and since Year 2000 issues may arise which are
not currently identified or fully understood, additional contingency plans
specific to potential exposures may have to be developed in the future.
CAUTIONARY STATEMENTS
The continued assessment, progress and timing of the Company's Year 2000
readiness efforts and potential exposures as described above depend upon the
cooperation and responsiveness of third parties, the accuracy and reliability of
responses provided and testing procedures, and the availability of skilled
resources, both internal and external, to address Year 2000 issues that exist or
may arise. There can be no assurance that assessments to date will prove to be
accurate. Serious deficiencies that are not currently identified or fully
understood may arise in the future and may have a material adverse impact on the
Company's business, financial condition and results of operations. The Company
plans to continue its taskforce into the Year 2000 to assess Year 2000 issues
affecting the Company, apprise management of the status of its findings and
develop appropriate contingency plans where necessary in an effort to minimize
the potential exposure of the Company to the Year 2000 issue.
EURO CONVERSION ISSUE
On January 1, 1999, a new currency called the "euro" was introduced in 11 of
the 15 member countries of the European Union (the "Euro Conversion"). In 2002,
each of these participating countries will adopt the euro as their single
currency. Until that time, however, financial transactions in these
participating countries may be conducted in either the euro or the local
national currency. As a
16
<PAGE>
result, companies operating or conducting business in these participating
countries during this transition period must be able to process financial
transactions in either the euro or the local national currency.
The latest release of the Company's product (MAPICS XA Release 5) includes a
solution designed to address the Euro Conversion. Although this product is
designed to enable companies to process financial transactions in the euro and
the local national currencies, there can be no assurance that it will
satisfactorily address all Euro Conversion issues. The costs to resolve any
resulting Euro Conversion related errors could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company, like its customers and others who operate or conduct business in
the participating countries, must be able to process financial transactions in
both the euro and the local national currencies of the participating countries.
To date, the Company has had no financial transactions with its customers,
vendors, Affiliates or others that were denominated in the euro. Furthermore,
management does not expect such transactions to be commonplace during the
initial phase of the transition to the euro. A Company taskforce charged with
analyzing the effect of the Euro Conversion on the Company's operations has
determined that the Company can timely process a minimal amount of euro-related
transactions without modification to its existing internal systems. However,
the taskforce believes that over time, as companies adopt the euro as the
preferred currency for certain or all of their business transactions, the
Company will be required to process euro-related transactions in increasing
volume. The Company currently plans to implement its euro-enabled software
product (MAPICS XA Release 5) before this volume becomes significant.
Management expects that the costs of implementing MAPICS XA Release 5 for its
own use will be insignificant and does not expect to experience significant
conversion and/or operational problems associated with the implementation of its
own software product. However, if the Company is required to process a
significant amount of financial transactions in the euro before it is able to
implement MAPICS XA Release 5 for its own use, or if subsequently MAPICS XA
Release 5 does not allow the Company to satisfactorily process financial
transactions in the euro, it may result in unforeseen costs or a disruption to
the Company's business, either of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Management does not believe that the translation of financial transactions
into euros will have a significant effect on the Company's business, financial
condition or results of operations. The Euro Conversion, however, may have an
impact on economic factors that affect the Company's business, including its
effect on interest rates, exchange rates and contract prices. Currently,
management believes that its exposure to market risk with respect to financial
instruments is immaterial. However, the Euro Conversion may create strategic
challenges as companies across Europe adapt to a single transnational currency.
The participating countries' adoption of the euro will likely result in greater
transparency of pricing, making Europe a more competitive environment. Although
the Company has adapted its European price list to accommodate the introduction
of the euro, it is currently unsure of the potential impact it could have on
competitive conditions in European markets.
Inflation
To date, the Company believes inflation has not had a material impact on the
Company's operations.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in trading market risk sensitive instruments. The
Company also does not purchase, for investment, hedging or for purposes "other
than trading," instruments that are likely to expose it to market risk, whether
interest rate, foreign currency exchange, commodity price or equity price risk,
except as discussed in the following paragraph. The Company has issued no debt
instruments, entered into no forward or futures contracts, purchased no options
and entered into no swaps, except as discussed in the following paragraph.
The Company's foreign operations, primarily those in western Europe, involve
financial transactions that are denominated in foreign currencies. From time to
time, the Company may enter into forward exchange contracts or purchase options
as a hedge against changes in the foreign currency exchange rates for its
operating assets and liabilities that are denominated in foreign currencies.
However, the Company did not enter into any such contracts or purchase options
during the six months ended March 31, 1999 nor did the Company have any open
forward exchange contracts or options at March 31, 1999.
Historically, the Company's exposure to foreign currency exchange rate risk
has been minimal. However, due to continued expansion of the Company's foreign
operations the Company's business, financial condition and
17
<PAGE>
results of operations could be adversely affected by changes in foreign currency
exchange rates in future periods. At March 31, 1999 and September 30, 1998,
cash and cash equivalents that were denominated in foreign currencies were
approximately $1,500,000 and $2,055,000, respectively.
The Company has minimal interest rate risk. A change in either the lender's
Base Rate or LIBOR would affect the rate at which the Company could borrow funds
under its revolving credit facility.
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PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The results of the Company's Annual Meeting of Shareholders held on February
10, 1999 were reported in Part II, Item 4 of the Company's Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1998.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NO. DESCRIPTION
--- -----------
27.1 Financial Data Schedule for the six months ended March 31,
1999 (for SEC use only)
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated February 10, 1999,
pursuant to Item 7, containing a press release reporting that the Company's
board of directors approved a stock repurchase plan.
The Company filed a Current Report on Form 8-K dated April 27, 1999, pursuant
to Item 7, containing a press release reporting that the Company's board of
directors approved an expansion of the Company stock repurchase plan.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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, on May 13, 1999.
MAPICS, Inc.
By: /s/ William J. Gilmour
-----------------------------------
William J. Gilmour
Vice President of Finance and
Chief Financial and Accounting Officer
20
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- --- -----------
27.1 Financial Data Schedule for the six months ended March 31, 1999 (for
SEC use only)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF MAPICS, INC. FOR THE SIX MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 26,985
<SECURITIES> 0
<RECEIVABLES> 38,890
<ALLOWANCES> 2,286
<INVENTORY> 0
<CURRENT-ASSETS> 70,827
<PP&E> 12,133
<DEPRECIATION> 6,567
<TOTAL-ASSETS> 102,094
<CURRENT-LIABILITIES> 54,905
<BONDS> 0
0
175
<COMMON> 205
<OTHER-SE> 46,809
<TOTAL-LIABILITY-AND-EQUITY> 102,094
<SALES> 37,370
<TOTAL-REVENUES> 68,724
<CGS> 6,546
<TOTAL-COSTS> 15,393
<OTHER-EXPENSES> 8,198
<LOSS-PROVISION> 402
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 13,082
<INCOME-TAX> 5,029
<INCOME-CONTINUING> 8,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,033
<EPS-PRIMARY> 0.41<F1>
<EPS-DILUTED> 0.35<F2>
<FN>
<F1>Represents basic EPS for the six months ended March 31, 1999.
<F2>Represents diluted EPS for the six months ended March 31, 1999.
</FN>
</TABLE>
