<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 September 30, 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 November
1, 1997 was 9,789,429 shares.
<PAGE>
FOURTH SHIFT CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE
- -------------------------------------------------------------------------------
Item 1. Financial Statements:
Consolidated Balance Sheets at 2
September 30, 1997 and December 31, 1996
Consolidated Statements of Operations 3
for the three and nine months ended September 30, 1997
and 1996
Consolidated Statements of Cash Flows 4
for the nine months ended September 30, 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
SIGNATURE 11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FOURTH SHIFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 5,001 $ 6,435
Accounts receivable, net........................................... 11,920 13,007
Inventories........................................................ 588 596
Prepaid expenses................................................... 1,601 1,156
Current portion of note receivable................................. - 813
--------- --------
Total current assets........................................ 19,110 22,007
FURNITURE, FIXTURES AND EQUIPMENT, net.................................. 5,829 6,140
NOTE RECEIVABLE......................................................... - 1,121
SOFTWARE DEVELOPMENT COSTS, net......................................... 4,520 1,820
GOODWILL, net........................................................... 21 84
--------- --------
TOTAL ASSETS $ 29,480 $ 31,172
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations and equipment loans... $ 1,479 $ 868
Current portion of deferred gain on sale of subsidiary............. - 617
Revolving credit facility.......................................... 2,000 -
Accounts payable................................................... 2,380 4,283
Accrued expenses................................................... 5,906 6,032
Deferred revenue................................................... 8,406 8,860
--------- --------
Total current liabilities................................... 20,171 20,660
CAPITAL LEASE OBLIGATIONS AND EQUIPMENT LOANS........................... 1,972 2,304
DEFERRED GAIN ON SALE OF SUBSIDIARY..................................... - 1,121
--------- --------
SHAREHOLDERS' EQUITY:
Common stock....................................................... 98 96
Additional paid-in capital......................................... 30,554 29,872
Accumulated deficit................................................ (23,315) (22,881)
--------- --------
Total shareholders' equity.................................. 7,337 7,087
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 29,480 $ 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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Software license........................... $ 5,900 $ 5,277 $ 15,282 $ 15,679
Service.................................... 6,753 6,139 19,803 17,304
Third-party software and other............. 780 475 2,029 1,903
---------- ---------- ---------- ----------
Total revenue........................ 13,433 11,891 37,114 34,886
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of licenses........................... 708 600 1,926 1,705
Cost of services........................... 3,300 2,992 9,627 8,379
Cost of third-party software and other..... 587 426 1,476 1,471
Selling, general and administrative........ 6,635 5,641 19,335 15,987
Product development........................ 2,422 2,045 6,480 6,352
---------- ---------- ---------- ----------
Total operating expenses............. 13,652 11,704 38,844 33,894
---------- ---------- ---------- ----------
Operating profit (loss).......................... (219) 187 (1,730) 992
Other income (expense), net...................... (155) 2 (295) 41
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES.............. (374) 189 (2,025) 1,033
Provision for income taxes................. 20 27 10 178
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS......... (394) 162 (2,035) 855
NET GAIN ON SALE OF DISCONTINUED OPERATIONS...... 1,255 193 1,661 565
---------- ---------- ---------- ----------
NET INCOME (LOSS)................................ $ 861 $ 355 $ (374) $ 1,420
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations...................... $ (0.04) $ 0.02 $ (0.21) $ 0.09
Discontinued operations.................... 0.13 0.02 0.17 0.05
---------- ---------- ---------- ----------
Net income (loss).......................... $ 0.09 $ 0.04 $ (0.04) $ 0.14
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SHARES USED IN PER COMMON SHARE COMPUTATION....... 9,943 9,969 9,789 9,852
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (374) $ 1,420
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,389 1,301
Gain on sale of discontinued operations (1,661) (565)
Other (33) (43)
Change in current operating items:
Accounts receivable, net 1,087 (1,143)
Inventories 8 77
Prepaid expenses (445) (223)
Accounts payable (1,903) 581
Accrued expenses 425 (1,426)
Deferred revenue (454) 313
---------- ----------
Net cash provided by (used in) operating activities (961) 292
---------- ----------
INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment (832) (2,798)
Proceeds from sale of discontinued operations 1,857 372
Capitalized software development costs (3,090) (595)
---------- ----------
Net cash used in investing activities (2,065) (3,021)
---------- ----------
FINANCING ACTIVITIES:
Payments of long-term obligations (732) (400)
Borrowings on equipment facility and capital leases 195 1,561
Borrowings on line of credit 2,000 850
Repayments of line of credit borrowings - (850)
Proceeds on issuance of common stock, net 129 171
---------- ----------
Net cash provided by financing activities 1,592 1,332
---------- ----------
Net change in cash and cash equivalents (1,434) (1,397)
CASH AND CASH EQUIVALENTS:
Beginning of period 6,435 7,058
---------- ----------
End of period $ 5,001 $ 5,661
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during each period for-
Income taxes $ 25 $ 57
Interest 400 159
---------- ----------
---------- ----------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capitalized leases $ 816 $ 518
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
FOURTH SHIFT CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 1997 and
1996 and for the three month and nine 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 nine month periods ended September 30, 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 third quarter ended September 30, 1997, the Company recognized a
gain of $1,255,000 related to the full collection of the note receivable from
the sale of its former subsidiary, Just In Time Enterprise Systems, Inc.
For the nine-month period ended September 30, 1997, the Company recognized a
gain of $1,661,000 in connection with this sale.
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 September 30, 1997, the Company capitalized $755,000 of
development costs related to the development of its next generation product,
Fourth Shift OBJECTS Enterprise Software -TM-(OBJECTS). For the nine-month
period ended September 30, 1997, the Company capitalized $3,090,000 of
development costs. In June 1997, the Company introduced Release 1.0 of
OBJECTS for general distribution. As such, the Company has begun to amortize
all previously capitalized costs related to the development of OBJECTS
framework and Release 1.0 application modules. These costs are being
amortized straight-line over three years, or the economic life of the
framework and modules, if less than three years. The third quarter results
included amortization expense of $330,000. For the nine-month period ended
September 30, 1997, amortization expense totaled $390,000.
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 Manufacturing Software System (MSS
for OBJECTS) as well as its new Fourth Shift OBJECTS Enterprise
Software product line and the degree of market acceptance of that
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 MSS for
OBJECTS 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;
-- the ability of the Company to manage expansion of international
distribution channels;
-- the dependence of the MSS for OBJECTS 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 $861,000 or
$.09 per share for the quarter ended September 30, 1997, compared to net
income of $355,000 or $.04 per share for the quarter ended September 30,
1996. For the nine month period ended September 30, 1997, the Company
recorded a net loss of $374,000 or $.04 per share compared to net income of
$1,420,000 or $.14 per share in the year-ago period. Net income for the
quarter ended September 30, 1997 includes a gain of $1,255,000 or $.13 per
share from discontinued
6
<PAGE>
operations due to the early collection of a note related to the 1995 sale of
Just In Time Enterprise Systems, Inc.
The Company recorded an operating loss of $219,000 for the quarter ended
September 30, 1997 compared to an operating profit of $187,000 for the same
period in 1996. The margins on license and service revenue have remained
constant as a percent of revenue from 1996 to 1997 with total revenue
increasing 13% over 1996. As a result, the reduction in operating profit is
due to increases in selling, general and administrative expense and product
development expense. See below for specific discussion of increases in those
expenses.
TOTAL REVENUE increased 13% to $13,433,000 during the three months
ended September 30, 1997 from $11,891,000 during the comparable period in
1996. For the nine months ended September 30, 1997, total revenue increased
6% to $37,114,000 from $34,886,000 in the comparable period in 1996, as
outlined below.
SOFTWARE LICENSE REVENUE is fees paid by customers for the right to
use the Company's software systems. Software license revenue increased 12%
to $5,900,000 during the third quarter of 1997 from $5,277,000 during the
same period in 1996 and decreased 3% to $15,282,000 for the nine month period
ended September 30, 1997 from $15,679,000 during the same period in 1996.
For the third quarter, 44% year-over-year growth in North America was
partially offset by decreases in international markets. The North America
growth was due to improved sales strategies and management changes initiated
in the second quarter of 1997. International license revenue fell below
expectations due to increasing competition and turnover in certain key sales
positions. For the nine months, the revenue decrease is due to shortfalls in
North America during the first six months of 1997 as a result of competitive
pressure.
SERVICE REVENUE includes customer support fees, training, consulting,
installation and project management. Service revenue increased 10% to
$6,753,000 during the third quarter of 1997 from $6,139,000 during the same
period in 1996, and increased 14% to $19,803,000 for the nine month period
ended September 30, 1997 from $17,304,000 during the same period in 1996.
Service revenue continues to grow despite decreased license revenue for the
first nine months of 1997. This is the result of an installed base that
continues to grow, generating demand for customer support, training and other
service products. In addition, service revenue continues to reflect the
Company's ongoing efforts to expand, standardize and promote its professional
service offerings.
THIRD-PARTY SOFTWARE AND OTHER REVENUE is derived principally from
the resale of third-party software licenses (complimentary applications)
along with limited hardware sales. These complimentary applications have
been integrated to function with the MSS software and extend the
functionality of MSS. Third-party software and other revenue increased 64%
to $780,000 during the third quarter of 1997 from $475,000 during the same
period in 1996 and increased 7% to $2,029,000 for the nine month period ended
September 30, 1997 from $1,903,000 during the same period in 1996. The third
quarter increase is directly attributable to the 1997 increase in MSS
software license revenue, as a significant portion of third-party software is
licensed in conjunction with the MSS product. The third quarter 1997 increase
in third-party software revenue is magnified by the unusually low demand
experienced during the third quarter of 1996.
COST OF LICENSES increased to $708,000 in the third quarter of 1997
from $600,000 in the same period of 1996. As a percentage of total software
license revenue, cost of licenses was 12% for the third quarter of 1997 and
11% for the third quarter of 1996. The increase in 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. As a percentage of license revenue, cost
of licenses was 13% for the nine month period ended September 30, 1997 and
11% for the same period in 1996.
COST OF SERVICES increased to $3,300,000 in the third quarter of 1997
from $2,992,000 in the same period of 1996. As a percentage of service
revenue, cost of services was 49% for the third quarter of 1997 and 1996.
Increases in service margins related to the growth of customer support
revenues were offset by lower margins experienced from newly introduced
service
7
<PAGE>
offerings. As a percentage of service revenue, cost of services was 49% for
the nine month period ended September 30, 1997 and 48% for the same period
in 1996.
COST OF THIRD-PARTY SOFTWARE AND OTHER increased to $587,000 or 75%
of third-party software and other revenue in the third quarter of 1997 from
$426,000 or 90% of third-party software and other revenue in the same period
of 1996. The cost of third-party software and other as a percentage of
third-party software and other revenue for the nine month period ended
September 30, 1997 was 73% compared to 77% for the same period in 1996. The
decrease in the cost of third-party software as a percentage of third-party
software revenue is due to changes in the mix of software products licensed
during the quarter, as well as the mix of software versus lower-margin
hardware revenue.
SELLING, GENERAL AND ADMINISTRATIVE expense increased to $6,635,000
or 49% of total revenue for the three month period ended September 30, 1997
from $5,641,000 or 47% of total revenue for the three month period ended
September 30, 1996. Selling, general and administrative expense for the nine
months ended September 30, 1997 was $19,335,000 or 52% of total revenue
compared to $15,987,000 or 46% of total revenue for the same period in 1996.
The third quarter increase in terms of both absolute dollars and as a percentage
of revenue is due to the costs to reorganize and grow the sales organization,
the benefits of which have not yet been fully realized through increased
revenue. In addition, the increased percent for the nine months reflects the
impact of lower than anticipated license revenue for the first half of 1997.
PRODUCT DEVELOPMENT expense for the three months ended September 30,
1997 increased to $2,422,000 from $2,045,000 for the three months ended
September 30, 1996. As a percentage of total revenue, product development
increased to 18% of total revenue compared to 17% in the same period of 1996.
Product development expense for the nine month period ended September 30,
1997 was $6,480,000 or 17% of total revenue compared to $6,352,000 or 18% of
total revenue for the same period in 1996. In the third quarter of 1997, the
Company capitalized $755,000 of development costs or 27% of total development
spending. For the nine months ended September 30, 1997, the Company
capitalized $3,090,000 of development costs or 34% of total development
spending. In the third quarter of 1996, development costs of $595,000 were
capitalized.
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 nine months 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). Release 1.0 of OBJECTS was shipped to beta sites for testing in
the third quarter of 1996 with general release occurring in June of 1997.
The Company believes that the object-oriented framework is highly reusable
and that its economic life will be in excess of five years, and therefore has
capitalized 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.
With the June 1997 introduction of Release 1.0 of OBJECTS for general
distribution, the Company has begun to amortize all previously capitalized
costs related to the development of OBJECTS framework and Release 1.0
application servers. These costs are being amortized straight-line over three
years, or the
8
<PAGE>
economic life of the framework and application servers, if less than three
years. Amortization expense was $330,000 for the third quarter and $390,000
for the nine months ended September 30, 1997. The Company has begun to
capitalize development costs related to Release 2.0 application servers,
beginning at the point in time the respective servers reached technological
feasibility. It is anticipated that this capitalization will continue
through the market release date.
PROVISION FOR INCOME TAXES. The provision for income taxes for the
three and nine month periods ended September 30, 1997 and 1996 was comprised
of state and foreign income taxes. The Company does not provide for U.S.
federal taxes as a result of operating losses and a significant net operating
loss carryforward.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997, the Company's cash and cash
equivalents decreased $1,434,000 to $5,001,000.
The Company used $961,000 of cash in operating activities during the first
nine months of 1997. Most of the cash was used in the first quarter as the
Company decreased payables incurred because of fourth quarter 1996 growth by
$1,903,000, but produced cash of $1,087,000 by reducing seasonably high
receivables generated by the same growth. The remaining $145,000 of cash used
in operating activities represents the cash effect of the operating loss for
the nine months adjusted for the effect of non-cash depreciation.
The Company used $2,065,000 of cash in investing activities during the nine
months ended September 30, 1997. The primary use of cash for investing
activities was $3,090,000 of capitalized development spending related to the
development of Fourth Shift OBJECTS Enterprise Software. In addition,
purchases of furniture, fixtures and equipment totaled $832,000 through
September 30, 1997 compared to $2,798,000 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 $1,857,000 received in
connection with the sale of the Company's former subsidiary, Just In Time
Enterprise Systems, Inc. During the third quarter of 1997, this note was
settled in full in advance of the original scheduled payment dates.
Cash provided by financing activities totaled $1,592,000 during the nine
months ended September 30, 1997. The primary source of cash from financing
activities was $2,000,000 of borrowings under the Company's revolving line of
credit. Additionally, the Company borrowed $195,000 representing the
remaining balance available under the Company's $1,500,000 long-term bank
equipment facility. The Company also received $129,000 in proceeds in
connection with the exercise of stock options. These sources were partially
offset by $732,000 of payments on the bank equipment facility and capital
lease obligations.
The Company does not have any material scheduled commitments for capital
expenditures. The Company believes that the $5,001,000 of cash and cash
equivalents on hand at September 30, 1997, together with $3,000,000 of unused
capacity under the Company's $5,000,000 bank line of credit and anticipated
cash flows from operations will be sufficient to fund operating cash needs
over the next twelve months. At September 30, 1997, the Company was in
compliance with all financial performance covenants under the bank line of
credit and the bank equipment facility. The current bank agreements expire
and are scheduled for renewal on February 6, 1998. If the above sources of
cash are not sufficient to fund future operations, the Company may need to
seek additional funds through equity or debt financing.
OTHER MATTERS
Year 2000 issues anticipated by other companies and other software products
should not have a negative effect on the future operating results or
financial condition of the Company. The Fourth Shift development environment
has always supported the use of century-compliant dates. All software code
references a 100 year calendar which supports activity between the years 1980
through the year 2079. The Information Technology Association of America
(ITAA) has certified that Fourth Shift enterprise software solutions are year
2000 compliant.
9
<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
September 30, 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
November 14, 1997
/s/ DAVID G. LATZKE
-----------------------------------
David G. Latzke
Vice President and Chief Financial Officer
(principal financial officer)
11
<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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income (loss) $861 $355 ($374) $1,420
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common and common equivalent
shares outstanding:
Weighted average number of common shares outstanding 9,781 9,601 9,719 9,554
Dilutive effect of stock options after application
of the treasury stock method 162 368 70 298
-------- -------- -------- --------
9,943 9,969 9,789 9,852
-------- -------- -------- --------
-------- -------- -------- --------
Net Income (loss) per common share $0.09 $0.04 ($0.04) $0.14
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<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 9/30/97 AND
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED 9/30/97
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,001
<SECURITIES> 0
<RECEIVABLES> 11,920<F1>
<ALLOWANCES> 0
<INVENTORY> 588
<CURRENT-ASSETS> 19,110
<PP&E> 5,829<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,480
<CURRENT-LIABILITIES> 20,171
<BONDS> 1,972
0
0
<COMMON> 98
<OTHER-SE> 7,239
<TOTAL-LIABILITY-AND-EQUITY> 29,480
<SALES> 17,311
<TOTAL-REVENUES> 37,114
<CGS> 3,402
<TOTAL-COSTS> 13,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 295
<INCOME-PRETAX> (2,025)
<INCOME-TAX> 10
<INCOME-CONTINUING> (2,035)
<DISCONTINUED> 1,661
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (374)
<EPS-PRIMARY> (.04)
<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>
