<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 March 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________ to __________
Commission file number: 0-21992
_________________________
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 May 2, 1997
was 9,684,104 shares.
<PAGE>
<TABLE>
<CAPTION>
FOURTH SHIFT CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE
-------------------------------------------------------------------------
Item 1. Financial Statements:
<S> <C>
Consolidated Balance Sheets at 2
March 31, 1997 and December 31, 1996
Consolidated Statements of Operations 3
for the three months ended March 31, 1997
and 1996
Consolidated Statements of Cash Flows 4
for the three months ended March 31, 1997
and 1996
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 10
</TABLE>
SIGNATURE 11
---------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
FOURTH SHIFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
------
MARCH 31, DECEMBER 31,
1997 1996
---- ----
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . $ 3,704 $ 6,435
Accounts receivable, net . . . . . . . . . 10,714 13,007
Inventories. . . . . . . . . . . . . . . . 565 596
Prepaid expenses . . . . . . . . . . . . . 1,227 1,156
Current portion of note receivable . . . . 832 813
-------- --------
Total current assets . . . . . . . . . 17,042 22,007
FURNITURE, FIXTURES AND EQUIPMENT, net . . . . 6,301 6,140
NOTE RECEIVABLE. . . . . . . . . . . . . . . . 906 1,121
SOFTWARE DEVELOPMENT COSTS . . . . . . . . . . 3,040 1,820
GOODWILL, net. . . . . . . . . . . . . . . . . 63 84
-------- --------
TOTAL ASSETS 27,352 $ 31,172
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of capital lease
obligations and equipment loans. . . . . . $ 1,211 $ 868
Current portion of deferred gain
on sale of subsidiary. . . . . . . . . . . 631 617
Accounts payable . . . . . . . . . . . . . 2,568 4,283
Accrued expenses . . . . . . . . . . . . . 4,698 6,032
Deferred revenue . . . . . . . . . . . . . 8,748 8,860
-------- --------
Total current liabilities . . . . . . 17,856 20,660
CAPITAL LEASE OBLIGATIONS AND EQUIPMENT LOANS. 2,514 2,304
DEFERRED GAIN ON SALE OF SUBSIDIARY. . . . . . 906 1,121
-------- --------
SHAREHOLDERS' EQUITY:
Common stock . . . . . . . . . . . . . . . 97 96
Additional paid-in capital . . . . . . . . 30,180 29,872
Accumulated deficit. . . . . . . . . . . . (24,201) (22,881)
-------- --------
Total shareholders' equity. . . . . . 6,076 7,087
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 27,352 $ 31,172
-------- --------
-------- --------
</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
MARCH 31
------------------------
1997 1996
------------------------
(Unaudited)
REVENUE:
<S> <C> <C>
Software license . . . . . . . . . . . . . . . . $ 3,801 $ 4,388
Service. . . . . . . . . . . . . . . . . . . . . 6,416 5,518
Third-party software and other . . . . . . . . . 588 666
-------- --------
Total revenue . . . . . . . . . . . . . . . . 10,805 10,572
-------- --------
OPERATING EXPENSES:
Cost of licenses . . . . . . . . . . . . . . . . 525 441
Cost of services . . . . . . . . . . . . . . . . 3,122 2,643
Cost of third-party software and other . . . . . 412 485
Selling, general and administrative. . . . . . . 6,123 4,881
Product development. . . . . . . . . . . . . . . 2,073 1,968
-------- --------
Total operating expenses . . . . . . . . . . 12,255 10,418
-------- --------
Operating profit (loss) . . . . . . . . . . . . . . (1,450) 154
Other income (expense), net. . . . . . . . . . . . . (77) 43
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES. . . . . . . (1,527) 197
Provision for income taxes . . . . . . . . . . . (31) 71
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS . . . . . . (1,496) 126
NET GAIN ON SALE OF DISCONTINUED OPERATIONS. . . . . 201 184
-------- --------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . $ (1,295) $ 310
-------- --------
-------- --------
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations. . . . . . . . . . . . . $ (0.15) $ 0.01
Discontinued operations. . . . . . . . . . . . 0.02 0.02
-------- --------
Net income (loss). . . . . . . . . . . . . . . $ (0.13) $ 0.03
-------- --------
-------- --------
SHARES USED IN PER COMMON SHARE COMPUTATION. . . . . 9,674 9,673
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
FOURTH SHIFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
THREE MONTHS ENDED
MARCH 31
------------------
1997 1996
------- -------
(Unaudited)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (1,295) $ 310
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 614 392
Gain on sale of discontinued operations (201) (184)
Other (5) (139)
Change in current operating items:
Accounts receivable, net 2,293 722
Inventories 31 (262)
Prepaid expenses (71) (85)
Accounts payable (1,715) 387
Accrued expenses (1,083) (1,634)
Deferred revenue (112) 116
--------- -------
Net cash used in operating activities (1,544) (377)
--------- -------
INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment (280) (834)
Proceeds from sale of discontinued operations 196 -
Capitalized software development costs (1,220) -
--------- -------
Net cash used in investing activities (1,304) (834)
--------- -------
FINANCING ACTIVITIES:
Payments of long-term obligations (138) (102)
Borrowings on equipment facility 195 -
Borrowings on line of credit - 350
Proceeds on issuance of common stock 60 149
--------- -------
Net cash provided by financing activities 117 397
--------- -------
Net change in cash and cash equivalents (2,731) (814)
CASH AND CASH EQUIVALENTS:
Beginning of period 6,435 7,058
--------- -------
End of period $ 3,704 $ 6,244
--------- -------
--------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during each period for-
Income taxes $ 19 $ 22
Interest 107 49
--------- -------
--------- -------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capitalized leases $ 496 $ -
--------- -------
--------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
FOURTH SHIFT CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
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 March 31, 1997 and 1996
and for the three 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
month period ended March 31, 1997 are not necessarily indicative of results
of operations to be expected for the entire fiscal year ending December 31,
1997. 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, 1996.
Accordingly, certain footnote disclosures which would substantially duplicate
the disclosures contained in the December 31, 1996 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, 1996 and the notes
thereto.
2. In the quarter ended March 31, 1997, the Company recognized a gain of
$201,000 related to the receipt of a principal payment in April 1997 on the
note receivable from the sale of its former subsidiary, Just In Time
Enterprise Systems, Inc.
3. In accordance with Statement of Financial Accounting Standards (SFAS)
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," certain software development costs are capitalized upon
the establishment of technological feasibility. Costs incurred prior to the
establishment of technological feasibility and development costs incurred to
improve and enhance existing software are charged to expense as incurred. In
the quarter ended March 31, 1997, the Company capitalized $1,220,000 of
development costs related to the development of its next generation product,
Fourth Shift OBJECTS Enterprise Software -TM- . These capitalized costs will
be amortized to expense over the product's estimated economic life, not to
exceed five years, beginning at the time the product is available for general
release.
4. During March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share", which requires the disclosure of basic earnings per share and
diluted earnings per share. The Company expects to adopt SFAS 128 at the end
of 1997 and anticipates it will not have a material impact on previously
reported earnings per share.
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, 1996.
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 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 a net loss of $1,295,000 or $.13
per share for quarter ended March 31, 1997, compared to net income of $310,000
or $.03 per share for the quarter ended March 31, 1996. The loss for the
quarter is attributable to the reduction in license revenue when compared with
the first quarter of 1996, combined with seasonality in the business which has
historically depressed first quarter revenue when compared with the
6
<PAGE>
other quarters of the year. See SOFTWARE LICENSE REVENUE below for additional
discussion of software license revenue.
TOTAL REVENUE increased 2% to $10,805,000 during the three months ended
March 31, 1997 from $10,572,000 during the comparable period in 1996, as
outlined below.
SOFTWARE LICENSE REVENUE are fees paid by customers for the right to use
the Company's software systems. Software license revenue decreased 13% to
$3,801,000 from $4,388,000 during same quarter in 1996. This decrease was due
to competitive pressures at the lower end of the market combined with delayed
purchasing decisions from a few, larger multi-site prospects. Reductions were
experienced in all geographic regions (Americas, Europe, and Asia) with the
sharpest percentage decrease in Asia. In the opinion of Management, the first
quarter license revenue decrease was due to short-term market conditions and
challenges. The Company believes it has the resources to address these
challenges and therefore does not believe that the first quarter decrease is
indicative of a long-term trend.
SERVICE REVENUE includes customer support fees, training, consulting,
installation and project management. Service revenue increased 16% to
$6,416,000 from $5,518,000 during the same quarter in 1996. Service revenues
showed strong growth despite the shortfall in first quarter license revenue due
to the impact of fourth quarter 1996 license revenue growth. Fourth quarter
1996 license revenue grew 47% over the same period in 1995. A major portion of
professional services are purchased in the three to six months following the
licensing of the software. In addition, service revenue continues to benefit
from the Company's ongoing efforts to expand, standardize and promote its
professional services 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 decreased 12% to $588,000 in the first quarter of 1997 from
$666,000 during the same quarter in 1996. This reduction is directly
attributable to the decrease in MSS software license revenue, as a significant
portion of third-party software is licensed in conjunction with the MSS product.
COST OF LICENSES increased to $525,000 in the first quarter of 1997 from
$441,000 in the same period of 1996. As a percentage of total license revenue,
cost of licenses was 14% in the first quarter of 1997 compared to 10% for the
prior year comparable period. The increase in the cost of licenses as a
percentage of license revenue is primarily due to 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 $3,122,000 for the three months ended March
31, 1997 from $2,643,000 for the same period of 1996. As a percentage of
service revenue, cost of services was 49% for the first quarter of 1997 and 48%
for the first quarter of 1996. The slight increase in cost of services as a
percentage of service revenue reflects slightly lower levels of productivity due
to increases in headcount over the same period in 1996, and the effect of an
imbalance between the regional supply versus demand for consulting personnel.
COST OF THIRD-PARTY SOFTWARE AND OTHER decreased to $412,000 or 70% of
third-party software and other revenue in the first quarter of 1997 from
$485,000 or 73% of third-party software and other revenue in the same period
of 1996. The decrease in cost of third-party software as a percentage of
third-party software revenue is due to changes in the mix of software
products sold in the quarter.
7
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE expense increased 25% to $6,123,000 for
the three months period ended March 31, 1997, up from $4,881,000 for the three
month period ended March 31, 1996. As a percentage of total revenue, selling,
general and administrative expense increased to 57% of total revenue compared to
46% for the same period in 1996. The increase in terms of both absolute dollars
and as a percentage of revenue reflects the increased size of the Company
resulting from 1996 growth and market penetration. Fixed selling, general and
administrative costs did not expand during the first quarter and essentially
reflects that which was in place during the fourth quarter of 1996. Since first
quarter 1997 software license revenue did not grow at the rate experienced in
the later part of 1996, these fixed costs as a percent of revenue have grown
significantly when compared to the first quarter of 1996.
PRODUCT DEVELOPMENT expense for the three months ended March 31, 1997
increased to $2,073,000 from $1,968,000 for the three months ended March 31,
1996. As a percentage of total revenue, product development remained unchanged
from 1996 at 19% of total revenue. In the first quarter of 1997, the Company
capitalized $1,220,000 of development costs or 37% of total development
spending. No development costs were capitalized in the first quarter of 1996.
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.
The significant increase in total development spending (including capitalized
costs) in the first quarter of 1997 when compared with the same period last
year, 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 (OBJECTS). The first release
of OBJECTS was shipped to beta sites for testing in the third quarter of 1996
with a general release currently planned for the second quarter of 1997. The
Company believes that the object-oriented framework being developed is highly
reusable and that its economic life will be in excess of five years, and
therefore is capitalizing the costs associated with its development. The
Company is also capitalizing the development costs associated with certain
"core" OBJECTS application servers that will likely have an economic life in
excess of three years.
PROVISION FOR INCOME TAXES. The provision for income taxes for the three
months ended March 31, 1997 and 1996 was comprised of state and foreign income
taxes. The Company does not provide for US federal taxes as a result of
operating losses and a significant net operating loss carryforward.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the three months ended March 31, 1997, the Company's cash and cash
equivalents decreased $2,731,000 to $3,704,000.
Cash used in operating activities was $1,544,000 for the three months ended
March 31, 1997. The primary source of cash from operating activities was a
decrease in accounts receivable of $2,293,000 resulting from the collection of
fourth quarter revenues and the seasonal decrease in receivables. This source
was offset by the net loss of $1,295,000 adjusted for depreciation and
amortization of $614,000 and the gain of $201,000 recorded on the sale of
discontinued
8
<PAGE>
operations. In addition, cash was used by decreases in accounts payable of
$1,715,000 and decreases in accrued expenses of $1,083,000 resulting from
the payment of amounts accrued at 1996 year-end associated with fourth
quarter growth.
The Company used $1,304,000 of cash in investing activities during the three
months ended March 31, 1997. The primary use of cash for investing activities
was $1,220,000 of capitalized development spending related to the development of
Fourth Shift OBJECTS Enterprise Software. In addition, purchases of furniture,
fixtures and equipment totaled $280,000 in the first quarter of 1997 compared to
$834,000 for the same period in 1996. The decrease from 1996 to 1997 reflects
reduced capital needs due to slower growth in headcount and increased use of
non-cash equipment leases. These cash uses were offset by principal payments of
$196,000 received in connection with the sale of the Company's former
subsidiary, Just In Time Enterprise Systems, Inc.
Cash provided by financing activities totaled $117,000 during the three months
ended March 31, 1997. The primary source of cash from financing activities was
$195,000 representing the remaining balance available under the Company's
$1,500,000 long-term bank equipment facility. The Company also received $60,000
in proceeds in connection with the exercise of stock options. These sources
were partially offset by $138,000 of payments on capital lease obligations.
The Company does not have any material scheduled commitments for capital
expenditures. The Company believes that the $3,704,000 of cash and cash
equivalents on hand at March 31, 1997, together with the Company's $5,000,000
line of credit and anticipated cash flows from operations will be sufficient to
fund operating cash needs over the next twelve months. There were no
outstanding borrowings under the line of credit at March 31, 1997, and the
Company was in compliance with all related financial performance covenants. If
the above sources of cash are not sufficient to fund operations, the Company may
need to seek additional funds through equity or debt financing.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
10.1
Amendment No.5 to Loan and Security
Agreement dated March 31, 1997
between Fourth Shift Corporation and
Silicon Valley Bank
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
March 31, 1997.
10
<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
May 14, 1997
/s/ DAVID G. LATZKE
David G. Latzke
Vice President and Chief Financial Officer
(principal financial officer)
11
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 5 TO LOAN AND SECURITY AGREEMENT
This Amendment No. 5 to Loan and Security Agreement (this "Amendment") is
made as of March 31, 1997, by and between FOURTH SHIFT Corporation.
("Borrower") and Silicon Valley Bank ("Bank").
RECITALS
Borrower and Bank are parties to, among other documents, that certain Loan
and Security Agreement dated as of October 23, 1995, as amended (the
"Agreement"). The parties desire to amend the Agreement in accordance with
the terms of this Amendment.
NOW THEREFORE, Borrower and Bank agree as follows:
1. Bank hereby waives Borrower's existing default under the Loan
Agreement by virtue of Borrower's failure to comply with the Profitability,
the Debt Service Ratio and the Debt Service Ratio-Second Term Loan covenants
as of quarter ended December 31, 1996. Bank's waiver of Borrower's
compliance of these covenants shall apply only to the foregoing period.
Accordingly, for the quarter ending March 31, 1997, Borrower shall be in
compliance with these covenants, as amended herein.
Bank's agreement to waive the above-described default (1) in no way
shall be deemed an agreement by the Bank to waive Borrower's compliance with
the above-described covenants as of all other dates and (2) shall not limit
or impair the Bank's right to demand strict performance of these covenants as
of all other dates and (3) shall not limit or impair the Bank's right to
demand strict performance of all other covenants as of any date.
2. Section 6.10 entitled "Profitability" is hereby amended to provide
that Borrower shall not suffer a loss in excess of $2,800,000.00 in the
fiscal quarter ending March 31, 1997 and a loss in excess of $1,000,000.00 in
each of the fiscal quarters ending June 30, 1997 and September 30, 1997.
Borrower shall achieve profitability for each fiscal quarter thereafter.
3. Section 6.13 entitled "Debt Service Ratio" and Section 6.14
entitled "Debt Service Ratio-Second Term Loan" shall hereby be replaced with
the following Liquidity Ratio:
<PAGE>
6.13 Liquidity. Borrower shall maintain, as of the last day of
each quarter, a minimum Liquidity Ratio of 1.40 to 1.00, beginning with
fiscal quarter ending March 31, 1997. Liquidity Ratio is defined as
unrestricted cash and equivalents plus the net available under Borrower's
Revolving Facility divided by total outstandings under bank debt plus total
outstandings under capital leases.
4. Section 6.8 entitled "Quick Ratio" is hereby amended in its entirety
to read as follows:
Borrower shall maintain, as of the last day of each calendar month,
beginning with the month ending March 31, 1997, a ratio of Quick Assets to
Current Liabilities (excluding deferred revenue) of at least 1.30 to 1.00.
5. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Agreement. Except as amended, the Agreement
remains in full force and effect.
6. Borrower represents and warrants that the Representations and
Warranties contained in the Agreement are true and correct as of the date of
this Amendment, and that no Event of Default has occurred and is continuing.
7. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.
BORROWER: BANK:
FOURTH SHIFT CORPORATION SILICON VALLEY BANK
By: /s/ David G. Latzke By: /s/ Joy Olgyay
----------------------------------------- -----------------------
Name: David G. Latzke Name: Joy Olgyay
----------------------------------------- -----------------------
Title: Vice President & Chief Financial Officer Title: Vice President
----------------------------------------- -----------------------
<PAGE>
FOURTH SHIFT CORPORATION
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31
------------------
1997 1996
-------- --------
Net Income (loss) ($1,295) $310
-------- --------
-------- --------
Weighted average number of common and common equivalent
shares outstanding:
Weighted average number of common shares outstanding 9,674 9,517
Dilutive effect of stock options after application
of the treasury stock method 0 156
-------- --------
9,674 9,673
-------- --------
-------- --------
Net Income (loss) per common share ($0.13) $0.03
-------- --------
-------- --------
<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 MARCH 31, 1997 AND
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,704
<SECURITIES> 0
<RECEIVABLES> 10,714<F1>
<ALLOWANCES> 0
<INVENTORY> 565
<CURRENT-ASSETS> 17,042
<PP&E> 6,301<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,352
<CURRENT-LIABILITIES> 17,856
<BONDS> 2,514
0
0
<COMMON> 97
<OTHER-SE> 5,979
<TOTAL-LIABILITY-AND-EQUITY> 27,352
<SALES> 4,389
<TOTAL-REVENUES> 10,805
<CGS> 937
<TOTAL-COSTS> 4,059
<OTHER-EXPENSES> 8,196
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,527)
<INCOME-TAX> (31)
<INCOME-CONTINUING> (1,496)
<DISCONTINUED> 201
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,295)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> 0
<FN>
<F1>THESE ASSET VALUES REPRESENT AMOUNTS NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS.
<F2>THESE ASSET VALUES REPRESENT AMOUNTS NET OF ACCUMULATED DEPRECIATION
</FN>
</TABLE>
