<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 AND
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996
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: 0-21992
_________________________
FOURTH SHIFT CORPORATION
(Exact name of Registrant as specified in its charter)
MINNESOTA 41-1437794
(state or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
_________________________
7900 INTERNATIONAL DRIVE
SUITE 450
MINNEAPOLIS, MN 55425
(612) 851-1500
(Address, including zip code, of Registrant's
principal executive offices and telephone
number, including area code)
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 on August 7,
1996 was 9,604,509 shares.
<PAGE>
FOURTH SHIFT CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets at 2
June 30, 1996 and December 31, 1995
Consolidated Statements of Operations 3
for the three and six months ended June 30, 1996
and 1995
Consolidated Statements of Cash Flows 4
for the six months ended June 30, 1996 and 1995
Notes to Interim Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FOURTH SHIFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 5,601 $ 7,058
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . 11,060 10,129
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733 778
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 1,014 864
Current portion of note receivable. . . . . . . . . . . . . . . . . 779 566
-------- -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . 19,187 19,395
FURNITURE, FIXTURES AND EQUIPMENT, net. . . . . . . . . . . . . . . . 4,234 2,997
NOTE RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,537 1,934
GOODWILL, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 168
-------- -----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,084 $ 24,494
-------- -----------
-------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations and equipment loan . . $ 486 $ 441
Current portion of deferred gain on sale of subsidiary. . . . . . . 796 566
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 2,401 2,125
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 4,422 6,180
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . 8,456 8,273
-------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 16,561 17,585
CAPITAL LEASE OBLIGATIONS AND EQUIPMENT LOAN. . . . . . . . . . . . . 1,122 275
DEFERRED GAIN ON SALE OF SUBSIDIARY . . . . . . . . . . . . . . . . . 1,331 1,934
-------- -----------
SHAREHOLDERS' EQUITY:
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 94
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . 29,658 29,222
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (23,684) (24,616)
-------- -----------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . 6,070 4,700
-------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . . . . . . . . $ 25,084 $ 24,494
-------- -----------
-------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
FOURTH SHIFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Software license..........................$ 6,014 $ 4,509 $ 10,402 $ 8,088
Service................................... 5,647 4,409 11,165 8,674
Third-party software and other............ 762 367 1,428 709
------- --------- -------- --------
Total revenue................... 12,423 9,285 22,995 17,471
------- --------- -------- --------
OPERATING EXPENSES:
Cost of licenses.......................... 808 650 1,393 1,150
Cost of services.......................... 2,625 1,914 5,149 3,822
Cost of third-party software and other.... 560 255 1,045 457
Selling, general and administrative....... 5,465 4,509 10,346 9,143
Product development....................... 2,314 1,423 4,257 2,781
Restructuring charge...................... - 149 - 149
------- --------- -------- --------
Total operating expenses........ 11,772 8,900 22,190 17,502
------- --------- -------- --------
Operating profit (loss).......................... 651 385 805 (31)
Other income (expense), net...................... (4) (28) 39 (47)
------- --------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES............. 647 357 844 (78)
Provision for income taxes................ 80 70 151 129
------- --------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS......... 567 287 693 (207)
DISCONTINUED OPERATIONS:
Loss from discontinued operations.............. - (4,867) - (7,798)
Net gain on sale of discontinued operations.... 188 - 372 -
------- --------- -------- --------
Total discontinued operations............. 188 (4,867) 372 (7,798)
------- --------- -------- --------
NET INCOME (LOSS)................................ $ 755 $ (4,580) $ 1,065 $ (8,005)
------- --------- -------- --------
------- --------- -------- --------
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations.......................... $ 0.06 $ 0.03 $ 0.07 $ (0.02)
Discontinued operations........................ 0.02 (0.52) 0.04 (0.84)
------- --------- -------- --------
Net income (loss).............................. $ 0.08 $ (0.49) $ 0.11 $ (0.86)
------- --------- -------- --------
------- --------- -------- --------
SHARES USED IN PER COMMON SHARE COMPUTATION...... 9,914 9,351 9,793 9,343
------- --------- -------- --------
------- --------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
FOURTH SHIFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------------
1996 1995
--------- ----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,065 $ (8,005)
Adjustments to reconcile net income (loss) to net cash
Depreciation and amortization 839 642
Restructuring charge - 149
Gain on sale of discontinued operations (372) -
Loss from discontinued operations - 7,798
Other (102) 9
Change in current operating items:
Accounts receivable, net (931) (738)
Inventories 45 221
Prepaid expenses (150) (198)
Accounts payable 276 (2,130)
Accrued expenses (1,508) 111
Deferred revenue 183 2,618
--------- ----------
Net cash provided by (used in) operating activities (655) 477
--------- ----------
INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment (1,599) (981)
Proceeds from sale of discontinued operations 184 -
--------- ----------
Net cash used in investing activities (1,415) (981)
--------- ----------
FINANCING ACTIVITIES:
Payments of long-term obligations (245) (187)
Borrowings on equipment facility and capital leases 702 427
Borrowings on line of credit 350 2,200
Repayments of line of credit borrowings (350) (2,200)
Proceeds on issuance of common stock, net 156 56
--------- ----------
Net cash provided by financing activities 613 296
--------- ----------
CASH USED IN DISCONTINUED OPERATIONS - (3,221)
--------- ----------
Net change in cash and cash equivalents (1,457) (3,429)
CASH AND CASH EQUIVALENTS:
Beginning of period 7,058 6,771
--------- ----------
End of period $ 5,601 $ 3,342
--------- ----------
--------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during each period for-
Income taxes $ 23 $ 27
Interest 100 12
--------- ----------
--------- ----------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capitalized leases $ 435 $ 32
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
FOURTH SHIFT CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. The accompanying interim consolidated financial statements have been
prepared by Fourth Shift Corporation (the "Company"), without audit, in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission.
The unaudited consolidated financial statements as of June 30, 1996 and 1995 and
for the three month and six month periods then ended include, in the opinion of
management, all adjustments, consisting solely of normal recurring adjustments,
necessary for a fair presentation of the financial results for the respective
interim periods. The results of operations for the three and six month periods
ended June 30, 1996 are not necessarily indicative of results of operations to
be expected for the entire fiscal year ending December 31, 1996. The
accompanying interim consolidated financial statements have been prepared under
the presumption that users of the interim consolidated financial information
have either read or have access to the audited consolidated financial statements
for the year ended December 31, 1995. Accordingly, certain footnote disclosures
which would substantially duplicate the disclosures contained in the December
31, 1995 audited consolidated financial statements have been omitted from these
interim consolidated financial statements. It is suggested that these interim
consolidated financial statements be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 1995 and the
notes thereto.
2. In March 1996, the Company borrowed $350,000 under its line of credit to
finance the purchase of capital equipment. Subsequent to March 31,1996, the
Company refinanced the borrowing as part of a $1,500,000 long-term equipment
facility. The facility bears interest at 9.5% and is payable monthly. Principal
payments are payable in thirty-six equal monthly installments starting in May
1997 through April 2000. The facility contains restrictive covenants which
include the maintenance of minimum tangible net worth and profitability levels
as well as certain financial ratios. Total borrowings on equipment facilities as
of June 30, 1996 are $702,000.
3. Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement No. 123"), issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), but requires
pro forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied. In accordance with Statement No.
123, the Company has elected to continue to measure compensation cost under APB
No. 25 and comply with the pro forma disclosure requirements. This election
will have no impact on the Company's results of operations or financial
position.
4. In the second quarter ended June 30, 1996, the Company recognized a gain of
$188,000 related to the receipt of a principal payment in July 1996 on the
related note receivable from the sale of its subsidiary Just In Time Enterprise
Systems, Inc. in December 1995. For the six-month period ended June 30, 1996,
the Company recognized a gain of $372,000 in connection with this sale.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results
of operations has been prepared under the presumption that users of the interim
consolidated financial statements have either read or have access to the
Company's annual report for the year ended December 31, 1995.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The following Management's
Discussion and Analysis contains various "forward looking statements" within the
meaning of federal securities laws which represent management's expectations or
beliefs concerning future events, including statements regarding anticipated
sales, marketing and research and development expenditures, growth in revenue,
capital requirements and the sufficiency of cash to meet operating expenses.
These, and other forward looking statements made by the Company, must be
evaluated in the context of a number of factors that may affect the Company's
financial condition and results of operations, including the following:
-- the ability of the Company to timely complete the anticipated
development milestones for its new Fourth Shift OBJECTS Enterprise
Software -TM- product line and the degree of market acceptance of the
product once developed;
-- fluctuations in quarterly operating results caused by changes in the
computer industry, buying patterns and general economic conditions;
-- the dependence of the Company on revenue from sales of its
Manufacturing Software System (MSS) product;
-- the effects of changes in technology and standards in the computer
industry;
-- the significant competition among developers and marketers of
industrial software;
-- the increasing size of the Company's international operations,
particularly in Asia;
-- the ability of the Company to manage expansion of international
distribution channels;
-- the dependence of the MSS product line on a third-party database
management system; and
-- evolving standards regarding intellectual property protection for
software products in general.
RESULTS OF OPERATIONS
NET INCOME (LOSS). The Company recorded net income of $755,000 or $.08
per share for the quarter ended June 30, 1996, compared to a net loss of
$4,580,000 or $.49 per share for the quarter ended June 30, 1995. For the six
months ended June 30, 1996, the Company recorded net income of $1,065,000 or
$.11 per share as compared to a net loss of $8,005,000 or $.86 per share in the
year-ago period. Net losses for the three and six month periods in 1995
resulted from operating losses incurred by the Company's subsidiary, Just in
Time Enterprise Systems, Inc. which was sold in December 1995. The net income
reported in the three and six month periods of 1996 was attributable to
increased revenues and the continued profitability of the
6
<PAGE>
Manufacturing Software System (MSS) product line. In addition, the Company
recorded a $188,000 gain on the sale of discontinued operations in the second
quarter of 1996.
TOTAL REVENUE increased 34% to $12,423,000 during the three months ended
June 30, 1996 from $9,285,000 during the comparable period in 1995. For the six
months ended June 30, 1996, total revenue increased 32% compared to the
comparable period in 1995, as outlined below.
SOFTWARE LICENSE REVENUE are fees paid by customers for the right to use
the Company's software systems. Software license revenue increased $1,505,000
or 33% to $6,014,000 during the second quarter of 1996 from $4,509,000 as
compared to the same period in 1995 and increased $2,314,000 or 29% to
$10,402,000 for the six month period ended June 30, 1996 from $8,088,000 as
compared to 1995. The increase is primarily attributable to greater visibility
of the Company's products, continued growth and penetration in foreign markets,
particularly the Pacific Rim and Europe, increases in the Company's direct sales
force and increases relating to the second quarter introduction of Windows NT
product offerings.
SERVICE REVENUE includes customer support fees, training, consulting,
installation and project management. Service revenue increased 28% to
$5,647,000 during the second quarter of 1996 from $4,409,000 as compared to the
same period in 1995 and increased 29% to $11,165,000 for the six month period
ended June 30, 1996 from $8,674,000 as compared to 1995. Increased service
revenue is a direct result of the expansion of the current customer base,
additional subscribers to the Company's customer support program and ongoing
efforts by the Company's professional services organization to standardize and
promote its consulting and training offerings, especially in Asia. In addition,
service revenue increased over the prior year due to increases relating to the
Company's technical consulting service program and the addition of new
professional service product offerings.
THIRD-PARTY SOFTWARE AND OTHER REVENUE is derived principally from the
resale of third-party software licenses (companion products) along with limited
hardware sales. These companion products have been integrated to function with
the MSS software and extend the functionality of MSS. Third-party software and
other revenue increased 108% to $762,000 during the second quarter of 1996 from
$367,000 as compared to the same period in 1995 and increased 101% to $1,428,000
for the six month period ended June 30, 1996 from $709,000 as compared to 1995.
The increase is directly related to increases in MSS license revenue since
software licenses of third-party vendors are often licensed in conjunction with
the licensing of the MSS product. In addition, increases in the variety of
companion products made available to customers as well as additional acceptance
of companion products by the existing installed base also contributed to the
revenue increase in 1996.
COST OF LICENSES increased to $808,000 in the second quarter of 1996
from $650,000 in the same period of 1995. As a percentage of total software
license revenue, cost of licenses was 13% for both the quarter and six month
period ended June 30,1996 compared to 14% for the prior year comparable periods.
The decrease in percent of revenue from 1995 to 1996 is due to lower net
distribution costs, an increase in the mix of direct sales force sales, offset
by increases in royalty costs paid to third-party software suppliers whose
products are embedded in and distributed with the MSS product.
COST OF SERVICES increased to $2,625,000 in the second quarter of 1996
from $1,914,000 in the same period of 1995. As a percentage of service revenue,
cost of services was 46% for the second quarter of 1996 and 43% for the second
quarter of 1995. The increase in cost of services as a percentage of service
revenue primarily relates to higher costs of services associated with the growth
of the Asia market, offset by the sale of lower cost consulting products which
were
7
<PAGE>
introduced in the first quarter of 1996. The cost of services as a percentage of
service revenue for the six month period ended June 30, 1996 was 46% compared to
44% for the same period in 1995.
COST OF THIRD-PARTY SOFTWARE AND OTHER increased to $560,000 or 73% of
third-party software revenue in the second quarter of 1996 from $255,000 or 69%
of third-party software revenue in the same period of 1995. The increase in cost
of third-party software as a percentage of third-party software revenue is
primarily due to the inclusion of certain costs associated with the writing,
supporting and maintenance of the interface between certain companion products
and the MSS product, changes in the mix of products sold, combined with
increased fixed personnel costs. The cost of third-party software as a
percentage of third-party software revenue for the six month period ended June
30, 1996 was 73% compared to 64% for the same period in 1995.
SELLING, GENERAL AND ADMINISTRATIVE expense increased to $5,465,000 for
the three month period ended June 30, 1996 up from $4,509,000 for the three
month period ended June 30, 1995. As a percentage of total revenue, selling,
general and administrative expense decreased to 44% of total revenue from 49%
for the periods presented. Selling, general and administrative expense for the
six months ended June 30, 1996 was $10,346,000 or 45% of total revenue compared
to $9,143,000 or 52% of total revenue for the same period in 1995. The dollar
increase in the amount from 1995 to 1996 relates to the addition of selling
personnel and commissions earned in connection with the Company's efforts to
expand its market penetration in North America and international markets,
particularly Asia. The decrease as a percentage of total revenue in the second
quarter is the direct result of increases in sales force productivity. The
Company has also experienced a decrease in general and administrative costs in
North America as a result of the concerted efforts made by management to control
and reduce such costs. These decreases were partially offset by increased
administrative costs associated with the continued expansion in the Asia market.
The Company intends to increase its selling and marketing expenditures to
generate current and future growth in software license and service revenues.
PRODUCT DEVELOPMENT expense for the three months ended June 30, 1996
increased to $2,314,000 up from $1,423,000 for the three months ended June 30,
1995. As a percentage of total revenue, product development increased to 19% of
total revenue compared to 15% in the same period of 1995. Product development
expense for the six months ended June 30, 1996 was $4,257,000 or 19% of total
revenue compared to $2,781,000 or 16% of total revenue for the same time period
in 1995. The overall increase in 1996 is a direct result of increased headcount
and support resources associated with the development of the Company's
object-oriented, communications-centric product, Fourth Shift OBJECTS Enterprise
Software-TM-, which is being designed using object-oriented technology and is
targeted for a "beta" release in the third quarter of 1996. Additionally, the
Company completed several significant user enhancements associated with MSS
product Release 5.2, including an additional language, additional functionality
for average actual costing, development of enhanced graphical user interface
features and functionality, Windows NT support for TCP/IP communication
protocol, and a new on-line documentation system delivered on CD-ROM. The
Company's product development activities are conducted internally and consist
primarily of software development -- the design, implementation and quality
assurance of application code. The Company does not have any material fixed
commitments for capital expenditures in research and development. The Company
believes that product development spending is critical to the continuing success
of the Company's products and intends to continue to invest heavily in research
and development.
8
<PAGE>
Under Statement of Financial Accounting Standards No. 86 ("SFAS No. 86"),
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed," capitalization of computer software development costs is to begin
upon the establishment of technological feasibility, limited to the net
realizable value of the software product, and cease when the software is
available for general release to customers.
Historically, the development costs incurred by the Company with respect to its
MSS product have not been material during the period between the achievement of
technological feasibility, defined by the Company as the existence of a working
model of the product, and the point at which the product is available for
general release to customers. In addition, development costs incurred
associated with new releases of MSS, which include the cost of developing
additional modules, module enhancements and additional functionality, have had a
relatively short economic life. Accordingly, the Company has charged all
software development costs to expense as incurred.
Since mid-1995, the Company has been investing significant resources in the
development of its next generation product, Fourth Shift OBJECTS Enterprise
Software-TM- ("OBJECTS"). This product will consist of application servers and
foundation objects layered on top of a reusable object-oriented framework. This
effort has resulted in the completion of a working model of OBJECTS in July
1996. The product will be enhanced during the remainder of 1996 and is expected
to be available for general release in 1997. The Company believes that the
object-oriented framework being developed is highly reusable and that the
economic life will be in excess of five years. Accordingly, the Company plans to
capitalize the development costs associated with the object-oriented framework
in accordance with SFAS No. 86. The Company also intends to capitalize the
development of certain OBJECTS application servers for which there is a high
likelihood that their economic life will significantly exceed one year. These
application servers will represent "core" application servers for which there is
well defined market acceptance of the underlying functionality. Total software
development costs estimated to be capitalized in 1996 in connection with this
development effort will approximate $1.5 to $2.0 million. These costs will be
amortized to expense, beginning at the time the product is available for general
release (early 1997) over a period not to exceed five years.
PROVISION FOR INCOME TAXES. During 1996, the Company's effective tax
rate was lower than the federal statutory rate of 34% as a result of the
utilization of net operating loss carryforwards to offset U.S. taxable income.
The provision for income taxes for the three and six month periods ended June
30, 1996 and 1995 was comprised principally of state and foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, the Company's cash decreased
$1,457,000 to $5,601,000.
Cash used for operating activities was $655,000 for the six months ended June
30, 1996. The primary uses of cash from operating activities were increases in
accounts receivable of $931,000, decreases in accrued expenses of $1,508,000 and
increases in prepaid expenses of $150,000. These uses were offset by increases
in accounts payable of $276,000, increases in deferred revenue of $183,000 and
net income of $1,065,000, as adjusted to eliminate depreciation and amortization
of $839,000 and the net gain of $372,000 recorded on the sale of discontinued
operations. The increase in accounts receivable is a direct result of increased
sales. The net decrease in accrued expenses and accounts payable resulted from
the payment of amounts accrued at year-end associated with fourth quarter 1995
seasonal growth.
9
<PAGE>
Cash used for investing activities was $1,415,000 which relates primarily to the
purchase of furniture, fixtures and computer equipment associated with the
growth of foreign subsidiaries and the expansion of the domestic sales network
and development effort. The Company also received principal payments to date
totaling $184,000 in connection with the sale of its subsidiary Just In Time
Enterprise Systems, Inc. in December 1995.
Cash provided by financing activities was $613,000 relating primarily to
borrowings under the Company's capital lease arrangements. During the first
quarter, the Company borrowed $350,000 under its line of credit to finance the
purchase of capital equipment. Subsequent to March 31,1996, the Company
refinanced the borrowing as part of a $1,500,000 long-term equipment facility.
The facility bears interest at 9.5% and is payable monthly. Principal payments
are payable in thirty-six equal monthly installments starting in May 1997
through April 2000. The facility contains restrictive covenants which include
the maintenance of minimum tangible net worth and profitability levels as well
as certain financial ratios. Total borrowings on equipment facilities through
June 30, 1996 were $702,000 and repayments on borrowings were $245,000. In
addition, the Company received $156,000 in proceeds in connection with the
exercise of stock options.
The Company does not have any material scheduled commitments for capital
expenditures. The Company believes that the $5,601,000 of cash and cash
equivalents on hand at June 30, 1996, together with anticipated cash flows from
operations and the Company's available lines of credit will be sufficient to
fund operating cash needs over the next twelve months.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11.1 - Calculation of net income (loss) per common share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
June 30, 1996.
11
<PAGE>
SIGNATURE
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.
Fourth Shift Corporation
August 8, 1996
/s/ DAVID G. LATZKE
------------------------
David G. Latzke
Vice President and Chief Financial Officer
(principal financial officer)
12
<PAGE>
EXHIBIT 11.1
FOURTH SHIFT CORPORATION
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $756 ($4,580) $ 1,066 ($8,005)
------ ------- ------ ------
------ ------- ------ ------
Weighted average number of common and common equivalent
shares outstanding:
Weighted average number of common shares outstanding 9,543 9,351 9,530 9,343
Dilutive effect of stock options after application
of the treasury stock method (1) 371 - 263 -
------ ------- ------ ------
Shares used in per common share computation 9,914 9,351 9,793 9,343
------ ------- ------ ------
------ ------- ------ ------
Net income (loss) per common share $0.08 ($0.49) $0.11 ($0.86)
------ ------- ------ ------
------ ------- ------------
</TABLE>
(1) Shares related to these options are not included in the 1995 per share
calculation as they are antidilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOURTH SHIFT
CORPORATION'S CONSOLIDATED BALANCE SHEET FOR THE PERIOD ENDED 6/30/96 AND
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED 6/30/96
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> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,601
<SECURITIES> 0
<RECEIVABLES> 11,060 <F1>
<ALLOWANCES> 0
<INVENTORY> 733
<CURRENT-ASSETS> 19,187
<PP&E> 4,234 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,084
<CURRENT-LIABILITIES> 16,561
<BONDS> 1,122
0
0
<COMMON> 96
<OTHER-SE> 5,974
<TOTAL-LIABILITY-AND-EQUITY> 25,084
<SALES> 11,830
<TOTAL-REVENUES> 22,995
<CGS> 2,438
<TOTAL-COSTS> 7,587
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181
<INCOME-PRETAX> 844
<INCOME-TAX> 151
<INCOME-CONTINUING> 693
<DISCONTINUED> 372
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,065
<EPS-PRIMARY> .11
<EPS-DILUTED> 0
<FN>
<F1> THESE ASSET VALUES REPRESENT AMOUNTS NET OF ALLOWANCES FOR DOUBTFUL
ACCOUNTS.
<F2> THESE ASSET VALUES REPRESENT AMOUNTS NET OF ACCUMULATED DEPRECIATION.
</FN>
</TABLE>
