MAPICS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 2000

OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)

For the transition period from to
Commission File Number: 000-18674

MAPICS, Inc.
(Exact name of registrant as specified in its charter)

Georgia 04-2711580
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)

1000 Windward Concourse Parkway, Suite 100
Alpharetta, Georgia 30005
(Address of principal executive offices)
(678) 319-8000
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
Series F Junior Participating Preferred Stock Purchase Rights
(Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the common stock held by non-affiliates of the
registrant was $84,054,832 at December 1, 2000, based on the closing sale price
of $6.531 per share for the common stock on such date on the Nasdaq National
Market.

The number of shares of the registrant's common stock outstanding at
December 1, 2000 was 18,160,899.

Documents Incorporated by Reference
Specifically identified portions of the proxy statement for the 2001 annual
meeting of shareholders to be held on February 13, 2001 are incorporated by
reference in Part III.

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MAPICS, Inc.

ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended September 30, 2000

TABLE OF CONTENTS

Item Page
Number Number
------ ------

PART I

1. Business...................................................... 1
2. Properties.................................................... 11
3. Legal Proceedings............................................. 11
4. Submission of Matters to a Vote of Security Holders........... 11

PART II

5. Market for the Registrant's Common Equity and Related
Stockholder Matters........................................... 12
6. Selected Financial Data....................................... 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 14
7A. Quantitative and Qualitative Disclosures about Market Risk.... 37
8. Financial Statements and Supplementary Data................... 38
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 69

PART III

10. Directors and Executive Officers of the Registrant............ 70
11. Executive Compensation........................................ 70
12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 70
13. Certain Relationships and Related Transaction................. 71

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................. 72
Signatures.................................................... 77

PART I

Item 1. Business.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

We believe that it is important to communicate our future expectations to
our shareholders and to the public. This report and our 2000 Annual Report
contain forward-looking statements, including, in particular, statements about
our plans, objectives, expectations and prospects under the headings "Item 1.
Business" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this report. You can identify these
statements by forward-looking words such as "expect," "anticipate," "intend,"
"plan," "believe," "continue," "could," "grow," "may," "potential," "predict,"
"strive," "will," "seek," "estimate" and similar expressions. Although we
believe that the plans, objectives, expectations and prospects reflected in or
suggested by our forward-looking statements are reasonable, those statements
involve uncertainties and risks, and we cannot assure you that our plans,
objectives, expectations and prospects will be achieved. Our actual results
could differ materially from the results anticipated by the forward-looking
statements as a result of many known and unknown factors, including but not
limited to those contained in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors Affecting Future
Performance" and elsewhere in this report. All written or oral forward-looking
statements attributable to us are expressly qualified in their entirety by
these cautionary statements. We undertake no obligation to publicly update or
revise any forward-looking statement that we may make in this report or
elsewhere.

General

We are a global developer of extended enterprise applications, or EEA, that
focuses on manufacturing establishments in discrete and batch process
industries. We deliver collaborative e-business solutions to automate the
manufacturing process, improve the coordination of organizational resources
and enhance interaction with supply chain partners.

We were originally incorporated in Massachusetts in 1980, and in 1998 we
reincorporated in Georgia. In January 2000, we acquired Pivotpoint, Inc. As
part of that acquisition, Pivotpoint brought to us all rights to the Point.Man
product offering as well as other product offerings such as Thru-Put and
Maincor. Our flagship solutions now include both XA and the acquired Point.Man
solution, two powerful extended enterprise applications that streamline
business processes for manufacturing, customer service, engineering, supply
chain planning and financials. The solutions support international and multi-
site operations on a variety of platforms, including the IBM eServer iSeries
400, Windows NT, UNIX and Linux. We also offer Thru-Put, a supply chain
management system, and TeamWeRX, a series of e-business applications designed
to enable companies to link members of their supply chain to send and receive
valuable real-time information to improve business decision-making at all
levels.

We focus on delivering a quick return on investment to our customers.
Following a building block approach and recognizing the need to integrate
solutions from different sources, our solutions enable our customers to
leverage their existing information technology investments and adopt new
technologies at a pace that best fits with their business plans. Our
application architecture also allows customers to rapidly implement all or a
portion of our solutions with minimal disruption to their business, which
lowers their costs and increases their return on investment.

We have licensed our solutions for use in over 3,500 locations around the
world. Our target market consists primarily of manufacturing establishments
with annual sales between $20 million and $500 million. With the depth and
breadth of our capabilities, we can support single and multi-site
manufacturing organizations, including those with global, multi-currency
requirements, as well as divisional operations within multibillion dollar
manufacturing enterprises.

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We currently work with customers such as:

Anaren
Microwave,
Inc. General Electric Co., P.L.C. Powerex Inc.
Bayer Corp. Goodyear Tire & Rubber Co. SmithKline Beecham
Dialight
Corporation Honda Motor Co., Ltd. Volvo Corp.
Dirona SP MAG Instruments, Inc. Weber-Stephen Products Co.
Dukane
Corporation Michelin Corp. York International Corporation

Our primary sales and implementation channel is a network of more than 70
independent local companies, which we refer to as affiliates, that market and
sell our products worldwide and support our global installed base of
customers. These affiliates provide customers with high quality and cost-
effective local implementation, industry specific consulting and other
professional services.

Our history of providing stable business solutions, flexible implementation
and industry leading support has given us the ability to extend our reach
within our target market. We intend to accomplish this by: 1) expanding our
presence within targeted manufacturing segments; 2) growing our direct and
indirect sales channels; 3) leveraging our new supply chain management system
and collaborative commerce solutions; 4) enhancing the collaborative
functionality of our solutions to address the evolving needs of present and
new customers; 5) capitalizing on new technologies and multiple deployment
options; 6) continuing to pursue strategic alliances; and 7) building on our
reputation for customer satisfaction.

Industry Background

Approximately half of all manufacturers in our target market operate either
discrete or batch-process manufacturing facilities. Discrete manufacturers
produce finished goods by assembling or machining a set of component parts or
sub-assemblies into finished products. Batch-process manufacturers produce
goods by combining specific materials in pre-defined quantities by a series of
discontinuous operations.

We are focused on seven key segments within the manufacturing industry:

. heavy duty transport suppliers;

. industrial equipment;

. semiconductors (fabless);

. fabricated metal products;

. auto parts suppliers;

. measuring and controlling devices; and

. electronic and electrical suppliers.

These manufacturers operate in an environment of rapidly changing business
requirements. To be successful globally, our customers must:

. manage broad product lines;

. provide multi-national distribution;

. continually streamline product development;

. reduce manufacturing cycles;

. maintain lower inventory levels; and

. adopt more flexible manaufactuing strategies.

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These requirements are driving the need for an enhanced supply chain,
distributed manufacturing resources and improved methods of interacting with
suppliers and customers. Growth, customer satisfaction and profitability all
depend on an accurate flow of information within a tightly integrated supply
chain and an expanded enterprise linking suppliers with customers through the
manufacturer.

Historically, manufacturers have relied on enterprise resource planning, or
ERP, systems to streamline their business processes and coordinate internal
resources. These systems typically provided applications to support:

. engineering data management;

. sales management;

. material procurement;

. inventory management;

. manufacturing control;

. distribution;

. transportation;

. finance; and

. many other specialized business functions.

To compete effectively in their markets, most manufacturers also require
solutions that provide a high return on investment. These solutions must be
able to be implemented rapidly with minimal disruption to the business and
maintained with a limited information technology staff. At the same time,
these solutions must provide sufficient depth of functionality and flexibility
to enable manufacturers to respond to constantly changing customer needs. The
solutions also must be scalable to accommodate expansion of the manufacturer's
business. We believe that manufacturers in our target market prefer fully
integrated solutions covering all aspects of their business as opposed to
specialized multi-vendor solutions that are more costly and difficult to
integrate and maintain.

Recent advancements in technology have significantly enhanced the usability
and ultimate benefit of installed solutions by allowing them to operate over
the Internet. At the same time, manufacturers have begun to look outside their
businesses for ways to differentiate themselves from their competitors. The
opportunity to use solutions to more closely link operations with suppliers
and customers is creating increased demand for a new generation of solutions
that extend system capabilities beyond the four walls of the manufacturing
operation.

Today, manufacturing companies must find efficient ways to link all the
members in their value chain, from suppliers of raw materials and contract
sub-manufacturers to distributors and customers. The transfer of critical
business data within and outside the four walls of the manufacturing
enterprise is key to a manufacturer's success. This business transformation
has led to development of a new type of enterprise solution, called extended
enterprise applications, or EEA, which extends and enhances the ERP system and
enables its use over the Internet.

According to Advanced Manufacturing Research, or AMR, the total worldwide
market for EEA systems is expected to grow from $27 billion in 1999 to $78
billion in 2004.

The MAPICS Solution

With over 20 years of manufacturing and technology expertise, we are a
leading provider of full-function EEA systems that enable manufacturers to
respond to the demands of a rapidly growing, highly competitive, global
marketplace. In particular, we have succeeded in addressing the technology and
business requirements of manufacturers by providing comprehensive product
functionality and high quality customer service on a cost-

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effective basis. Our focus on this market allows us to fully understand the
changing needs and requirements of our target market. Our solutions support
hardware platforms that are in use by more than 90% of manufacturers in our
target market.

The MAPICS solution provides value to our customers through the following
benefits:

Comprehensive Functionality and Flexibility. We have developed a suite of
solutions focused on meeting the needs of manufacturers. Our strong
manufacturing and technology expertise has allowed us to continually develop
functionality that meets the emerging needs of manufacturing establishments.
Our flexible architecture allows customers to purchase and implement MAPICS
solutions at their own pace and integrate our solutions with their existing
infrastructure. As new technologies lead manufacturers to seek more open and
collaborative solutions to link the members of their value chain, we intend to
continue to deliver applications to enable the exchange of critical business
data.

Experienced Sales Channel. The primary channel for selling and implementing
our solutions is a network of more than 70 affiliate organizations selling to
customers located in more than 70 countries around the world. Affiliates
typically have extensive knowledge of the manufacturing industry in their
geographic regions and develop long-standing relationships with our customers.
Each affiliate markets MAPICS solutions within a specific geographic territory
and is typically exclusive to us. For these reasons, affiliates are likely to
invest significant resources to further their knowledge of our applications.
Affiliates offer experienced local professionals to implement and configure
these solutions rapidly and in a cost-effective manner, as well as local
services that enable our customers to maintain a limited information
technology staff, which is often a requirement of the manufacturer. To augment
our affiliate channel, we also have deployed a number of direct sales
personnel to service specific accounts and represent specific MAPICS
solutions.

Rapid Implementation and High Return on Investment. The flexibility of our
products minimizes the need to perform custom modifications, thereby allowing
rapid product implementation. In addition, our in-depth manufacturing, product
and customer knowledge has enabled us to develop a standard implementation
methodology, a consistent process followed by many customers and affiliates
around the world. Our implementations generally take from three to twelve
months, depending upon the number and type of applications purchased and the
complexity of the manufacturing establishment. The high reliability and ease
of user customization of our products, coupled with our extensive quality
assurance and technical support, minimize our customers' need to maintain a
large information technology staff. Subsequent releases of our software
products are designed to preserve our customers' existing investments in
technology and user education, with minimal disruption to their businesses.
These factors enable us to offer the low total cost of ownership and high
return on investment that manufacturers require.

High Quality Worldwide Customer Support. We are dedicated to providing high
quality customer support for our products around the world through a
combination of employee support staff and our affiliate channel. We
consistently receive top marks in independent surveys compared to competitors
in the area of customer support. Our recently announced "No Wait Response"
solution that gives customers online access to a knowledge base of more than
12,000 tips, common questions and answers, and our MAPICS Standard
Methodology, or MSM, are examples of our commitment to support the customer
before and after the sale.

The MAPICS Strategy

Our primary objective is to further increase our share of the EEA market by
attracting new customers in our target market and increasing sales to our
expanding customer base. To achieve this objective, we continually re-evaluate
our overall product strategy as we adapt to the changing needs of our
customers. Accordingly, throughout fiscal 2000 we took restructuring actions
to refocus our product direction. Key elements of our revised strategy are:

Continue to Expand Our Target Market Presence. Our target market is
considered one of the fastest growing segments in the EEA space. We intend to
further leverage our manufacturing and technology expertise

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and the strengths of our affiliates to expand our presence in this market. We
will continue to invest in new product functionality and technology to improve
the global competitiveness of our customers. We also intend to continue to
leverage our large, installed customer base to generate additional revenues by
using positive references from existing customers to assist in sales to new
customers. These references are often critical to the buying decisions of our
customers. Our large installed base also provides an opportunity to generate
significant revenues by selling additional e-business applications and
upgrades to existing customers.

Growing Our Sales Channel. We intend to further enhance our sales channel by
expanding the number of our affiliates, strengthening our existing affiliate
base, and increasing our direct sales organization to capitalize on strategic
opportunities. We intend to increase worldwide channel capacity through new
ventures, alliances and other programs with affiliates that are attempting to
enter new or under-penetrated territories. In addition, we plan to continue
assisting affiliates with lead generation and on-line training and remote
learning opportunities. We intend for these offerings to increase an
affiliate's ability to compete for new accounts and to expand our presence
within our customer base. Our expanded direct sales force will assist
affiliates with multi-site selling opportunities and service specific
strategic accounts and applications. The number of these multi-site and
strategic opportunities is on the rise due to the scalability of our solutions
and enhanced collaborative capabilities.

Leverage Our New Supply Chain and Collaborative Commerce Solutions. We
understand the needs of a manufacturing organization, and our supply chain
management applications offer manufacturers the tools they need to ensure that
their operations achieve their peak performance. Our collaborative commerce
applications link elements of the manufacturing infrastructure to produce a
seamless set of solutions that ensure the effective flow of information from
supplier to manufacturer to customer in a fully web-enabled fashion. Both of
these solutions are available to customers using our EEA solutions as well as
to potential customers, which use other EEA solutions.

Enhance Functionality of Our Collaborative Solutions. We intend to continue
to offer new functionality to attract additional customers and allow existing
customers to more easily adapt to changes within the extended manufacturing
enterprise. We will continue to focus on the extended enterprise business
model and intend to enhance our collaborative solutions on a global basis.
Many of our applications are available in up to 19 languages, including
English, traditional Chinese, simplified Chinese, French, German, Portuguese
and Spanish. We also plan to add new localized features to expand the
functionality of our products and allow us to more effectively target
additional geographic markets. In addition, we continually evaluate potential
acquisitions of complementary technologies, products and businesses serving
our target market.

Incorporate New Technologies to Expand Market Opportunity. We intend to
continue incorporating new technologies necessary to help manufacturers
compete in their rapidly changing environments. These technologies include:

. true thin-client, appliance-independent connections through the Internet
directly to the manufacturers' ERP backbone, enabling business to
business transactions and providing field-level security,
personalization, and customization;

. system to system connections using industry-standard tools and protocols
like XML and Microsoft BizTalk(TM), to enable background processing of
information and to easily allow a customer, and its customers and
suppliers, to participate in global online markets and exchanges; and

. collaborative commerce solutions that provide integration of front-end
applications to backend ERP solutions.

Pursue Strategic Alliances. We often form strategic development or marketing
alliances with third parties that we refer to as solution partners. Working
with our solution partners, we can rapidly address the changing needs of our
customers. We often team with third parties who are focused in a specific
application market to deliver best of breed offerings integrated with our
solutions by either entering into joint marketing relationships or reselling
the integrated products. In addition, we develop strategic marketing alliances
with third parties to

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market, sell or service our products into markets that are under-served or not
addressed by us. We intend to continue to develop strategic development and
marketing alliances to enhance the breadth of our offerings and expand our
market presence.

Maintain High Customer Satisfaction. We believe that a highly satisfied
installed customer base is critical to expanding our market presence. We
intend to develop or enhance advanced user education offerings and Internet-
based tools to further improve our affiliates' and customers' ability to
install and use our solutions. We are continually looking for ways to enhance
our industry-leading support structure, as our MSM implementation method and
"No Wait Response" support tools demonstrate.

The MAPICS Products

EEA Solutions

XA. We introduced our XA solution in 1994. XA offers more than 50
applications and has continually been enhanced to meet customers' needs. XA
provides a simplified implementation process with integrated applications that
enable single-site, multi-site and multi-national manufacturers to expand
production and increase revenue. XA leverages Java and Internet technologies
to deliver solutions for growing manufacturing organizations, and our extended
architecture gives customers the flexibility to expand as their business
evolves. XA works with the IBM eServer iSeries 400 platform, a popular
platform with manufacturers in our target market.

Recent enhancements to XA include functionality to address the following
customer needs:

. web-based field service;

. collaborative engineering change management;

. financial reporting; and

. paperless shop floor control.

Point.Man. For manufacturers that prefer the Windows NT, UNIX or Linux
operating platforms, we offer Point.Man. This multi-platform EEA allows
manufacturers to extend their reach beyond their enterprise, using a single
unified solution to manage multiple sites, outsourced operations and partners.
Point.Man's Extended Enterprise Edition offers thin-client, appliance-
independent connection to the Internet. The Extended Enterprise Edition
addresses the security, data integrity and real-time information delivery
needs that new e-business transaction models require with access for
customers, suppliers and employees into a single database.

This unique architecture allows growing enterprises to expand the
capabilities of their people, better collaborate with customers and suppliers
beyond their enterprise, make sound business decisions, and respond more
quickly based on the immediate insight Point.Man provides into current
information across their extended enterprise.

Supply Chain Management

Thru-Put. Thru-Put helps companies maximize their supply chain management,
eliminate downtime and improve operating efficiencies. Thru-Put analyzes plant
operations, pinpoints constraints and optimizes manufacturing processes. It
allows quick and easy manipulation of orders, what-if scenarios, and
scheduling of resources from equipment to staff and materials. Thru-Put
develops capacity and material tested production plans, execution blue prints,
and decision-making tools that create an efficient and responsive operation.
Thru-Put can be integrated with any EEA system and is already integrated with
many of our solutions.

Thru-Put enables companies to recognize interdependencies among elements of
the manufacturing processes and helps them devise simple solutions for very
complex problems. Thru-Put customers typically report

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improvements ranging from 15% to 50% in on-time delivery performance and
excess inventory levels, and many report a substantial return on investment
within 120 days of implementation.

Collaborative Applications

TeamWeRX Portal. The TeamWeRX Portal is an enterprise relationship portal
solution that allows manufacturers to create a seamless virtual business
community that includes their entire value chain. An enterprise portal can be
the catalyst necessary to transform a manufacturer's brick and mortar business
to a Web-centric e-business. Our customers are currently using the TeamWeRX
Portal to share manufacturing data such as inventory levels, bills of
material, reorder information, engineering documents, and production line
activity with members of their value chain.

Enterprise Asset Management

Maincor. Maincor is a multi-platform solution for enterprise asset
management, or EAM, that provides maintenance and facility management,
including calibration tools for manufacturers. Maincor provides companies with
the resources needed to manage enterprise assets and the ability to fully
integrate with other MAPICS products, such as XA or Point.Man. Maincor's
simple implementation gives users the flexibility to set up systems that
easily adapt to their individual manufacturing operations.

Product Development

We are focusing our ongoing product development efforts on addressing the
emerging needs of our market. We intend to continue expanding the breadth and
depth of our product functionality and incorporating new technologies, while
maintaining product reliability. We are focused particularly on developing
collaborative commerce solutions that are platform independent and that will
enable our customers to serve their customers better, while improving overall
operational efficiency. We plan to continue to develop new products focused on
the manufacturing marketplace and deliver continuous product enhancements to
existing customers.

During fiscal 2001, we plan to introduce TeamWeRX Commerce and TeamWeRX
Connects, two new collaborative solutions that can either be sold on a stand-
alone basis or to enhance the functionality of the TeamWeRX Portal. TeamWeRX
Commerce is a customizable electronic-commerce solution that provides the
critical e-commerce infrastructure necessary to build an effective, scalable
on-line business. TeamWeRX Connects provides the infrastructure to help
manufacturers integrate, manage, and automate business processes used to
exchange business information with on-line exchanges using system-to-system
communication.

We are currently enhancing our XA solution using Java and XML technology to
add significant thin-client and customization functions, navigation and
personalization features that are popular in today's applications. Users will
soon be able to access their data from anywhere in the world via a web
browser, providing flexibility to customers. An XML interface will allow
companies to use their own client, or no client at all, as in the case of
server-to-server communications. Enhancements also will enable specialty
clients such as PDAs and cell phones to access the customer's data.

We also plan to develop our Point.Man solution to enable global
manufacturers to extend their enterprise beyond the four walls of the
manufacturing operation. These product developments will allow manufacturers
to extend their ability to buy and/or sell through digital marketplaces,
empower customers, suppliers, and employees to securely access the information
they need on demand and improve productivity by reducing paperwork, response
time and excess inventory.

In addition to enhancements to our supply chain management products, we are
focusing on adding greater depth to Thru-Put's existing multi-plant capability
to help customers coordinate their multiple plants and distribution centers
and make optimal use of their capacity. We also are working on solutions to
enable stronger links between manufacturers, their customers and their
suppliers.

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Customers

Our primary customers are discrete and batch-process manufacturing
establishments with annual sales between $20 million and $500 million,
consisting both of independent companies and of divisions, sites and
subsidiaries of larger companies. We have a base of over 3,500 customer sites.
We intend to leverage our large installed customer base to generate additional
revenues by using existing customers to provide positive references to new
customers. We also will continue to sell additional applications and upgrades
to existing customers.

Our installed base of customers includes the following enterprises:

Anaren Microwave, Inc. Kerry Ingredients U.K. Ltd.
AP Technoglass Company MAG Instruments, Inc.
Ashley Furniture Industries, Inc. Michelin Corp.
Bayer Corp. Michigan Bulb Company Inc., Ltd.
Biomet, Inc. New Hampshire Ball Bearings
Bostik, Inc. Pall Corporation
Bristol-Myers Squibb Company Peg Perego Pines USA, Inc.
Coltec Industries Inc. Powerex Inc.
Cooper Industries Shiseido Cosmetics (America) Ltd.
Dialight Corporation SmithKline Beecham
Dirona SP Sub-Zero Freezer Co., Inc.
Dukane Corporation Sylvania Lighting International B.V.
Eaton Controls PTY, Ltd. Thomas Lighting Inc.
Emerson Electric Co. Trans-matic Manufacturing, Inc.
Freightliner, Inc. United Container Company
General Electric Co., P.L.C. Volvo Corp.
Giddings and Lewis, Inc. Weber Aircraft
Goodyear Tire & Rubber Co. Weber-Stephen Products Co.
Honda Motor Co., Ltd. Westinghouse Electric Corporation
International Game Technology York International Corporation

None of our customers accounted for more than 5% of total revenues in the
fiscal year ended September 30, 2000. We do not believe that our backlog at
any particular point in time is indicative of future sales.

Marketing and Sales

Our marketing strategy focuses on positioning us as a leading provider of
EEA solutions and increasing our brand and product recognition. In support of
this strategy, our marketing programs include advertising, public relations,
direct marketing, worldwide web marketing, customer and internal events and
product management.

We sell to customers located in more than 70 countries throughout 1) North
America, 2) Europe, the Middle East and Africa, or EMEA, and 3) the Latin
America and Asia Pacific regions, through a network of more than 70
independent local affiliates. We believe the use of affiliates gives us
significant market access. Affiliates provide sales, consulting,
implementation and other services directly to our customers, usually on a
local basis. Our sales management team continues to encourage our affiliates
to grow or consolidate into larger organizations and to develop their sales
skills.

Use of the affiliate channel has given us international reach to service an
expanding global customer base. In addition to broad market coverage, our
affiliate channel provides significant benefits to us and our customers. For
example, the affiliates provide us with a variable cost sales channel,
receiving a sales commission from us only when we receive license fees from
our customers. In addition, affiliates typically have extensive knowledge of
the manufacturing industries in their geographic regions and develop long-
standing relationships with our

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customers. Moreover, the affiliate channel continually provides local input
and feedback regarding customer requirements, industry trends, and competitive
products, enabling us to respond to and anticipate the future product needs of
our customers and to incorporate these needs into our product development
efforts.

Historically, we have had excellent relations with our affiliates. We
believe these strong relations are attributable to a number of factors,
including the significant revenues that we pay affiliates in the form of
commissions, as well as revenues that our customers pay affiliates for
consulting, implementation and other services rendered within the territories
they represent. Additionally, in some instances, customers pay affiliates for
the hardware they purchase. As a result, affiliates have generally made
significant investments in developing knowledge of our products within their
organizations.

Although we intend to expand and strengthen our affiliate network, we also
intend to take advantage of opportunities to capitalize on our direct sales
organization as well. We believe that the flexibility of multiple sales
channels is critical to our success as our customer base continues to grow in
sophistication and demands increasing levels of service and support.

Customer Support and Service

We believe that providing high quality customer service and technical
support on a world-wide basis is necessary to achieve rapid product
implementation, which in turn is essential to long-term customer satisfaction
and continued revenue growth. Accordingly, we are committed to maintaining a
high-quality, knowledgeable affiliate channel supported by our internal
service and support staff. Our customer service and support activities can be
grouped into two key areas, as follows:

Implementation Consulting, Education and Applications Integration
Services. Although we are building our consulting skills to enhance and
supplement those of our affiliates, particularly in new or complex application
areas, our affiliates typically provide these services directly on a project-
consulting basis. We do not record revenues related to these services provided
by our affiliates. Affiliates provide implementation-consulting services on-
site to assist customers in the installation and use of our products, whether
entire systems are implemented or individual applications are installed to
augment existing applications. We have developed educational materials and
instructions for our affiliates to use in customer classroom environments. We
intend to provide additional tools to assist affiliates and customers in
simplifying the implementation effort. We also intend to supply central
services to assist affiliates in managing multi-site and multi-territory
implementation efforts and supplement the affiliates' expertise in new
application areas until such time as affiliates are able to upgrade their
skills to a point where they no longer need assistance.

Installed Product Maintenance. We maintain a central telephone response and
assistance program for customers. We assist all supported customers in
operational issues and resolving possible code errors. Our support centers use
a standardized telephone support management system to log telephone calls,
trace problems or inquiries, identify qualified support personnel to assist
customers, follow the inquiry through to a successful resolution and measure
support performance. Outside North America, we provide similar support
services to our customers in conjunction with the affiliates. We also have
introduced a tool that enables customers to access our knowledge database,
permitting them to quickly locate, answers to operational issues without the
assistance of direct support personnel.

Proprietary Rights and Technology

Our success and ability to compete depend heavily on our proprietary
technology, including our software. Our software is protected as a copyrighted
work. In addition, much of the source code for our software is protected as a
trade secret. We provide our products to customers under a non-exclusive
license. We also generally enter into confidentiality or license agreements
with third parties and control access to and distribution of our software,
documentation and other proprietary information. We presently have no patents
or patent applications pending. We rely upon license or joint development
agreements with solution partners to allow us

9

to use technologies that they develop on terms that are favorable to us. We
also rely on the knowledge, skills and experience of our employees, frequent
product enhancements and the timeliness and quality of our support services.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Future Performance--We may not be
successful in protecting our proprietary rights or in avoiding claims that we
infringe the proprietary rights of others."

Competition

The market for business software within the manufacturing industry is
highly competitive and changes rapidly. The market activities of industry
participants, such as new product introductions, frequently result in
increased competition. We target our products and related services primarily
at the market for business applications software for manufacturing
establishments with annual sales between $20 million and $500 million. Current
and prospective competitors offer a variety of products that address this and
similar markets. We primarily compete with a large number of independent
software vendors, although we also compete with vendors of specialized
applications. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting Future Performance--The
market for business software in the mid-sized manufacturing industry is highly
competitive."

To be successful in the future, we must continue to respond promptly and
effectively to changes in technology. We also must respond to our competitors'
innovations. Some of our competitors have significantly greater financial,
marketing, service, support and technical resources and greater name
recognition than we have. Accordingly, these competitors may be able to
respond more quickly to new or emerging technologies or changes in customer
requirements. They may also be able to devote greater resources to the
development, promotion and sale of their products.

We also expect to face additional competition as other established and
emerging companies enter the market for business software for manufacturing
establishments, and as new products and technologies are introduced. In
addition, current and potential competitors may make acquisitions or establish
alliances among themselves or with third parties. Such acquisitions or
alliances could increase the ability of competitors' products to address the
needs of our current or prospective customers. As a result, it is possible
that new competitors or alliances among current and new competitors may emerge
and rapidly gain significant market share. Either of these situations could
result in fee reductions, the loss of new and existing customers, fewer
customer orders and reduced net income, any or all of which could have a
material adverse affect on our business, financial condition and results of
operations.

Employees

As of December 1, 2000, we employed approximately 495 persons, of whom 335
were employed in product development and support, 85 were employed in sales
and marketing and 75 were employed in management and administration. None of
our employees is represented by a labor union. We have experienced no work
stoppages and believe that our employee relations are good.

Our future operating results depend significantly upon the continued
service of our key technical and senior management personnel as well as our
continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for these individuals is intense and may
further intensify because of the hiring needs of technology companies,
including our competitors. We cannot assure you that we will retain our key
managerial or technical personnel or that we will be able to attract and
retain new personnel in the future. We have at times experienced and continue
to experience difficulty recruiting qualified personnel, and we may continue
to experience such difficulties in the future. If we are unable to hire and
retain qualified personnel in the future, our business, financial condition
and results of operations could be materially affected. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Performance--We depend on our retention
of key personnel and our ability to attract and retain other qualified
personnel."

10

Item 2. Properties.

Our principal administrative, marketing, product development and support
facilities are located in Alpharetta, Georgia, a suburb of Atlanta, where we
lease approximately 120,000 square feet under a lease that expires in 2007. We
also lease approximately 52,000 square feet for regional sales, development
and support locations in North America, EMEA, and the Latin America and Asia
Pacific regions.

Item 3. Legal Proceedings.

There is no material legal or governmental proceeding pending or threatened
against us.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of our shareholders during our fourth
fiscal quarter ended September 30, 2000.

11

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.

Common Stock Price

The following table shows the high and low sales prices per share of our
common stock as reported on the Nasdaq National Market for each quarter of our
last two fiscal years.

High Low
---- ----

Fiscal 1999
First Quarter............................................ $23 3/8 $13 1/4
Second Quarter........................................... 17 3/4 7
Third Quarter............................................ 11 3 15/16
Fourth Quarter........................................... $10 7/8 $ 7 3/16

Fiscal 2000
First Quarter............................................ $13 3/4 $ 7
Second Quarter........................................... 20 11 3/4
Third Quarter............................................ 16 4
Fourth Quarter........................................... $ 7 11/16 $ 3 1/16

Holders

As of December 1, 2000, there were approximately 500 record holders of our
common stock, and we estimate that there were approximately 4,500 beneficial
owners of our common stock.

Dividend Policy

We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings to fund future development and growth, the
operation of our business, and to repay amounts outstanding under our bank
credit facility. Additionally, covenants in our bank credit facility prohibit
the payment of cash dividends. Any future determination to pay cash dividends
will be at the discretion of our board of directors and will depend upon our
results of operations, financial condition, capital requirements and such
other factors as the board of directors deems relevant. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 9 of the notes to our
consolidated financial statements contained in "Item 8. Financial Statements
and Supplementary Data."

Item 6. Selected Financial Data.

The tables on the following pages present selected statement of operations
and balance sheet data for the fiscal years ended and as of September 30,
1996, 1997, 1998, 1999 and 2000. The selected financial data for those periods
and as of those dates have been derived from our financial statements that
have been audited by PricewaterhouseCoopers LLP, our independent accountants.
You should read this selected financial data in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8. Financial Statements and Supplementary Data."

We were incorporated in Massachusetts in 1980 under the name Marcam
Corporation. On July 29, 1997, we distributed to our shareholders, in a tax-
free distribution which we refer to as the Distribution, all of the capital
stock of our subsidiary, Marcam Solutions, Inc., and changed our name to
MAPICS, Inc. As a result of the Distribution, Marcam Solutions owns and
operates some of the software product lines that we had owned and operated
before the Distribution, while we continue to own and operate the XA product
line. We prepared the statements of operations data for the fiscal years ended
September 30, 1996 and 1997 and the balance sheet data as of September 30,
1996 using Marcam Corporation's historical basis in the assets and liabilities
and historical results of operations of the business related to the XA product
line. These financial statement data are combined and generally reflect the
results of operations and financial position of the MAPICS business as if it

12

were a separate entity for these periods. We allocated some costs and expenses
presented in the financial statement data for the years ended September 30,
1996 and 1997 based on our estimates of the costs of services that Marcam
Corporation provided to the MAPICS business. We believe these allocations are
reasonable. However, the financial statement data may not necessarily reflect
our results of operations and financial position in the future or what they
would have been had the MAPICS business been a separate entity during the
fiscal years ended September 30, 1996 and 1997. The statements of operations
data for the fiscal years ended September 30, 1998, 1999, and 2000 and the
balance sheet data as of September 30, 1997, 1998, 1999, and 2000 are
consolidated and consist solely of the separate financial statements of
MAPICS, Inc. and our subsidiaries.

We calculated net income per common share presented in the statements of
operations for the fiscal years ended September 30, 1996 and 1997 using the
capital structure of Marcam Corporation for data periods prior to the
Distribution, including the weighted average number of common shares and
common equivalent shares, giving effect to the Distribution on a pro forma
basis for all periods prior to the Distribution. See Note 2 of the notes to
our consolidated financial statements contained in "Item 8. Financial
Statements and Supplementary Data" for further information concerning the
computation and presentation of net income (loss) per common share for the
fiscal years ended September 30, 1998, 1999 and 2000.

Fiscal Years Ended September 30,
-------------------------------------------
1996 1997 1998 1999 2000
------- ------- -------- -------- --------
(In thousands, except per share data)

Statements of Operations Data:
Revenue:
License.......................... $45,341 $56,368 $ 79,189 $ 71,195 $ 62,672
Services......................... 32,261 39,036 50,552 63,523 77,690
------- ------- -------- -------- --------
Total revenue................... 77,602 95,404 129,741 134,718 140,362
------- ------- -------- -------- --------
Operating expenses:
Cost of license revenue.......... 6,913 9,816 13,108 13,689 15,551
Cost of services revenue......... 9,499 11,838 14,873 19,012 31,176
Selling and marketing............ 27,851 31,905 48,111 51,601 50,082
Product development.............. 6,398 10,259 15,073 18,083 16,375
General and administrative....... 5,965 8,256 8,884 12,673 19,232
Amortization of goodwill......... -- -- -- -- 6,959
Restructuring and acquisition
costs........................... -- -- -- -- 13,278
------- ------- -------- -------- --------
Total operating expenses........ 56,626 72,074 100,049 115,058 152,653
------- ------- -------- -------- --------
Income (loss) from operations..... 20,976 23,330 29,692 19,660 (12,291)
Interest income (expense), net.... -- (218) 760 1,801 (1,885)
------- ------- -------- -------- --------
Income (loss) before income tax
expense (benefit)................ 20,976 23,112 30,452 21,461 (14,176)
Income tax expense (benefit) (1).. 8,076 (6,004) 11,724 8,262 (2,451)
------- ------- -------- -------- --------
Net income (loss) (2)............. $12,900 $29,116 $ 18,728 $ 13,199 $(11,725)
======= ======= ======== ======== ========
Net income (loss) per common share
(basic).......................... $ 0.82 $ 1.79 $ 1.01 $ 0.70 $ (0.66)
======= ======= ======== ======== ========
Net income (loss) per common share
(diluted) (2).................... $ 0.70 $ 1.47 $ 0.81 $ 0.62 $ (0.66)
======= ======= ======== ======== ========
Weighted average number of common
shares outstanding (basic)....... 15,717 16,239 18,579 18,943 17,896
======= ======= ======== ======== ========
Weighted average number of common
shares and common equivalent
shares outstanding (diluted)..... 18,514 19,810 23,100 21,444 17,896
======= ======= ======== ======== ========

- - - - - - - - --------
(1) Under a tax sharing agreement with Marcam Solutions, we became entitled to
utilize favorable income tax attributes of Marcam Corporation, principally
net operating loss carryforwards and tax credits, immediately following
the Distribution. As a result, we recognized an income tax benefit of
$14.9 million during the quarter ended September 30, 1997. Excluding this
income tax benefit, net income for the fiscal year ended September 30,
1997 was $14.2 million, or $0.88 per share (basic) and $0.72 per share
(diluted).

(2) For the fiscal year ended September 30, 2000, net income excluding
goodwill amortization, restructuring and acquisition costs, and other
special costs net of income tax expense was $6.9 million and net income
per common share (diluted) was $0.34.

13

As of September 30,
------------------------------------------------
1996 1997 1998 1999 2000
--------- --------- -------- ------- ---------
(Dollars in thousands)

Balance Sheet Data:
Cash and cash equivalents... $ 378 $ 5,562 $ 33,442 $21,351 $ 12,175
Working capital (deficit)
(1)........................ (13,945) (12,413) 12,282 6,487 (28,403)
Total assets................ 45,405 76,970 110,042 95,394 136,939
Long-term liabilities....... 884 -- -- 155 21,245
Shareholders' equity (2).... 9,193 24,707 46,941 38,259 32,444

- - - - - - - - --------
(1) Excluding $18.6 million, $25.1 million, $31.1 million, $29.0 million and
$36.0 million of deferred revenue as of September 30, 1996, 1997, 1998,
1999, and 2000, respectively, working capital would have been $4.6
million, $12.7 million, $43.4 million, $35.5 million and $7.6 million as
of those dates. Working capital (deficit) as of September 30, 2000
includes $10.3 million of the current portion of our long term debt.

(2) Shareholders' equity as of September 30, 1996 represents divisional
equity. Shareholders' equity amounts as of September 30, 1998, 1999, and
2000 are reduced by the cost of treasury stock of $1.3 million, $22.4
million, and $17.1 million, respectively.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

You should read the following discussion and analysis in conjunction with
"Item 6. Selected Financial Data" and "Item 8. Financial Statements and
Supplementary Data." This discussion contains forward-looking statements
relating to our future financial performance, business strategy, financing
plans and other future events that involve uncertainties and risks. Our actual
results could differ materially from the results anticipated by these forward-
looking statements as a result of many known and unknown factors, including
but not limited to those discussed below in "--Factors Affecting Future
Performance" and elsewhere in this report. See also "Special Cautionary Notice
Regarding Forward-Looking Statements" at the beginning of "Item 1. Business."

The terms "fiscal 1998," "fiscal 1999" and "fiscal 2000" refer to our fiscal
years ended September 30, 1998, 1999 and 2000, respectively. The term "fiscal
2001" refers to our fiscal year ending September 30, 2001.

Overview

We are a global developer of extended enterprise applications, or EEA, that
focuses on manufacturing establishments in discrete and batch-process
industries. We deliver collaborative e-business solutions to automate the
manufacturing process, improve the coordination of organizational resources
and enhance interaction with supply chain partners.

We acquired Pivotpoint on January 12, 2000 for $48.0 million in cash. This
strategic acquisition enabled us to immediately expand our manufacturing
solutions across multiple platforms. Our flagship solutions now include both
XA and the acquired Point.Man product, two powerful extended enterprise
applications that streamline business processes for manufacturing, customer
service, engineering, supply chain planning and financials. The solutions
support international and multi-site operations on a variety of platforms
including the IBM eServer iSeries 400, Windows NT, UNIX and Linux. We also
offer Thru-Put, a supply chain management system, and TeamWeRX, a series of e-
business applications designed to enable companies to link members of their
supply chain to send and receive valuable real-time information to improve
business decision-making at all levels.

14

As a result of our acquisition of the Pivotpoint business, our services
revenue and cost of services have become more significant and our methods of
selling our products have changed as follows:

. Our mix of revenue between license revenue and services revenue has
changed. Services revenue increased from the date of acquisition through
September 30, 2000 as a percentage of total revenue and may continue to
increase as a percentage of total revenue in future periods because we
now have a group of employee consultants that performs implementation
and customization services.

. Our cost of services revenue has increased and may continue to increase
in future periods. Prior to the acquisition of Pivotpoint, our cost of
services revenue principally included the costs of providing customer
support. Following the acquisition, our cost of services revenue
includes these costs plus 1) the additional costs of providing customer
support for Point.Man, Thru-Put, Maincor and other products of the
acquired Pivotpoint business; and 2) the costs associated with
maintaining a group of employee consultants.

. Our mix of selling and marketing expenses has changed and may continue
to change in future periods. In addition to selling our products through
our affiliates who sell on a commission basis, we now employ a direct
sales force. Although we are working to integrate the activities of our
direct sales force and our affiliates, a higher proportion of our total
selling and marketing expenses is now fixed.

Results of Operations

Summary and Outlook. Net income decreased 29.5% from $18.7 million, or $0.81
per common share (diluted), in fiscal 1998 to $13.2 million, or $0.62 per
common share (diluted), in fiscal 1999. For fiscal 2000, we recorded a net
loss of $11.7 million or $0.66 per common share (diluted). The net loss was
primarily the result of write-offs for restructuring and acquisition costs,
amortization of goodwill, and special costs, which totaled $18.2 million
before income taxes. Excluding restructuring and acquisition costs, goodwill
amortization, and special costs, net income was $6.9 million, or $0.34 per
common share (diluted).

Total revenue increased 4.2% in fiscal 2000 while operating expenses
including restructuring and acquisitions costs, goodwill amortization, and
other special costs increased 32.7%. The acquisition of Pivotpoint was a
primary contributor to the increase in revenue for fiscal 2000. Although
license revenue decreased, services revenue increased due to the additional
services revenue generated from Point.Man, Thru-Put and the other products of
the acquired Pivotpoint business. Operating expenses excluding restructuring
and acquisitions costs, goodwill amortization, and other special costs
increased 10.8% in fiscal 2000 compared to fiscal 1999. The overall increase
in revenue and operating expenses primarily is a result of the Pivotpoint
acquisition.

Revenue. We generate a significant portion of our total revenue from
licensing software, which is conducted principally through our global network
of independent affiliates. The affiliates provide the principal channel
through which we sell our products. However, the ultimate customer typically
executes a license agreement directly with us rather than the affiliate. When
we first license our software, we receive both an initial license fee and a
periodic fee. We record initial license fees as license revenue and typically
recognize them upon delivery of the software to the ultimate customer. The
periodic fee typically paid annually in advance, entitles the customer to
receive annual support services, as available. For all product lines other
than the XA product line, we record these optional maintenance fees as
services revenue and recognize this revenue ratably over the term of the
agreement.

With respect to the XA product line, the periodic fee is an annual license
fee, which entitles the customer to continuing use of the software. If a
customer does not renew its periodic fee of the XA product line, it is no
longer entitled to use our software. The annual license fee also entitles the
customer to support services as available. We record this fee as services
revenue ratably over the term of the service agreement. We believe this
licensing arrangement provides a source of recurring revenue from our
installed base of XA customers and enables our customers to take advantage of
new releases and enhancements of our software.

15

The affiliates provide our customers with most of the consulting and
implementation services relating to our products. Through our employee
consultants, we provide consulting and implementation services for complex or
multinational projects, and we provide some direct services for our acquired
products. We also offer educational courses and training materials to our
customers and affiliates. These consulting and implementation services, direct
services, and education courses are included in services revenue. We believe
that over time the consulting services component will continue to increase as
a percentage of total services revenue.

The following table shows information about our license revenue and our
services revenue during the last three fiscal years:

Change from
Years Ended September 30, Prior Year
---------------------------- -------------
1998 1999 2000 1999 2000
-------- -------- -------- ----- -----

License revenue.............. $ 79,189 $ 71,195 $ 62,672 (10.1)% (12.0)%
As a percentage of total
revenue..................... 61.0% 52.8% 44.7%

Services revenue............. $ 50,552 $ 63,523 $ 77,690 25.7 % 22.3 %
As a percentage of total
revenue..................... 39.0% 47.2% 55.4%

Total revenue................ $129,741 $134,718 $140,362 3.8% 4.2%

Total license revenue declined from fiscal 1998 to fiscal 1999 although
license sales to existing customers increased. We believe the decrease in 1999
was attributable to the accelerated purchases by customers in 1998 related to
the Year 2000 event which would have typically occurred in 1999 or subsequent
years. In fiscal 2000, license revenue continued to be adversely affected by
the Year 2000 event as a result of accelerated purchases in 1998 and 1999.
This decrease was partially offset by the license revenues generated by the
acquired Pivotpoint business.

Services revenue increased from fiscal 1998 to fiscal 1999 primarily due to
a volume increase in the number of customers paying periodic fees. The
increase in fiscal 2000 was due principally to additional maintenance,
consulting and other services revenue generated by the acquired Pivotpoint
business. The mix of license revenue versus services revenue has been impacted
by the acquisition of Pivotpoint in fiscal 2000 as well as the decrease in
license revenue related to the Year 2000 event, and we expect that services
revenue will continue to be a larger component of total revenue in fiscal
2001. However, we anticipate that the growth rate for services revenue will
decrease in fiscal 2001 as compared to fiscal 2000.

Our operations are conducted principally in 1) North America, 2) EMEA, and
3) the Latin America and the Asia Pacific regions, or LAAP. The following
table shows the percentage of total license and services revenue contributed
by each of our primary geographic markets:

License Revenue Services Revenue
Years Ended September 30, Years Ended September 30,
---------------------------- ----------------------------
1998 1999 2000 1998 1999 2000
-------- -------- -------- -------- -------- --------

North America... 68.5% 69.2% 74.2% 73.9% 72.2% 76.1%
EMEA............ 22.0% 20.2% 18.7% 19.4% 21.1% 17.5%
LAAP............ 9.5% 10.6% 7.1% 6.7% 6.7% 6.4%
-------- -------- -------- -------- -------- --------
Total......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ======== ========

Additional information about our operations in these geographical areas is
presented in Note 15 of the notes to our consolidated financial statements
contained in "Item 8. Financial Statements and Supplementary Data."

16

Cost of License Revenue. Cost of license revenue consists primarily of
royalties paid to solution partners for products we license, amortization of
computer software costs, amortization of intangibles related to the Pivotpoint
acquisition and amortization of other intangible assets. We license from our
solution partners complementary software products or technology that have been
or will be integrated into our product line. Generally, when we license a
solution partner product to a customer, we pay a royalty to the solution
partner. As a result, a significant portion of our cost of license revenue
varies in direct relation to license revenue based on the mix of internally
developed and solution partner-developed products. Through our solution
partner arrangements, we have been able to enhance the functionality of our
existing products and introduce new products utilizing this variable cost
approach to expand our product offerings.

Amortization of computer software costs represents recognition of the costs
of some of the software products we sell, including purchased software costs,
technology acquired in the acquisition of Pivotpoint, capitalized software
development costs and costs incurred to translate software into various
foreign languages. We begin amortization of computer software costs upon
general release of the product to customers and compute amortization on a
product-by-product basis based on the greater of the amount determined using:

. the ratio that current period gross revenue bears to the total of
current and anticipated future gross revenue; or

. the straight-line method over the estimated economic life of the
product, which is generally five years for purchased software costs and
software development costs and two years for software translation costs.

Software is subject to rapid technological obsolescence and, as a result,
future amortization periods for computer software costs could be shortened to
reflect changes in technology in the future.

The following table shows information about our cost of license revenue
during the last three fiscal years:

Change
Years Ended September from
30, Prior Year
------------------------- -----------
1998 1999 2000 1999 2000
------- ------- ------- ----- ----
(Dollars in thousands)

Cost of license
revenue................ $13,108 $13,689 $15,551 4.4% 13.6%
As a percentage of
license revenue........ 16.6% 19.2% 24.8%
As a percentage of total
revenue................ 10.1% 10.2% 11.1%

Cost of license revenue increased in fiscal 1999 and fiscal 2000 primarily
as a result of increases in product royalty expense due to a change in the mix
of products sold, including a higher percentage of products developed by
solution partners. During the last three fiscal years, the mix of products
that we licensed to our customers has included increasing percentages of
solution partner-developed products, which has resulted in both increasing
revenue and royalty costs. As a result, product royalty expense has increased
as a percentage of license revenue. In addition, in fiscal 2000 the cost of
license revenue increased due to amortization of intangible assets related to
the Pivotpoint acquisition and the write-off of $327,000 of capitalized
software translation costs, which was a special cost.

We expect that cost of license revenue will vary from period to period
based on the mix of products licensed between internally developed products
and solution partner-developed products and the timing of computer software
amortization costs.

Cost of Services Revenue. Cost of services revenue consists primarily of:

. personnel costs related to the ongoing maintenance and support of our
products;

. fees paid to affiliates outside our North American region to provide
support services in those regions;

17

. fees paid to solution partners to provide similar support services with
respect to their products;

. personnel costs related to implementation, consulting, and education
services we provide; and

. costs of distributing our software products.

The following table shows information about our cost of services revenue
during the last three fiscal years:

Years Ended September Change from
30, Prior Year
------------------------- ------------
1998 1999 2000 1999 2000
------- ------- ------- ----- -----
(Dollars in thousands)

Cost of services revenue.......... $14,873 $19,012 $31,176 27.8% 64.0%
As a percentage of services
revenue.......................... 29.4% 29.9% 40.1%
As a percentage of total revenue.. 11.5% 14.1% 22.2%

Cost of services revenue increased in fiscal 1999 as a result of additional
distribution and support costs associated with the increase in customers,
including:

. a volume increase in fees paid to affiliates and solution partners for
providing support services in EMEA and LAAP; and

. the hiring of additional customer support and services personnel.

In fiscal 2000, the increase in cost of services was principally
attributable to 1) additional costs of providing customer support for the
acquired Pivotpoint products; and 2) costs associated with maintaining a
larger consulting staff related to the acquired products.

Selling and Marketing Expenses. Selling and marketing expenses consist
primarily of commissions paid to our independent affiliates, compensation of
our sales and marketing personnel, and direct costs associated with selling
programs and marketing campaigns.

The following table shows information about our selling and marketing
expenses during the last three fiscal years:

Years Ended September Change from
30, Prior Year
------------------------- ------------
1998 1999 2000 1999 2000
------- ------- ------- ----- -----
(Dollars in thousands)

Selling and marketing
expenses............... $48,111 $51,601 $50,082 7.3% (2.9)%
As a percentage of total
revenue................ 37.1% 38.3% 35.7%

In fiscal 1999, selling and marketing expenses increased primarily as a
result of hiring additional personnel and an increase in spending on marketing
programs. This increase was offset by a decrease in affiliate commissions due
to the decrease in license revenue. In fiscal 2000, these expenses decreased
principally due to a decrease in affiliate commissions, which was offset by an
increase in direct sales costs and marketing programs. We believe that
affiliate commissions will fluctuate from period to period based on our
product mix and the level of involvement of our direct sales organization.

18

Product Development Expenses. Product development expenses consist of
product development costs and software translation costs. Product development
costs consist primarily of compensation for software engineering personnel and
independent contractors retained to assist with our product development
efforts. We charge all costs of establishing technological feasibility of
computer software products to product development expense as they are
incurred. From the time of establishing technological feasibility through
general release of the product, computer software development and translation
costs are capitalized and subsequently amortized to cost of license revenue.
Software translation costs consist primarily of fees paid to consultants for
translating some of our software into foreign languages.

The following table shows information about our product development
expenses during the last three fiscal years:

Years Ended September Change from
30, Prior Year
-------------------------- ------------------
1998 1999 2000 1999 2000
------- ------- ------- ----- ----
(Dollars in thousands)

Product development costs..... $17,851 $20,137 $19,927 12.8 % (1.0)%
Software translation costs.... 4,206 2,280 3,872 (45.8)% 69.8 %
------- ------- -------
22,057 22,417 23,799 1.6 % 6.2 %
------- ------- -------
Less:
Capitalized product
development costs............ (3,018) (3,771) (4,660)
Capitalized software
translation costs............ (3,966) (2,002) (2,764)
------- ------- -------
(6,984) (5,773) (7,424)
------- ------- -------
Plus:
Write-off of capitalized
product development costs.... -- 1,439 --
------- ------- -------
Product development expenses.. $15,073 $18,083 $16,375 20.0 % (9.4)%
======= ======= =======
As a percentage of total
revenue...................... 11.6% 13.4 % 11.7 %

Product development costs increased in fiscal 1999 due to:

. the hiring of additional product development personnel;

. increased spending on product development activities to support the
effort to re-engineer our software applications to the Windows NT server
platform; and

. continued efforts to expand the XA product line.

Product development costs decreased slightly in fiscal 2000. In connection
with the acquisition of Pivotpoint, we discontinued our product development
efforts to re-engineer our XA software applications to the Windows NT server
platform. This decrease was largely offset by the cost associated with the
development organization for the acquired products.

Software translation costs, which decreased in fiscal 1999 and increased in
fiscal 2000, are typically project related, and the timing of those
expenditures is subject to change from period to period.

The amounts of product development costs capitalized in fiscal 1998, fiscal
1999 and fiscal 2000 represented 16.9%, 18.7%, and 23.4% of product
development costs, respectively. The amounts of software translation costs
capitalized in fiscal 1998, fiscal 1999 and fiscal 2000 represented 94.3%,
87.8%, and 71.4% of software translation costs, respectively. Capitalization
rates are generally affected by the nature and timing of development
activities and vary from period to period.

During fiscal 1999, we wrote off $1.4 million of capitalized software
development costs due to a change in product development approach. Excluding
this write-off, overall product development expenses increased 10.4%

19

from $15.1 million in fiscal 1998 to $16.6 million in fiscal 1999 and, as a
percentage of total revenue, increased from 11.6% in fiscal 1998 to 12.4% in
fiscal 1999. In fiscal 2000, product development expenses of $16.4 million
remained relatively flat compared to the $16.6 million in fiscal 1999,
excluding the write-off of $1.4 million.

General and Administrative Expenses. General and administrative expenses
consist primarily of compensation for executive, financial, legal and
administrative personnel, outside professional and service fees, facility
costs, provisions for bad debts, and special costs.

The following table shows information about our general and administrative
expenses during the last three fiscal years:

Years Ended September Change from
30, Prior Year
------------------------ ------------
1998 1999 2000 1999 2000
------ ------- ------- ----- -----
(Dollars in thousands)

General and administrative expenses... $8,884 $12,673 $19,232 42.6% 51.8%
Less: special costs................... -- -- (4,595)
------ ------- -------
General and administrative expenses
before special costs................. $8,884 $12,673 $14,637 42.6% 15.5%
====== ======= =======
As a percentage of total revenue...... 6.8% 9.4% 10.4%

General and administrative expenses increased in fiscal 1999 and fiscal
2000 and increased as a percentage of total revenue as a result of increased
fixed costs of personnel and facilities associated with our expanded
operations. In fiscal 2000, we incurred general and administrative costs
related to the acquired Pivotpoint business.

General and administrative expenses for fiscal 2000 include the following
special costs:

. $4.1 million for the write-off of non-productive technology-related
assets. These assets largely represent prepaid royalties for technology
that we believe will not be recovered through future sales of the
related products; and

. $500,000 for compensation expense recorded in connection with the
acquisition of Pivotpoint.

Amortization of Goodwill. We completed two acquisitions during fiscal 2000,
both of which were treated as purchase business combinations for accounting
purposes. Total goodwill recorded in these transactions was $46.8 million,
which we are amortizing over five years. Goodwill amortization for fiscal 2000
was $7.0 million.

Restructuring and Acquisition Costs. In connection with the acquisition of
Pivotpoint, we recorded restructuring and acquisition costs of $8.9 million.
Of that amount, $7.5 million represented restructuring and acquisition costs
and $1.4 million represented the write-off of acquired in-process research and
development costs, or IPR&D.

Based on an independent appraisal, we allocated $1.4 million of the total
purchase price of Pivotpoint to two IPR&D projects which were in the
development stage at the time of the acquisition and had not yet reached
technological feasibility. The projects are for the enhancement of the
Point.Man product to allow our customers to extend their interaction
throughout their value chain and for extending Thru-Put's capacity for multi-
site planning. The projects were valued using a discounted cash flow
methodology, based on the estimated future earnings of the product multiplied
by the estimated percentage of project completion.

20

Information regarding acquired IPR&D at the acquisition date is as follows
(in thousands):

Estimated
IPR&D Percentage
Allocation Complete
---------- ----------

Point.Man.............................................. $ 800 40%
Thru-Put............................................... 600 50%
------
Total................................................ $1,400
======

Because the IPR&D projects had not reached technological feasibility, we
expensed the $1.4 million immediately following the acquisition. Both of these
projects reached technological feasibility during fiscal 2000.

Additionally, in the fourth quarter of fiscal 2000, we re-evaluated our
overall product strategy as a result of our acquisition and decided to devote
greater efforts towards the e-business, supply chain management and Windows NT
products. As a result, we incurred restructuring costs of $4.4 million in
connection with the reduction of our employee base by approximately 10%
primarily related to the development activities for our EEA products, the
abandonment of excess space, and the write-off of certain technology-related
assets.

Prior to the acquisition of Pivotpoint, we were engaged in product
development activities to re-engineer our XA applications to the Windows NT
server platform. We made the decision to discontinue our NT development effort
for the XA applications because Pivotpoint's EEA, Point.Man, runs on multiple
platforms, including Windows NT, UNIX and Linux. Accordingly, we wrote off
computer software costs related to our NT development, and we accrued costs
for contractual obligations arising from the termination of a third party
technology alliance for the development of a tool to modify our software to
work in the NT environment.

Following the acquisition of Pivotpoint, we had two advanced planning and
scheduling, or APS, solutions among our product offerings. After an extensive
evaluation of both products, we selected Thru-Put as our APS solution because
of the product's e-business capabilities, quick implementation, return on
investment for customers, ease of use and best-of-breed functionality.
Furthermore, we established plans to migrate existing customers to Thru-Put.
Accordingly, we wrote off computer software costs and other assets relating to
the former APS product, and we accrued costs for contractual obligations
arising from the termination of a related third party technology alliance.

The major components of the restructuring and acquisition costs during
fiscal 2000 were as follows (in thousands):

2000
-------

Employee severance and related costs:
Acquisition related.............................................. $ 150
Change in product strategy....................................... 1,003
Exit costs (for terminated contracts).............................. 919
Costs of abandonment of excess space............................... 972
Non-cash asset write-offs:
Acquisition related write-off of purchased software and other
assets ......................................................... 6,428
In process research and development costs........................ 1,400
Change in product strategy....................................... 2,406
-------
$13,278
=======

21

The following table summarizes all of the restructuring and acquisition
costs and special costs incurred in fiscal 2000 (in thousands):

Cost of General and Restructuring and
License Administrative Acquisition Costs Total
------- -------------- ----------------- -------

Non-cash asset write-offs:
Prepaid royalties........ $ -- $1,805 $ 2,311 $ 4,116
Capitalized software
costs, including in-
process research and
development costs....... 327 -- 7,592 7,919
Accrual of royalty
contract obligation..... -- 2,290 -- 2,290
Other assets............. -- -- 331 331
Employee severance, special
compensation, and
related costs........... -- 500 1,153 1,653
Exit costs (for terminated
contracts)................ -- -- 919 919
Costs of abandonment of
excess space.............. -- -- 972 972
----- ------ ------- -------
$ 327 $4,595 $13,278 $18,200
===== ====== ======= =======

Interest Income and Interest Expense. The following table shows information
about our interest income and interest expense during the last three fiscal
years:

Years Ended
September 30,
---------------------
1998 1999 2000
---- ------ -------
(Dollars in
thousands)

Interest income...................................... $816 $1,887 $ 1,032
Interest expense..................................... (56) (86) (2,917)
---- ------ -------
Interest income (expense), net..................... $760 $1,801 $(1,885)
==== ====== =======

Interest income increased in fiscal 1999 due primarily to increases in the
average balance of cash and cash equivalents. In fiscal 1999, we also
recognized additional interest income of $680,000 related to federal income
tax refunds due to us. Interest income in fiscal 2000 decreased primarily due
to a reduction in the average balance of cash and cash equivalents.

Interest expense in fiscal 1998 and 1999 reflects commitment fees incurred
for unused portions of the revolving credit facility. Interest expense in
fiscal 2000 increased significantly beginning in January 2000 as a result of
borrowings under our new bank credit facility. Interest expense principally
includes 1) interest on our term loan based on our lender's base rate or LIBOR
plus a predetermined margin, 2) the difference between interest paid and
interest received under our interest rate protection arrangement, 3)
commitment fees on the unused portion of our revolving credit facility, and 4)
amortization of debt issuance costs. The weighted average interest rate for
fiscal 2000 was 9.9%. See "--Liquidity and Capital Resources."

Income Tax Expense (Benefit). The following table shows information about
our income tax expense (benefit) during the last three fiscal years:

Years Ended September
30,
--------------------------
1998 1999 2000
------- ------- --------
(Dollars in thousands)

Income before income tax expense (benefit)...... $30,452 $21,461 $(14,176)
Income tax expense (benefit).................... 11,724 8,262 (2,451)
Effective income tax rate....................... 38.5% 38.5% (17.3)%

The effective tax rate for fiscal 1998 and fiscal 1999 differs from the
statutory federal income tax rate of 35.0% principally due to the impact of
state and foreign income taxes. The effective tax rate of (17.3)% for fiscal

22

2000 differs from the statutory federal rate of 35.0% principally due to the
effect of amortization of goodwill and other intangible assets that are not
deductible for income tax purposes, and foreign income tax expense offset by
income tax credits utilized during the year. We are amortizing goodwill and
other intangible assets from the acquisition of Pivotpoint over periods
ranging from five to seven years. Accordingly, we expect our effective tax
rate to be higher than the statutory federal rate while we record amortization
of goodwill and other intangible assets that are not deductible for income tax
purposes.

Liquidity and Capital Resources

The following tables show information about our cash flows during the last
three fiscal years and selected balance sheet data as of September 30, 1999
and 2000. You should read these tables and the discussion that follows in
conjunction with our statements of cash flows and balance sheets contained in
"Item 8. Financial Statements and Supplementary Data."

Summary of Cash Flows
Fiscal Years Ended
September 30,
----------------------------
1998 1999 2000
-------- -------- --------
(Dollars in thousands)

Net cash provided by operating activities before
changes in operating assets and liabilities.... $ 36,088 $ 30,871 $ 20,491
Changes in operating assets and liabilities..... 2,736 (7,693) 66
-------- -------- --------
Net cash provided by operating activities....... 38,824 23,178 20,557
Net cash used for investing activities.......... (13,287) (12,724) (57,763)
Net cash provided by (used for) financing
activities..................................... 2,343 (22,545) 28,030
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... $ 27,880 $(12,091) $ (9,176)
======== ======== ========

Balance Sheet
Data September
30,
---------------
1999 2000
------- -------
(Dollars in
thousands)

Cash and cash equivalents...................................... $21,351 $12,175
Working capital (deficit)...................................... 6,487 (28,403)
Working capital, excluding deferred revenue.................... 35,486 7,578

We have funded our operations and capital expenditures primarily with cash
generated from operating activities supplemented in fiscal 2000 by borrowings
of $40.0 million under our new bank credit facility to finance the acquisition
of Pivotpoint. The changes in net cash provided by operating activities
generally reflect the changes in earnings plus the effect of changes in
working capital. Changes in working capital, especially trade accounts
receivable, trade accounts payable and accrued expenses, are generally the
result of timing differences between collection of fees billed and payment of
operating expenses.

During fiscal 1998, growth in earnings was primarily responsible for the
increase in net cash provided by operating activities. Changes in operating
assets and liabilities also had a positive effect on cash flows for those
years. Specifically, in fiscal 1998, the following changes in operating assets
and liabilities had a positive effect on operating cash flows:

. a $6.0 million increase in deferred revenue due to growth in periodic
license fees; and

. a $3.3 million increase in accrued expenses and other current
liabilities due to increases in income taxes, sales taxes and employee
bonuses payable.

Those increases were offset partially by a $6.1 million increase in accounts
receivable principally resulting from the continued growth in revenue.

23

In fiscal 1999, a 29.5% decrease in net income contributed to a 14.5%
decrease in net cash provided by operating activities before changes in
operating assets and liabilities. Working capital changes in fiscal 1999
further reduced net cash flows provided by operating activities, including:

. a $5.3 million increase in prepaid expenses and other current assets due
to prepayments of product royalties, advances to affiliates, and accrued
interest receivable related to income tax refunds;

. a $4.0 million decrease in accounts payable and accrued expenses and
other current liabilities due to decreases in affiliate commissions and
product royalties because of the decrease in license revenue; and

. a $2.1 million decrease in deferred revenue due to decreases in multi-
year license agreements and deferred initial license fees.

Those changes were offset by a $3.7 million decrease in accounts receivable
due to improvements in our collection efforts and write-offs of uncollectible
accounts receivable.

In fiscal 2000, the net loss significantly contributed to the decrease in
net cash provided by operating activities before changes in operating assets
and liabilities. The net loss was primarily the result of write-offs for
restructuring and acquisition costs and special costs, which totaled $18.2
million before income taxes. In fiscal 2000, the following changes in
operating assets and liabilities affected operating cash flows:

. a $3.8 million increase in deferred revenue related to our expanded
customer base;

. a $3.0 million increase in accounts receivable as a result of an
increase in total revenue; and

. a $1.0 million decrease in accrued expenses and other current
liabilities

In January 2000, we purchased the stock of Pivotpoint, Inc. for $47.1
million, including transaction costs of $2.0 million and net of cash acquired
of $2.9 million. We also assumed long-term debt of $2.7 million. To finance
this acquisition, we borrowed $40.0 million under the term loan portion of our
new bank credit facility. We also used $13.1 million of our operating cash to
pay for the acquisition and related transaction costs, including $1.4 million
of debt issue costs.

We have pledged substantially all of our assets in the United States as
collateral for our obligations under the bank credit facility. Additionally,
all of our domestic subsidiaries have guaranteed the repayment of our
obligations under the bank credit facility, and we have pledged a majority of
the capital stock of our foreign subsidiaries to the lenders.

The bank credit facility as amended contains covenants that, among other
things, require us to maintain specific financial ratios and impose
limitations or prohibitions on us with respect to:

. incurrence of indebtedness, liens and capital leases;

. payment of dividends on our capital stock;

. redemption or repurchase of our capital stock;

. investments and acquisitions;

. mergers and consolidations; and

. disposition of our properties or assets outside the course of ordinary
business.

The term loan requires quarterly principal repayments in various amounts
and matures on December 31, 2002. During fiscal 2000, we repaid $13.7 million
of long-term debt, including $11.0 million under the term loan and $2.7
million of debt assumed in the acquisition of Pivotpoint.

24

The interest rate on the term loan portion of the bank credit facility
varies depending upon our ability to maintain certain specified financial
ratios. The interest rate is generally adjusted quarterly based on either our
lender's base rate or LIBOR plus a predetermined margin. At September 30,
2000, the interest rate on our term loan, including the lender's margin, was
9.9%. The bank credit facility required us to enter into an interest rate
protection arrangement. Accordingly, we entered into an interest rate swap
with a bank which limits our exposure on a significant portion of our term
loan. Our fiscal 2000 weighted average interest rate was 9.9%.

In October 2000, we amended the terms of the bank credit facility and we
repaid an additional $2.0 million of the term loan. We have never borrowed any
funds under the revolving credit portion of any bank credit facility, and in
connection with the October 2000 amendment of the bank credit facility, the
revolving credit portion was suspended pending future reinstatement based upon
mutually acceptable terms. At such time, if any, that the revolving credit
portion is reinstated, we would be able to borrow up to $10.0 million under
the revolving credit loan, subject to certain limitations. Any such borrowings
would mature on January 12, 2004. We pay a quarterly commitment fee for unused
portions of the revolving credit facility.

In fiscal 1998, fiscal 1999 and fiscal 2000, we used cash for investing
activities related to computer software development, translation of our
computer software products and purchases of property and equipment. Also, we
spent $3.0 million, $3.4 million and $664,000, respectively, in those years to
acquire rights to complementary computer software to be integrated with our
product offerings.

In fiscal 1998, fiscal 1999 and fiscal 2000, we received proceeds from
stock options exercised and employee stock purchases of $3.6 million, $1.7
million, and $3.1 million, respectively. In fiscal 1998, we purchased 128,600
shares of common stock for $1.3 million. In fiscal 1999, we purchased
2,954,000 shares of common stock for $24.3 million and retired the 128,600
shares that were acquired in fiscal 1998.

At September 30, 2000, we had federal net operating loss carryforwards of
$19.6 million and research and experimentation and other credit carryforwards
of $3.9 million. Approximately $17.2 million of the net operating loss
carryforward resulted from the acquisition of the Pivotpoint business. The net
operating losses and tax credits at September 30, 2000 expire between 2001 and
2020. The utilization of a significant portion of the net operating losses and
tax credits is limited on an annual basis due to various changes in ownership
of both MAPICS and Pivotpoint. We do not believe that these limitations will
significantly impact our ability to utilize the net operating losses and tax
credits before they expire. These income tax attributes enabled us to reduce
cash paid for income taxes in fiscal 1998, fiscal 1999 and fiscal 2000, and we
believe they will continue to result in cash savings in future periods as we
use them to offset income taxes payable. We have recorded the net deferred tax
assets at the amount we believe is more likely than not to be realized.

We do not have any current plans or commitments for any significant capital
expenditures.

We believe that cash and cash equivalents on hand as of September 30, 2000,
together with cash flows from operations, will be sufficient to maintain our
operations for at least the next 12 months.

Inflation

To date, we believe inflation has not had a material impact on our
operations.

Recently Issued Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including some derivative instruments which are embedded in other contracts,
and for hedging activities. The statement requires an entity to recognize all
derivatives as either assets or liabilities on the balance sheet and measure
the instruments at fair value. On October 1, 2000, we adopted SFAS No. 133, as
amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities." We do not expect the adoption of SFAS No. 133 to
have a material effect on our financial position or results of operations.

25

In December 1999, the Securities and Exchange Commission, or SEC, issued
SAB No. 101, as amended by SAB No. 101A and SAB No. 101B, which is effective
no later than the fourth fiscal quarter of our fiscal year ending September
30, 2001. SAB No. 101 provides guidance in applying generally accepted
accounting principles to revenue recognition in financial statements.
Additionally, the SEC recently issued a Frequently Asked Questions memorandum
providing further guidance on SAB No. 101. Although we do not currently expect
the adoption of SAB No. 101 to have a material impact on our licensing
practices, financial position or results of operations, we are still assessing
the possible effects of SAB No. 101. Furthermore, additional guidance
pertaining to revenue recognition could result in unexpected modifications to
our current revenue recognition practices, which could materially adversely
impact our past or future revenue, results of operations and financial
condition.

In March 2000, the FASB released Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of APB
Opinion No. 25." This Interpretation provides guidance for certain issues that
arise in the application of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The provisions of this
Interpretation became effective on July 1, 2000. The adoption of
Interpretation No. 44 did not have a significant impact on our financial
position or results of operations.

26

FACTORS AFFECTING FUTURE PERFORMANCE

Various factors outside our control may affect our operating results and cause
fluctuations in our quarterly results.

Our future success depends on a number of factors, many of which are
unpredictable and beyond our control. Moreover, many of these factors are
likely to cause our operating results, cash flows and liquidity to fluctuate
significantly from quarter to quarter in the future. These factors include,
among others:

. the size and timing of our license transactions because our license
revenue in any quarter depends substantially on the number and size of
orders booked and shipped to customers in that quarter;

. the proportion of our revenue attributable to fees for licenses versus
fees for services;

. the proportion of products we license that are developed by us versus
those developed solely by a third party or by us in collaboration with a
third party;

. how much money we must spend to improve our business and expand our
operations;

. changes in the level of our operating expenses;

. delays in the purchase of our products and services by our customers due
to their capital expenditure limitations and the time they often require
to authorize purchases of our products and services;

. the demand for our products and services;

. whether customers accept the new and enhanced products and services we
offer;

. how quickly we are able to develop new products and services that our
customers require;

. whether and how quickly alternative technologies, products and services
introduced by our competitors gain market acceptance;

. the timing of the introduction of new or enhanced products offered by
our competitors or us;

. the ability of our affiliates to sell products or service additional
sales;

. the competitive conditions in our industry;

. whether we and our affiliates are able to hire and retain our personnel;

. prevailing conditions in the EEA marketplace and other general economic
and political factors.

Due to one or more of these factors, our operating results could fail to
meet the expectations of securities analysts or investors. If that happens,
the price of our common stock could decline materially.

The market for business software in the mid-sized manufacturing industry is
highly competitive.

The market for business software in the mid-sized manufacturing industry is
highly competitive and changes rapidly. The market activities of industry
participants, such as new product introductions, frequently result in
increased competition. Our competitors offer a variety of products that
address this and similar markets. We primarily compete with a large number of
independent software vendors, including:

. ADEXA, Inc.

. Computer Associates, Inc.;

. Datastream Systems, Inc.;

. Geac Computer Corporation Limited;

. Industrial & Financial Systems, AB;

27

. Intentia AB;

. i2 Technologies;

. J.D. Edwards & Company, Inc.;

. QAD, Inc.;

. SAP AG;

. Symix Systems Inc.; and

. SynQuest, Inc.

We also compete with some vendors of specialized applications. We may be
unable to compete successfully with existing or new competitors.

To be successful in the future, we must respond promptly and effectively to
changes in technology. We must also respond to our competitors' innovations.
Some of our competitors have significantly greater financial, marketing,
service, support and technical resources than we do. Some of these competitors
also have greater name recognition than we do. Accordingly, our competitors
may be able to respond more quickly to new or emerging technologies or changes
in customer requirements. They may also be able to devote greater resources to
the development, promotion and sale of products.

We expect to face additional competition as other established and emerging
companies enter the market for business software and as new products and
technologies are introduced. In addition, current and potential competitors
may make acquisitions or establish alliances among themselves or with others.
These acquisitions or alliances could increase the ability of competitors'
products to address the needs of our current or prospective customers. As a
result, it is possible that new competitors or alliances among current and new
competitors may emerge and rapidly gain a significant share of the EEA market.
For us, this could result in fee reductions, the loss of current or
prospective customers, fewer customer orders, and reduced revenue. In
addition, we principally rely on our network of affiliates for the
implementation of our products. If the affiliates fail to maintain
sufficiently high quality standards, our reputation and competitive position
could weaken. Any or all of these events could materially and adversely affect
our business, financial condition and results of operations.

We are subject to risks resulting from rapid technological change and evolving
industry standards.

The market for our enterprise software products is constantly changing.
These changes include, among others:

. rapid technological advances, including those that make use of the
Internet;

. evolving industry standards in computer hardware and software
technology;

. changes in customer requirements; and

. frequent new product introductions and enhancements.

Our future success depends upon our ability to continue to enhance our
products, as well as our ability to develop and introduce new products that
keep pace with technological developments, satisfy increasingly sophisticated
customer requirements and achieve market acceptance. In particular, we must
anticipate and respond adequately to advances in the functionality of standard
business applications software and Internet technology to deploy these
systems. Our business, financial condition and results of operations could be
materially and adversely affected if we are unable to develop and market new
products and product enhancements that achieve market acceptance on a timely
and cost-effective basis.

As a result of the high level of functionality and performance demanded by
enterprise software customers, major new products and product enhancements can
require long development and testing periods. Despite testing,

28

however, the complex enterprise software programs we offer may contain errors
that customers discover only after the programs have been installed and used.
Undetected errors may impair the market acceptance of our products or
adversely affect our business, financial condition and results of operations.
Problems encountered by customers installing and implementing our new products
or releases or with the performance of new products, including product
functionality, product response time and program errors, also could adversely
affect our business, financial condition and results of operations.

Our quarterly operating results are concentrated toward the end of each
quarter and are difficult to predict.

Our revenue occur predominantly in the third month of each quarter and tend
to be concentrated in the latter half of that third month. As a result, our
quarterly operating results are difficult to predict. Delays in product
delivery or in closings of sales near the end of a quarter could cause our
quarterly revenue to fall substantially short of the levels we anticipate.
Moreover, we establish our spending levels based on our expected future
operating results. If results of operations are less than we anticipate, we
may not be able to reduce spending levels proportionately. As a consequence,
our operating results, cash flows and liquidity will likely be adversely
affected. These and other factors are likely to continue to affect our results
of operations.

Due to these factors, our operating results could fail to meet the
expectations of securities analysts or investors. If that happens, the price
of our common stock could decline materially.

If our operating performance does not support our cash flow requirements, we
may breach our bank credit facility.

Our bank credit facility has a number of financial and operating
performance covenants that we have had to amend and that we will have to
satisfy for the remainder of the bank credit facility. Our ability to satisfy
those covenants and to service debt that we incur under our bank credit
facility depends principally upon our ability to achieve positive operating
performance and to successfully manage our working capital in order to support
our cash flow requirements. If our quarterly operating performance falls
substantially below our expectations or if we are not able to effectively
manage our collection efforts or cash expenditures in a given quarter, we may
not be able to fully support our cash flow requirements. In that case, we may
be unable to fully satisfy the financial and operating performance covenants
of the bank credit facility or to meet our debt service obligations, thereby
breaching the terms of the bank credit facility. We have secured our
obligations under the bank credit facility by pledging substantially all of
our assets in the United States as collateral. Additionally, all of our
domestic subsidiaries have guaranteed the repayment of our obligations under
the bank credit facility, and we have pledged a majority of the capital stock
of our foreign subsidiaries to the lenders. Any breach of our covenants or
inability to satisfy our debt service requirements could result in a default
under our bank credit facility and an acceleration of payment of all
outstanding debt owed, which could materially and adversely effect our
business.

We are subject to risks associated with making acquisitions and may not be
able to grow through acquisitions.

As part of our business strategy, we continually evaluate potential
acquisitions of complementary technologies, products and businesses in the
enterprise application market. In our pursuit of acquisitions, we may be
unable to:

. identify suitable acquisition candidates;

. compete for acquisitions with other companies, many of which have
substantially greater resources than we do;

. obtain sufficient financing on acceptable terms to fund acquisitions;

. complete the acquisitions on terms favorable to us;

29

. integrate acquired technologies, products and businesses into our
existing operations; and

. profitably manage acquired technologies, products and businesses.

On January 12, 2000, we acquired Pivotpoint, Inc. which offers EEA
solutions that can operate on multiple platforms. This acquisition and other
acquisitions that we may undertake in the future involve a number of risks.
Some of these risks are that:

. technologies, products or businesses that we acquire may not perform as
expected;

. technologies, products or businesses that we acquire may not achieve
levels of revenue, profitability or productivity comparable to our
existing technologies, products and operations;

. acquisitions may adversely affect our results of operations;

. acquisitions may divert the attention of management and our resources;

. we may experience difficulty in assimilating the acquired operations and
personnel; and

. we may experience difficulty in retaining, hiring and training key
personnel.

Any or all of these risks could materially and adversely affect our
business, financial condition or results of operations.

Our product development and enhancement efforts depend in part on other
software companies.

Many of our applications were developed by our solution partners, and we
expect to continue to rely on solution partners for the development of
additional applications. Generally, solution partners continue to own the
rights to, and maintain, the technology underlying the applications but
license the technology to us. Under a license agreement with a solution
partner, we ordinarily are obligated to pay a royalty to the solution partner
for sales of the applications developed by the solution partner. We may also
develop alliances where we jointly market products offered by third parties.
If we fail to pay the required royalty when due or otherwise breach the
agreements, the solution partner may terminate the agreement. The
unwillingness of a solution partner to renew its agreement or the termination
of an agreement with a solution partner could adversely affect our business,
financial condition and results of operations.

Our success depends in part on our continued ability to license
applications from solution partners. However, solution partners may not be
available to develop or support applications for us in the future. Even if
available, solution partners may not complete applications for us on a timely
basis and within acceptable guidelines. Accordingly, we cannot assure that we
will be able make available applications from solution partners that are
acceptable in the market or at all.

A solution partner may also have or develop a relationship with our
existing or prospective customers or affiliates. The solution partner may use
this relationship to become a competitor of ours. If a solution partner is
already a competitor, it may use this relationship to enhance its competitive
position. The solution partner could, as a competitor or otherwise, cause us
to lose existing or prospective customers. The occurrence of any of the events
described above could materially and adversely affect our business, financial
condition and results of operations.

We may not be successful in protecting our proprietary rights or in avoiding
claims that we infringe the proprietary rights of others.

Our success depends heavily upon the protection of our proprietary
software. We rely on a combination of copyright, trademark and trade secret
laws and license and non-disclosure agreements to establish and protect our
proprietary rights in our products and information. To further protect these
rights, we 1) enter into confidentiality and/or license agreements with our
employees, distributors, contractors, customers and potential

30

customers and 2) limit access to and distribution of our software,
documentation and other proprietary information. Despite these precautions, an
unauthorized person could copy or reverse-engineer some portions of our
products or obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as the laws of the United States. Accordingly, we
cannot assure you that our steps to protect our software will be adequate.
Moreover, our competitors may independently develop software products that are
substantially equivalent or superior to our software products.

We may receive notices claiming that we are infringing the proprietary
rights of others. Third parties could also institute legal proceedings against
us claiming that our current or future products infringe their proprietary
rights. Alternatively, we may make claims or initiate litigation against
others for infringement of our proprietary rights or to establish the validity
of our proprietary rights. Any claims against us, with or without merit, or
claims by us against others could be time consuming and expensive to defend,
prosecute or resolve. In addition, these claims could cause product shipment
delays or force us to enter into royalty or license agreements rather than
dispute the merits of the claims. Moreover, an adverse outcome in litigation
or a similar adversarial proceedings could 1) subject us to significant
liabilities to others, 2) require us to allocate significant resources to
develop non-infringing technology; 3) require disputed rights to be licensed
from others, or 4) prohibit us from using specific marketing materials or
products. If we are required to license proprietary rights from others or wish
to do so, we cannot assure you that the necessary licenses will be available
on terms that are acceptable to us, or at all. One or more of these events
could materially and adversely affect our business, financial condition and
results of operations.

Our stock price will fluctuate, and could fluctuate significantly.

The market price of our common stock has fluctuated significantly in the
past and will likely continue to fluctuate in the future. Various factors and
events have caused this fluctuation and are likely to cause the fluctuations
to continue. These factors include, among others:

. quarterly variation in our actual or anticipated operating results;

. the depth and liquidity of the trading market for our common stock;

. the growth rate of our revenue;

. changes by securities analysts in estimates regarding us;

. conditions in the enterprise software industry;

. the condition of the stock market;

. announcements by our competitors;

. regulatory actions affecting us; and

. general economic conditions.

In addition, from time to time the stock market experiences significant
price and volume fluctuations. Stock market fluctuations have particularly
affected the stock prices of technology companies, including ours. These
fluctuations may be unrelated to the operating performance of these companies.
Furthermore, our operating results and prospects from time to time may be
below the expectations of securities analysts and investors. Any such event
could cause the market price of our common stock to decline materially.

We depend on the worldwide manufacturing industry.

Our business depends substantially upon the capital expenditures of
manufacturers. In turn, these expenditures depend in part upon the demand for
these manufacturers' products. A recession or other adverse event affecting
the worldwide manufacturing industry could cause manufacturers in our target
market to reduce or postpone capital expenditures for business information
systems. This change in the amount or timing of capital

31

expenditures by manufacturers could materially and adversely affect our
business, financial condition and results of operations.

We are subject to the risk of product liability claims.

Our products are generally used to manage data critical to large
organizations. These organizations also share this critical data with others
in their value chain using the Internet or other networks. There are many
security risks inherent with making data available over a network and in
sharing data with third parties, and our products are not designed to
safeguard against all such risks. We occasionally deliver implementation
services to our customers. As a result, our development, sale, implementation
service and support of products may entail the risk of product liability
claims. Our license and service agreements with customers typically contain
provisions designed to limit our exposure to potential product liability
claims. However, these provisions may not be effective under the laws of all
jurisdictions. In addition, our liability insurance may not be sufficient in
scope or amount to cover all claims if our contractual limitations on
liability are ineffective. A successful product liability claim brought
against us could materially and adversely affect our business, financial
condition and results of operations. In addition, defending such a suit,
regardless of its merits, could require us to incur substantial expense and
require the time and attention of key management personnel. This could also
materially and adversely affect our business, financial condition and results
of operations.

We depend on the availability of skilled personnel and our ability to attract
and retain qualified personnel.

Our future performance depends upon the continued service of a number of
senior management and key technical personnel. The loss or interruption of the
services of one or more key employees could have a material adverse effect on
our business, financial condition and results of operations. Our future
financial results also will depend upon our ability to attract and retain
highly skilled technical, managerial and marketing personnel. We do not
currently maintain key-person life insurance on any of our key employees.

Competition for qualified personnel is intense and is likely to intensify
in the future. We compete for qualified personnel against numerous companies,
including larger, more established companies with significantly greater
financial resources than ours. We have at times experienced and continue to
experience difficulty recruiting and retaining qualified personnel. Our
business, financial condition and results of operations could be materially
adversely affected if we are unable to hire qualified personnel or if we are
unable to retain qualified personnel in the future.

We depend on IBM's eServer iSeries 400 series of computers for a significant
portion of our revenue.

We continue to depend on the market for software products on the IBM
eServer iSeries 400 platform. Most of the revenue for fiscal 2000 and
substantially all of our revenue for fiscal 1999 was derived from the
licensing of our software product and related services for this platform. We
will continue to offer enhanced software products for this market, but there
is no guarantee that our existing or prospective customers will buy or support
these products. The eServer iSeries 400 market is expected to grow at a
minimal rate, and there can be no assurance that it will grow at all in the
future. Our future growth depends, in part, on our ability to gain market
share. There can be no assurance that we can maintain or increase our relative
share of this market.

We depend on a network of independent local companies to sell and support our
products.

We market, sell and provide professional services for our products
primarily through a global network of more than 70 independent local
affiliates. We also maintain a limited direct sales force. We rely on our
affiliates for sales, product implementation, customization and, outside of
North America, certain customer support services that are provided in
conjunction with us. If we are unable to maintain effective long-term
relationships with our affiliates, or if our affiliates fail to meet our
customers' needs, our business, financial condition and results of operations
would be adversely affected.

32

From time to time some of our competitors have established, and may
continue to seek to establish, a comparable distribution channel, in part by
attempting to attract our affiliates. Our agreements with affiliates are
generally of short duration and can be terminated by an affiliate in some
instances. If the affiliates reduce or discontinue their relationships with us
or their support of our products, our business, financial condition and
results of operations would be adversely affected.

In addition, the ability of the affiliates to meet our customers' needs
depends upon their ability to attract, develop, motivate and retain highly
skilled professionals and technical personnel. These personnel are in great
demand and are likely to remain a limited resource for the foreseeable future.
Our business, financial condition and results of operations could be
materially adversely affected, if the affiliates are unable to attract and
retain sufficient numbers of professional and technical personnel.

We may not be able to effectively manage our growth.

Our business has grown significantly in the last five years. This growth
has strained, and may continue to strain, our management and systems. Our
future operating results depend in part on the ability of our officers and
other key employees to continue to implement and improve our operational and
financial controls, to expand, train and manage our employees effectively, to
manage the integration of acquired businesses, and to successfully develop new
products and enhancements to existing products. Our growth also depends upon
our ability to retain and attract new affiliates, and our affiliates' ability
to grow, to manage their growth and to implement our products in response to
the projected demands of our customers. We cannot assure you that we or our
affiliates will be able to successfully market and sell our new products or
that either we or our affiliates will be able to successfully manage any
future expansion. Our business, financial condition and results of operations
would be materially and adversely affected if we or our affiliates are unable
to effectively manage our growth.

Our international operations subject us to a number of risks.

A substantial portion of our business comes from outside the United States.
We believe that our continued growth and profitability will require expansion
of our sales in international markets. To expand international sales
successfully, we have invested, and will continue to invest, substantial
resources to 1) establish new foreign operations, 2) improve existing or
establish new affiliate relationships, and 3) hire additional personnel.
International expansion of our operations has required, and will continue to
require, us to localize our applications and translate them into foreign
languages. If we cannot expand our international operations or localize and
translate our applications in a timely and accurate manner, our operating
results could be adversely affected. In addition, even if we successfully
expand our international operations, we cannot assure you that we will be able
to maintain or increase our international market presence or demand for our
products.

Risks inherent in our international business activities include, among
others:

. the imposition of government controls;

. restrictions on the export of critical technology;

. political and economic instability, including fluctuations in foreign
currency exchange rates and devaluation of foreign currencies;

. trade restrictions;

. difficulties in staffing international offices;

. difficulty in collecting or the inability to collect fees;

. longer accounts receivable payment collection cycles in some countries;

. burdens of complying with a wide variety of foreign laws and
regulations;

. management of an organization spread over various countries;

33

. unexpected changes in regulatory requirements;

. overlap of different tax structures; and

. the lack of effective copyright, trademark and trade secret protection
in some countries where we sell our products.

Any or all of these risks could materially and adversely affect our
business, financial condition and results of operations.

As a result of the continued expansion of our international operations,
fluctuations in the value of foreign currencies in which we conduct our
business may cause us to experience currency transaction gains and losses.
Because of the number of foreign currencies involved, our constantly changing
currency exposure and the volatility of currency exchange rates, we cannot
predict the effects of exchange rate fluctuations on our future operating
results. These currency risks could materially and adversely affect our
business, financial condition and results of operations.

The conversion to a single European currency may adversely affect us.

On January 1, 1999, 11 of the 15 member countries of the European Union
adopted the euro as their common legal currency. In 2002, each of these
participating countries will adopt the euro as their single currency. Although
we believe the conversion has not had a substantial effect on our European
operations in fiscal 2000, we are unsure of the potential impact that the
conversion will have on our business as the number of transactions conducted
in the euro increases. The conversion may involve a number of risks for us,
including:

. increased costs of conducting business during this transition period in
which our operations and those of others will be conducted in either
existing or "legacy" currencies as well as the euro;

. increased risks of conducting business in multiple currencies resulting
from, among other things, changes in currency exchange cost, and the
impact of this risk on currency swaps;

. difficulty for us and others in the performance of contracts requiring
payments in legacy currencies;

. third parties, like our suppliers and service providers, may be unable
to operate using the euro and may have difficulty reporting transactions
during the euro conversion;

. increased competition resulting from greater access of competitors to
European markets and the consolidation of competitors' operations to
pursue economies of scale by treating Europe as a single market;

. the participating countries' pursuit of a single monetary policy through
a central European bank;

. the impact that salaries paid in euros will have on our international
employees who prefer local currencies;

. possible decreases of the selling prices of our software to the lowest
euro level when customers compare prices based on the euro;

. uncertainty as to whether foreign countries will require restatement of
the share capital of their foreign affiliates;

. Release 5 of XA, which is designed to enable companies to process
financial transactions in the euro and the local national currencies,
may not satisfactorily address all conversion issues, and the costs to
resolve any resulting conversion related errors could be significant;
and

. if we are required to process a significant amount of financial
transactions in the euro before we are able to implement Release 5 of XA
for our internal use, or if subsequently Release 5 of XA does not allow
us to satisfactorily process financial transactions in the euro, we may
incur significant unforeseen costs or experience signficient disruption
to our business.

34

Any or all of these risks could materially and adversely affect our
business, financial condition and results of operations.

We have adopted measures that have anti-takeover effects and could limit the
price of our stock.

Georgia law and our articles of incorporation, bylaws and shareholder
rights plan contain provisions that may 1) make it more difficult for a third
party to acquire us, 2) discourage acquisition bids for us, 3) discourage
changes in our management; and 4) limit the price that investors are willing
to pay for shares of our common stock. The most significant of these
provisions are described below.

Provisions of Georgia law have anti-takeover effects.

Georgia law prohibits us from entering into some business combination
transactions with any person for a period of five years from the date the
person becomes an "interested shareholder," unless specific requirements are
satisfied. Generally, an "interested shareholder" is any person that owns at
least 10% of our outstanding voting stock, other than us and our subsidiaries.
Georgia law also requires that each of these transactions:

. meets specific fair price criteria and other tests; or

. meets specific requirements relating to approval of the transaction by
our board of directors and shareholders.

We have issued preferred stock and may issue additional preferred stock in
the future.

We have issued shares of our preferred stock in the past and may issue
additional shares of preferred stock in the future without further shareholder
approval. Any future issuance of preferred stock will have the terms,
conditions, rights, privileges and preferences that our board of directors
determines. The rights of holders of our common stock are subject to, and may
be adversely affected by, the rights of holders of our preferred stock.

Our articles of incorporation and bylaws contain additional provisions that
have anti-takeover effects.

Our board of directors is divided into three classes. Each class serves for
a staggered three-year term. In addition, a director may only be removed from
the board for cause and upon the vote of at least 80% of all classes of stock
entitled to vote in the election of the director. This classification of our
board of directors and limitation on the removal of directors could make it
more difficult for a potential acquirer to gain control of our board of
directors. Our articles of incorporation and bylaws contain additional
provisions that have anti-takeover effects.

We have adopted a shareholder rights plan.

We have adopted a shareholder rights plan under which we have distributed
to our shareholders rights to purchase shares of our Series F junior
participating preferred stock. If specific triggering events occur, the
holders of the rights will be able to purchase shares of our common stock at a
price substantially discounted from the then applicable market price of our
common stock. The shareholder rights plan could increase a potential
acquirer's costs of effecting a merger with us or a tender offer for our
outstanding securities that is not approved by our board of directors. These
increased costs could prevent or discourage such a transaction, even though
our shareholders might want to vote in favor of the merger or participate in
the tender offer.

Shares of our outstanding stock are currently eligible for future sale, and
some holders of our securities have registration rights.

Sales of a substantial number of shares of our common stock, or the
prospect of these sales, could adversely affect the market price of our common
stock. These sales or the prospect of these sales could also impair our
ability to raise needed funds in the capital markets at a time and price
favorable to us. As of December 1, 2000,

35

we had a total of 18,160,899 shares of common stock outstanding, most of which
are freely tradable without restriction under the Securities Act of 1933, as
amended. The remaining outstanding shares will be eligible for sale in the
public market at various times pursuant to Rule 144 under the Securities Act.

As of December 1, 2000, we had options outstanding under our stock option
plans for the purchase of a total of 4,719,971 shares of common stock at a
weighted average exercise price of $11.20 per share. We have reserved an
additional 956,264 shares of common stock that we may issue upon the exercise
of options granted in the future under these plans. We have also reserved
500,000 shares of common stock that we may issue under our employee stock
purchase plan. We have in effect a registration statement under the Securities
Act covering our issuance of shares upon the exercise of these outstanding
options and our issuance of shares under our employee stock purchase plan. All
of these shares will be freely tradable in the public market, except for
shares held by our directors, officers and principal shareholders, which will
be eligible for public sale at various times pursuant to Rule 144.

We have in effect a registration statement under the Securities Act
covering the sale of 526,309 shares of common stock that we will issue upon
the exercise of warrants. These warrants are exercisable at a price of $6.50
per share. In addition, entities affiliated with General Atlantic Partners,
LLC have "demand" and "piggyback" registration rights for (1) 1,000,000 shares
of common stock that are issuable upon the exercise of warrants that are
exercisable at a price of $11.53 per share, (2) 1,499,990 shares of common
stock that are issuable upon the conversion of our convertible preferred stock
and (3) 1,500,010 shares of outstanding common stock. The demand registration
rights permit the holders of these securities to require us to register the
sale of this common stock under the Securities Act. The piggyback registration
rights permit the holders of these securities to participate in any
registration of our common stock under the Securities Act. Another of our
shareholders also has piggyback registration rights for 250,000 shares of
common stock that we will issue upon the conversion of our convertible
preferred stock. If these holders require us to include their shares in a
registration that we initiate, it could adversely affect our ability to raise
needed capital in the public market at a favorable time and price.

The 1,749,990 shares of common stock underlying our convertible preferred
stock and the 1,500,010 shares of common stock held directly by entities
affiliated with General Atlantic Partners currently are eligible for sale in
the public market subject to the conditions of Rule 144. In addition, the
1,000,000 shares of common stock underlying the warrants held by entities
affiliated with General Atlantic Partners will be eligible for sale in the
public market at any future time or times permitted by Rule 144.

Our financial information as of dates and for periods prior to the
Distribution may have only limited relevance.

The MAPICS business has operated as a separate, stand-alone company since
July 29, 1997, the date of the Distribution. In preparing our combined
financial statements and other financial information as of dates and for
periods prior to the Distribution, we have allocated some expenses based on
our estimates of the cost of services Marcam Corporation provided to the
MAPICS business prior to the Distribution. As a result, the combined financial
statements and other financial information as of dates and for periods prior
to the Distribution may not be comparable to our financial statements and
other financial information as of dates and for periods after the
Distribution. Moreover, the combined financial statements and other financial
information may not necessarily reflect our financial position, results of
operations and cash flows in the future.

We cannot predict every event and circumstance which may impact our business
and, therefore, the risks and uncertainties discussed above may not be the
only ones you should consider.

The risks and uncertainties discussed above are in addition to those that
apply to most businesses generally. In addition, as we continue to grow our
business, we may encounter other risks of which we are not aware at this time.
These additional risks may cause serious damage to our business in the future,
the impact of which we cannot estimate at this time.

36

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Foreign Currency Exchange Rate Sensitivity

Our foreign operations, primarily those in Western Europe, involve
financial transactions that are denominated in foreign currencies. From time
to time, we may enter into forward exchange contracts or purchase options to
minimize the effect of changes in exchange rates on our financial position,
results of operations and cash flows. In fiscal 1999 and 2000, we incurred net
foreign currency transaction losses of $561,000 and $926,000, respectively,
mostly due to transactions within EMEA. We did not have any open forward
exchange contracts or options at September 30, 1999 or 2000. As our foreign
operations increase, our business, financial condition and results of
operations could be adversely affected by future changes in foreign currency
exchange rates. For further information see "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations--Factors
Affecting Future Performance--Our international operations subject us to a
number of risks."

Interest Rate Sensitivity

The table below presents information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates at September 30, 2000, including our long-term debt obligation
and our interest rate swap arrangement. For our long-term debt obligation, the
table presents principal cash flows and related weighted average interest
rates by expected maturity dates based on the scheduled principal payments.
For our interest rate swap arrangement, the table presents average notional
principal amounts and weighted average interest rates by expected contractual
maturity dates. Notional amounts are used to calculate the contractual
payments to be exchanged under the interest rate swap arrangement. Weighted
average variable rates are based on implied forward rates in the Eurodollar
futures curve for three-month LIBOR at the reporting date.

Fiscal Year of Maturity
---------------------------
2001 2002 2003 Total Fair Value
-------- -------- ------- ------- ----------
(Dollars in thousands)

Liabilities
-----------
Long-term debt................ $ 10,338 $ 12,309 $ 6,353 $29,000 $29,000
Average variable interest
rate......................... 6.36% 6.46% 6.56% --

Interest Rate Swap
------------------
Average notional principal
amount....................... $ 12,588 $ 8,750 -- -- $ 69
Fixed pay interest rate....... 7.0% 7.0% -- --
Average receive variable
interest rate................ 6.36% 6.46% -- --

We believe that the fair value of our long-term debt is equal to its book
value because our long-term debt is with a bank and not publicly-traded, and
because the underlying variable interest rate is adjusted every three months.

37

Item 8. Financial Statements and Supplementary Data

The following is a list of our consolidated financial statements and
supplemental financial information appearing in this Item 8:

Page
----

Report of Independent Accountants........................................ 39
Consolidated Balance Sheets as of September 30, 1999 and 2000............ 40
Consolidated Statements of Operations for the years ended September 30,
1998, 1999 and 2000..................................................... 41
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 1998,
1999 and 2000........................................................... 42
Consolidated Statements of Cash Flows for the years ended September 30,
1998, 1999 and 2000..................................................... 43
Notes to Consolidated Financial Statements............................... 44
Supplemental Financial Information....................................... 68

38

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of MAPICS, Inc.:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, cash flows and shareholders'
equity present fairly, in all material respects, the financial position of
MAPICS, Inc. and Subsidiaries at September 30, 1999 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

PricewaterhouseCoopers LLP

Atlanta, Georgia
October 27, 2000

39

MAPICS, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

September 30,
-------------------
1999 2000
--------- --------

ASSETS
------
Current assets:
Cash and cash equivalents............................... $ 21,351 $ 12,175
Accounts receivable, net of allowances of $1,781 in 1999
and $2,523 in 2000..................................... 30,804 35,220
Prepaid expenses and other current assets............... 9,860 5,752
Deferred income taxes, net.............................. 1,452 1,700
--------- --------
Total current assets.................................. 63,467 54,847
Property and equipment, net............................. 6,019 6,073
Computer software costs, net............................ 19,902 19,646
Goodwill and other intangible assets, net............... 3,776 45,164
Non-current deferred income taxes, net.................. 2,230 9,634
Other non-current assets, net........................... -- 1,575
--------- --------
Total assets.......................................... $ 95,394 $136,939
========= ========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Current liabilities:
Current portion of long-term debt....................... $ -- $ 10,338
Accounts payable........................................ 6,455 8,248
Accrued expenses and other current liabilities.......... 21,526 28,683
Deferred revenue........................................ 28,999 35,981
--------- --------
Total current liabilities............................. 56,980 83,250
Long-term debt.......................................... -- 18,662
Other non-current liabilities........................... 155 2,583
--------- --------
Total liabilities..................................... 57,135 104,495
--------- --------
Commitments and contingencies

Shareholders' equity
Preferred stock, $1.00 par value; 1,000 shares
authorized
Series D convertible preferred stock, 125 shares issued
and outstanding (liquidation preference of $9,419) in
1999 and 2000......................................... 125 125
Series E convertible preferred stock; 50 shares issued
and outstanding (liquidation preference of $3,768) in
1999 and 2000......................................... 50 50
Common stock, $0.01 par value; 90,000 shares
authorized, 20,370 shares issued and 17,592 shares
outstanding in 1999; 20,370 issued and 18,092 shares
outstanding in 2000................................... 204 204
Additional paid-in capital.............................. 61,899 63,608
Accumulated deficit..................................... (1,667) (13,758)
Restricted stock compensation........................... -- (704)
Treasury stock-at cost, 2,778 shares in 1999 and 2,278
shares in 2000......................................... (22,352) (17,081)
--------- --------
Total shareholders' equity............................ 38,259 32,444
--------- --------
Total liabilities and shareholders' equity............ $ 95,394 $136,939
========= ========

The accompanying notes are an integral part of these consolidated financial
statements.

40

MAPICS, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Years Ended September 30,
-----------------------------
1998 1999 2000
-------- -------- ---------

Revenue:
License....................................... $ 79,189 $ 71,195 $ 62,672
Services...................................... 50,552 63,523 77,690
-------- -------- ---------
Total revenue............................... 129,741 134,718 140,362
-------- -------- ---------
Operating expenses:
Cost of license revenue....................... 13,108 13,689 15,551
Cost of services revenue...................... 14,873 19,012 31,176
Selling and marketing......................... 48,111 51,601 50,082
Product development........................... 15,073 18,083 16,375
General and administrative.................... 8,884 12,673 19,232
Amortization of goodwill...................... -- -- 6,959
Restructuring and acquisition costs........... -- -- 13,278
-------- -------- ---------
Total operating expenses.................... 100,049 115,058 152,653
-------- -------- ---------
Income (loss) from operations................... 29,692 19,660 (12,291)
Other:
Interest income............................... 816 1,887 1,032
Interest expense.............................. (56) (86) (2,917)
-------- -------- ---------
Income (loss) before income tax expense
(benefit)...................................... 30,452 21,461 (14,176)
Income tax expense (benefit).................... 11,724 8,262 (2,451)
-------- -------- ---------
Net income (loss)............................... $ 18,728 $ 13,199 $ (11,725)
======== ======== =========
Net income (loss) per common share (basic).... $ 1.01 $ 0.70 $ ( 0.66)
======== ======== =========
Net income (loss) per common share (diluted).. $ 0.81 $ 0.62 $ (0.66)
======== ======== =========
Weighted average number of common shares
outstanding (basic).......................... 18,579 18,943 17,896
======== ======== =========
Weighted average number of common shares and
common equivalent shares outstanding
(diluted).................................... 23,100 21,444 17,896
======== ======== =========

The accompanying notes are an integral part of these consolidated financial
statements.

41

MAPICS, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)

Series D and E
Convertible Retained
Preferred Stock Common Stock Additional Earnings Restricted Treasury Stock Total
---------------- ----------------- Paid-In (Accumulated Stock ---------------- Shareholders'
Shares Par Value Shares Par Value Capital Deficit) Compensation Shares Cost Equity
------ --------- ------ --------- ---------- ------------ ------------ ------ -------- -------------

Balance as of
September 30,
1997............ 325 $ 325 18,499 $185 $56,887 $(32,690) $ 24,707
Stock options
exercised...... 359 4 3,287 3,291
Employee stock
purchases...... 31 -- 333 333
Stock and
options issued
to non-
employees...... 2 -- 29 29
Tax benefit
associated with
exercise of
stock options
and stock
awards......... 903 903
Compensation
payable in
common stock... 231 231
Treasury stock
acquired....... 129 $ (1,281) (1,281)
Net income...... 18,728 18,728
---- ----- ------ ---- ------- -------- ----- -------- --------
Balance as of
September 30,
1998............ 325 325 18,891 189 61,670 (13,962) 129 (1,281) 46,941
Conversion of
preferred
stock.......... (150) (150) 1,500 15 135 --
Stock options
exercised...... 91 1 960 (103) (39) 422 1,280
Employee stock
purchases...... 17 -- 240 (51) (22) 252 441
Stock and
options issued
to non-
employees...... -- -- 138 (3) (1) 11 146
Tax benefit
associated with
exercise of
stock options
and stock
awards......... 267 267
Compensation
payable in
common stock... (231) (747) (114) 1,229 251
Treasury stock
acquired....... 2,954 (24,266) (24,266)
Retirement of
treasury
stock.......... (129) (1) (1,280) (129) 1,281 --
Net income...... 13,199 13,199
---- ----- ------ ---- ------- -------- ----- -------- --------
Balance as of
September 30,
1999............ 175 175 20,370 204 61,899 (1,667) 2,778 (22,352) 38,259
Stock options
exercised...... (50) (325) (289) 3,084 2,709
Employee stock
purchases...... (157) (41) (64) 617 419
Stock and
options issued
to non-
employees...... 243 (4) 42 285
Tax benefit
associated with
exercise of
stock options
and stock
awards......... 581 581
Issuance of
restricted
stock.......... 346 $(845) (53) 499 --
Compensation
payable in
common stock... (52) 141 17 (104) (15)
Business
acquisition
payable in
common stock... 798 (107) 1,133 1,931
Net loss........ (11,725) (11,725)
---- ----- ------ ---- ------- -------- ----- ----- -------- --------
Balance as of
September 30,
2000............ 175 $ 175 20,370 $204 $63,608 $(13,758) $(704) 2,278 $(17,081) $ 32,444
==== ===== ====== ==== ======= ======== ===== ===== ======== ========

The accompanying notes are an integral part of these consolidated financial
statements.

42

MAPICS, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Years Ended September 30,
-------------------------------
1998 1999 2000
--------- --------- ---------

Cash flows from operating activities:
Net income (loss)............................ $ 18,728 $ 13,199 $ (11,725)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................ 1,852 2,426 2,934
Amortization of computer software costs..... 7,020 7,428 6,758
Amortization of goodwill and other
intangible assets.......................... 517 517 7,739
Amortization of debt issue costs............ -- -- 311
Write-off of computer software costs........ -- 1,439 7,919
Write-off of prepaid expenses............... -- -- 4,116
Royalty contract obligation................. -- -- 2,290
Provision for bad debts..................... 570 1,387 1,214
Deferred income taxes....................... 7,141 3,822 (1,555)
Deferred lease obligation................... -- 155 138
Compensation payable in common stock........ 231 251 (15)
Stock and options issued to non employees... 29 146 285
Loss on disposal of property and equipment.. -- 101 82
--------- --------- ---------
36,088 30,871 20,491
Changes in operating assets and liabilities:
Accounts receivable........................ (6,085) 3,688 (3,003)
Prepaid expenses and other current assets.. (2,017) (5,260) 205
Other non-current assets................... -- -- (474)
Accounts payable........................... 1,544 (2,044) 598
Accrued expenses and other current
liabilities............................... 3,322 (1,970) (1,015)
Deferred revenue........................... 5,972 (2,107) 3,755
--------- --------- ---------
Net cash provided by operating
activities............................... 38,824 23,178 20,557
--------- --------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired.......... -- -- (47,199)
Purchases of property and equipment......... (3,328) (3,508) (2,343)
Additions to computer software costs........ (6,984) (5,773) (7,557)
Purchases of computer software.............. (2,975) (3,443) (664)
--------- --------- ---------
Net cash used for investing activities.... (13,287) (12,724) (57,763)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt................ -- -- 40,000
Principal repayments of long-term debt...... -- -- (13,720)
Payment of debt issuance costs.............. -- -- (1,378)
Proceeds from stock options exercised....... 3,291 1,280 2,709
Proceeds from employee stock purchases...... 333 441 419
Acquisitions of treasury stock.............. (1,281) (24,266) --
--------- --------- ---------
Net cash provided by (used for) financing
activities............................... 2,343 (22,545) 28,030
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ 27,880 (12,091) (9,176)
Cash and cash equivalents at beginning of
year....................................... 5,562 33,442 21,351
--------- --------- ---------
Cash and cash equivalents at end of year.... $ 33,442 $ 21,351 $ 12,175
========= ========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

43

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Basis of Presentation

Business

We are a global developer of extended enterprise applications, or EEA, that
focuses on manufacturing establishments in discrete and batch-process
industries. We deliver collaborative e-business solutions to automate the
manufacturing process, improve coordination of organizational resources and
enhance interaction with supply chain partners.

We were originally incorporated in Massachusetts in 1980 and in 1998 we
reincorporated in Georgia. In January 2000, we acquired Pivotpoint, Inc. As
part of that acquisition, Pivotpoint brought to us all rights to the Point.Man
product offering as well as other product offerings such as Thru-Put and
Maincor. Our flagship solutions now include both XA and the acquired Point.Man
solution, two powerful extended enterprise applications that streamline
business processes for manufacturing, customer service, engineering, supply
chain planning and financials. The solutions support international and multi-
site operations on a variety of platforms including the IBM eServer iSeries
400, Windows NT, UNIX and Linux. We also offer Thru-Put, a supply chain
management system, and TeamWeRX, a series of e-business applications designed
to enable companies to link members of their supply chain to send and receive
valuable real-time information to improve business decision-making at all
levels.

Following a building block approach and recognizing the need to integrate
solutions from different sources, our solutions enable our customers to
leverage their existing information technology investments and adopt new
technologies at a pace that best fits with their business plans.

Our target market consists primarily of manufacturing establishments with
annual sales between $20 million and $500 million. With the depth and breadth
of our capabilities, we can support single and multi-site manufacturing
organizations, including those with global, multi-currency requirements, as
well as divisional operations within multibillion dollar manufacturing
enterprises.

Our primary sales and implementation channel is a network of independent
local companies, which we refer to as affiliates, that market and sell our
products worldwide and support our global installed base of customers. These
affiliates provide customers with high quality and cost-effective local
implementation, industry specific consulting and other professional services.
Our primary geographic markets include 1) North America, 2) the Europe, Middle
East and Africa region, or EMEA; and 3) the Latin America and Asia Pacific
regions, or LAAP.

Basis of Presentation

The balance sheets as of September 30, 1999 and 2000 and the statements of
operations, cash flows and shareholders' equity for each of the three years in
the period ended September 30, 2000 are consolidated and consist solely of the
separate financial statements of MAPICS, Inc. and our subsidiaries. The
results of operations of our acquisitions have been included beginning on the
date that each company became owned by MAPICS, Inc. We eliminated all
significant intercompany accounts and transactions in consolidation.

We operate on a fiscal year that ends on September 30th. References to
fiscal years refer to our fiscal year ended or ending September 30th.

44

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Significant Accounting Policies

Our Use of Estimates

We are required to make estimates and assumptions in the preparation of our
financial statements in conformity with generally accepted accounting
principles. These estimates and assumptions affect 1) the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements; and 2) the reported amounts of
revenue and expenses during the reporting periods. Actual results may differ
from estimates.

The most significant estimates included in these financial statements are:

. the valuation of accounts receivable;

. the processes used for amortizing and evaluating the net realizable
value of computer software costs and other intangible assets;

. the allocation of the purchase price of the acquired businesses;

. the determination of the restructuring and acquisition costs; and

. the valuation of deferred income taxes.

Cash and Cash Equivalents

We consider all highly liquid debt instruments, primarily United States
government agency obligations and commercial paper, purchased with maturities
of three months or less to be cash equivalents.

Financial Instruments and Concentrations of Credit Risk

At September 30, 1999 and 2000, we held substantially all of our cash and
cash equivalents on deposit with four financial institutions. We believe that
the carrying amount of cash equivalents is a reasonable estimate of their fair
value. As of September 30, 1999 and 2000, our cash and cash equivalents
denominated in foreign currencies was $2,401,000 and $1,863,000, respectively.

In addition to cash and cash equivalents, trade accounts receivable is the
only financial instrument which potentially exposes us to concentrations of
credit risk. We provide credit in the normal course of business to various
types and sizes of manufacturers located throughout the world. As a result, we
believe that concentration of credit risk with respect to trade accounts
receivable is not significant.

Property and Equipment

Property and equipment are stated at cost. We calculate depreciation using
the straight-line method based upon the following estimated useful lives:

Furniture and fixtures..... 4 years
Computer equipment......... 4 years
Leasehold improvements..... Shorter of lease term or useful life of asset

We record a gain or a loss on the disposal of property and equipment based
on the difference between the proceeds we receive, if any, and the net book
value of the assets we dispose on the date of disposal.

45

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Computer Software Costs

We charge all costs of establishing technological feasibility of computer
software products to product development expense as they are incurred. From
the time of establishing technological feasibility through general release of
the product, we capitalize computer software development and translation costs
and report them on the balance sheet as a component of computer software costs
at the lower of unamortized cost or net realizable value. Amortization of
computer software costs represents recognition of the costs of some of the
software products we sell, including purchased software costs, capitalized
software development costs and costs incurred to translate software into
various foreign languages. We begin amortizing computer software costs upon
general release of the product to customers and compute amortization on a
product-by-product basis based on the greater of the amount determined using:

. the ratio that current period gross revenue bears to the total of
current and anticipated future gross revenue; or

. the straight-line method over the estimated economic life of the
product, which is generally five years for purchased software costs and
software development costs and two years for software translation costs.

Additionally, in fiscal 2000 as part of the acquisition of Pivotpoint, a
portion of the purchase price was allocated to acquired technology and to in-
process research and development costs. We wrote-off all of the in-process
research and development costs immediately after completing the acquisition.
The acquired technology is included in computer software costs and is being
amortized over a five year period.

Software is subject to rapid technological obsolescence and, as a result,
future amortization periods for computer software costs could be shortened to
reflect changes in technology in the future. Where future revenue is not
expected to cover the related unamortized computer software costs, we either
accelerate amortization or write-off the remaining unamortized amounts. In
fiscal 1999, we wrote off $1.4 million of computer software development costs
due to a change in our product development approach. In fiscal 2000, we wrote
off $7.9 million of computer software development costs, including the $1.4
million of acquired in-process research and development costs, due to the
restructuring and acquisition costs associated with the acquisition of
Pivotpoint and re-evaluation of our overall product strategy.

We include amortization of computer software costs in cost of license
revenue in the statement of operations. Amortization of computer software
costs was $7,020,000, $7,428,000, and $6,758,000 in fiscal 1998, fiscal 1999
and fiscal 2000, respectively.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets resulted primarily from our
acquisitions of Pivotpoint in January 2000 and of the MAPICS business in 1993.
We calculate amortization of intangible assets, which is included in cost of
license revenue, and amortization of goodwill, using the straight-line method
over the estimated lives of the intangible assets as follows:

Goodwill........................................................ 5-10 years
Installed customer base and affiliate network................... 7-15 years
Tradenames and trademarks....................................... 10 years
Assembled workforce............................................. 5 years

46

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Debt Issue Costs

We incurred debt issue costs of $1.4 million to establish the new bank
credit facility. We capitalized these costs and are recognizing them over the
life of the bank credit facility.

Long-Lived Assets

As required by Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," we periodically assess the recoverability of the cost of
our long-lived assets and other intangible assets, including goodwill. We base
this assessment on several criteria, including but not limited to sales
trends, undiscounted operating cash flows and other operating factors. We
reduce the carrying value of long-lived assets if the sum of expected future
net cash flows is less than their carrying value. We did not make any
adjustments like this during the periods presented in the financial
statements.

Foreign Currency

The majority of our revenue and operating expenses from foreign operations
are denominated in local currencies. We translate revenue and expenses of
foreign operations into United States dollars at the average rates for the
periods. Foreign currency transaction gains and losses and the effects of
exchange rate changes on cash are immaterial for fiscal 1998. In fiscal 1999
and 2000, we incurred net foreign currency transaction losses of $561,000 and
$926,000, respectively, mostly due to transactions within EMEA.

The functional currency for most of our foreign subsidiaries is generally
the local currency. We translate assets and liabilities of foreign
subsidiaries into United States dollars at period-end rates of exchange. We
translate revenue and expenses of foreign subsidiaries into United States
dollars at the average rates for the periods. The resultant translation
adjustments are immaterial for all periods presented.

Revenue Recognition

We generate a significant portion of our total revenue from licensing
software, which is conducted principally through our global network of
independent affiliates. The affiliates provide the principal channel through
which we sell our products. However, the ultimate customer typically executes
a license agreement directly with us rather than the affiliate. When we first
license our software, we receive both an initial license fee and a periodic
fee. We record initial license fees as license revenue and typically recognize
revenue upon delivery of the software to the ultimate customer. The periodic
fee, which is typically paid annually in advance, entitles the customer to
receive annual support services, as available. For all product lines other
than the XA product line, we record these optional maintenance fees as
services revenue and recognize this revenue ratably over the term of the
periodic agreement.

With respect to the XA product line, the periodic fee is an annual license
fee which entitles the customer to continuing use of the software. If a
customer does not renew its periodic fee of the XA product line, it is no
longer entitled to use our software. The annual license fee also entitles the
customer to support services as available. We record this fee as services
revenue ratably over the term of the service agreement.

Under the terms of our license agreements, our customer is responsible for
installation and training. The affiliates provide our customers with most of
the consulting and implementation services relating to our XA products. We
provide consulting and implementation services, and we provide some direct
services for our acquired products. Our consultation and implementation
services are not essential to the functionality of our delivered products. We
also offer educational courses and training materials to our customers and
affiliates. These consulting and implementation services, direct services, and
education courses are included in services revenue.

47

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

We recognize revenue from software licensing in accordance with the
guidance provided by Statement of Position, SOP, 97-2, "Software Revenue
Recognition" and SOP 98-9, "Modification of SOP 97-2, "Software Revenue
Recognition, with Respect to Certain Transactions.' " We generally recognize
revenue from the initial licensing of our software upon:

(1) the signing of a license agreement between us and the ultimate
customer;

(2) delivery of the software to the customer or to a location designated by
the customer;

(3) fees being fixed and determinable; and

(4) determination that collection of the related receivable is probable.

Advertising Costs

We expense advertising costs as they are incurred. Advertising expenses in
fiscal 1998, fiscal 1999 and fiscal 2000 were $1,346,000, $742,000, and
$1,254,000, respectively.

Stock-Based Compensation

We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations in accounting for our stock
option plans and our employee stock purchase plan and the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." As a result, we generally do not recognize
compensation expense for stock options issued to our directors or our
employees, except for stock options and other stock-based awards issued under
specific performance plans. We record expense for all stock-based awards
issued to non-employees, other than our non-employee directors.

Income Taxes

We account for income taxes using the asset and liability method as
prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this method,
we recognize deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. We measure deferred tax assets and liabilities using enacted tax rates
applied to taxable income. We recognize the effect on deferred tax assets and
liabilities of a change in tax rates in income in the period that includes the
enactment date. We provide a valuation allowance for deferred tax assets when
we believe it is more likely than not that we will not realize all or a
portion of the assets.

Computation and Presentation of Net Income (Loss) per Common Share

We apply SFAS No. 128, "Earnings Per Share," which requires us to present
"basic" and "diluted" net income (loss) per common share for all periods
presented in the statements of operations. We compute basic net income (loss)
per common share, which excludes dilution, by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted net income (loss) per common share
reflects the potential dilution that could occur if holders of our preferred
stock, common stock options or common stock warrants converted or exercised
their holdings into common stock that then shared in our earnings.

48

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The weighted average number of common shares and common equivalent shares
outstanding that we used to calculate diluted net income (loss) per share
includes:

. the weighted average number of common shares outstanding; plus

. the weighted average number of common equivalent shares from the assumed
conversion of preferred stock and the assumed exercise of dilutive stock
options and common stock warrants.

The following table presents the calculations of basic and diluted net
income (loss) per common share or common share equivalent (in thousands,
except per share data):

Fiscal Years Ended
September 30,
------------------------
1998 1999 2000
------- ------- --------

Basic net income (loss) per common share:
Weighted average common shares outstanding........ 18,579 18,943 17,896
======= ======= ========
Net income (loss)................................. $18,728 $13,199 $(11,725)
======= ======= ========
Basic net income (loss) per common share.......... $ 1.01 $ 0.70 $ (0.66)
======= ======= ========
Diluted net income (loss) per common share:
Weighted average common shares outstanding........ 18,579 18,943 17,896
Common share equivalents:
Convertible preferred stock..................... 3,250 1,955 --
Common stock options............................ 702 325 --
Common stock warrants........................... 569 221 --
------- ------- --------
23,100 21,444 17,896
======= ======= ========
Net income (loss)................................. $18,728 $13,199 $(11,725)
======= ======= ========
Diluted net income (loss) per common share........ $ 0.81 $ 0.62 $ (0.66)
======= ======= ========

Because their inclusion would have an antidilutive effect on net income
(loss) per common share, we excluded the average number of common share
equivalents listed below from the computation of diluted net income (loss) per
share for fiscal 2000:

Common share equivalents:
Convertible preferred stock.......................................... 1,750
Common stock options................................................. 267
Common stock warrants................................................ 158
-----
Total.............................................................. 2,175
=====

Comprehensive Income

SFAS No. 130, "Reporting Comprehensive Income," requires us to present
comprehensive income, which is net income plus all other changes in net assets
from non-owner sources, and its components in the financial statements. Except
for foreign currency translation adjustments, which were not material for the
periods presented, there was no component of comprehensive income other than
those that we included in net income (loss) in our statements of operations.

49

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year presentation.

Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board or FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including some derivative instruments which are embedded in other contracts,
and for hedging activities. The statement requires an entity to recognize all
derivatives as either assets or liabilities on the balance sheet and measure
the instruments at fair value. On October 1, 2000, we adopted SFAS No. 133, as
amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities." We do not expect the adoption of SFAS No. 133 to
have a material effect on our financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued SAB No.
101, as amended by SAB No. 101A and SAB No. 101B, which is effective no later
than the fourth fiscal quarter of our fiscal year ending September 30, 2001.
SAB No. 101 provides guidance in applying generally accepted accounting
principles to revenue recognition in financial statements. Additionally, the
SEC recently issued a Frequently Asked Questions memorandum providing further
guidance on SAB No. 101. Although we do not currently expect the adoption of
SAB No. 101 to have a material impact on our licensing practices, financial
position or results of operations, we are still assessing the possible effects
of SAB No. 101. Furthermore, additional guidance pertaining to revenue
recognition could result in unexpected modifications to our current revenue
recognition practices which could materially adversely impact our past or
future revenue, results of operations and financial condition.

In March 2000, the FASB released Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of APB
Opinion No. 25." This Interpretation provides guidance for certain issues that
arise in the application of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The provisions of this
Interpretation became effective on July 1, 2000. The adoption of
Interpretation No. 44 did not have a significant impact on our financial
position or results of operations.

3. Acquisitions

Acquisition of Pivotpoint, Inc.

On January 12, 2000, we acquired Pivotpoint, Inc. for $48.0 million in
cash. We accounted for the acquisition as a purchase.

50

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

We allocated the total purchase price to the net tangible and intangible
assets acquired based on our estimate of fair value at the date of the
acquisition. The allocation of the total purchase price to acquired
technology, in-process research and development costs, or IPR&D, and other
intangible assets was based on an independent appraisal. Based on the
appraisal we allocated $1.4 million to two IPR&D projects which were in the
development stage at the time of the acquisition and had not yet reached
technological feasibility. The projects are for the enhancement of the
Point.Man product to allow our customers to extend their interaction
throughout their value chain and for extending Thru-Put's capacity for multi-
site planning. The projects were valued using a discounted cash flow
methodology based on the estimated future earnings of the product multiplied
by the estimated percentage of project completion. Information regarding
acquired IPR&D at the acquisition date is as follows (in thousands):

Estimated
IPR&D Percentage
Allocation Complete
---------- ----------

Point.Man.............................................. $ 800 40%
Thru-Put............................................... 600 50%
------
Total................................................ $1,400
======

Because the IPR&D projects had not reached technological feasibility, we
expensed the $1.4 million immediately following the acquisition. Both of these
projects reached technological feasibility during fiscal 2000.

The portion of the total purchase price in excess of the amount allocated
to identifiable intangible and tangible assets has been allocated as goodwill.
In connection with the acquisition of Pivotpoint, we recorded restructuring
and acquisition costs of $8.9 million before income taxes, consisting
primarily of non-cash items. See Note 4 for more information about these
restructuring and acquisition costs.

The calculation of the total purchase price was as follows (in thousands):

Consideration paid in cash.......................................... $48,000
Direct transaction costs............................................ 2,038
-------
Total purchase price.............................................. $50,038
=======

Direct transaction costs include fees paid for professional services
performed in connection with the acquisition of Pivotpoint.

51

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following allocation of the total purchase price reflects our estimate
of fair value for the assets acquired and liabilities assumed and is subject
to adjustment when additional information concerning asset and liability
valuations is finalized. Any increase or decrease in the net assets acquired
will cause a corresponding decrease or increase in goodwill.

(In thousands)

Cash and cash equivalents.................................... $ 2,939
Accounts receivable, net..................................... 2,544
Prepaid expenses and other current assets.................... 193
Property and equipment....................................... 663
Computer software costs:
Acquired technology........................................ 4,800
In-process research and development........................ 1,400
Goodwill and other intangible assets
Goodwill................................................... 44,876
Installed customer base.................................... 1,900
Assembled workforce........................................ 400
Deferred income taxes, net................................... 5,516
Other non-current assets..................................... 34
Current portion of long-term debt............................ (2,720)
Accounts payable............................................. (1,156)
Accrued expenses and other current liabilities............... (8,172)
Deferred revenue............................................. (3,179)
-------
Total purchase price..................................... $50,038
=======

Other Acquisition

On March 1, 2000, we acquired an education business for $2.0 million. In
exchange for this business, we issued 106,668 shares of restricted common
stock, and we incurred transaction costs of $103,000. The purchase price was
allocated almost entirely to goodwill, which we are amortizing over five
years.

Pro Forma Information (Unaudited)

The following unaudited pro forma information presents our results of
operations as if the acquisitions had taken place on October 1, 1998:

Fiscal Year Ended
September 30,
------------------
(Unaudited)
1999 2000
-------- --------
(In thousands,
except per share
data)

Total revenue............................................ $158,206 $147,931
Net loss................................................. (2,149) (2,344)
Net loss per share (basic)............................... (0.11) (0.13)
Net loss per share (diluted)............................. (0.11) (0.13)
Weighted average number of common shares outstanding
(basic and diluted)..................................... 19,050 17,941

These pro forma results of operations include adjustments to the historical
financial statements of the combined companies and have been prepared for
comparative purposes only. These pro forma results do not

52

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

purport to be indicative of the results of operations which actually would
have resulted had the acquisitions occurred on the date indicated, or which
may result in the future.

4. Restructuring and Acquisition Costs

Restructuring and Acquisition Costs Related to Pivotpoint Acquisition and
Change in Product Strategy

In connection with the acquisition of Pivotpoint, we recorded restructuring
and acquisition costs of $8.9 million. Of that amount, $7.5 million
represented restructuring and acquisition costs and $1.4 million represented
the write-off of acquired in-process research and development costs.
Additionally, in the fourth quarter of fiscal 2000, we re-evaluated our
overall product strategy as a result of our acquisition and decided to devote
greater efforts towards the e-business, supply chain management and Windows NT
products. As a result, we incurred restructuring costs of $4.4 million in
connection with the reduction of our employee base by approximately 10%
primarily related to the development activities for our EEA products, the
abandonment of excess space, and the write-off of certain technology-related
assets.

Prior to the acquisition of Pivotpoint, we were engaged in product
development activities to re-engineer our XA applications to the Windows NT
server platform. We made the decision to discontinue our NT development effort
for the XA applications because Pivotpoint's EEA, Point.Man, runs on multiple
platforms, including Windows NT, UNIX and Linux. Accordingly, we wrote off
computer software costs related to our NT development, and we accrued costs
for contractual obligations arising from the termination of a third party
technology alliance for the development of a tool to modify our software to
work in the NT environment.

Following the acquisition of Pivotpoint, we had two advanced planning and
scheduling, or APS, solutions among our product offerings. After an evaluation
of both products, we selected Thru-Put as our APS solution. Furthermore, we
established plans to migrate existing customers to Thru-Put. Accordingly, we
wrote off computer software costs and other assets relating to the former APS
product, and we accrued costs for contractual obligations arising from the
termination of a related third party technology alliance.

The major components of the restructuring and acquisition costs in fiscal
2000 and the remaining accrual at September 30, 2000 were as follows (in
thousands):

Amounts Accrued
Costs Utilized Restructuring Costs
------- -------- -------------------

Employee severance and related costs:
Acquisition related................ $ 150 $ (150) $ --
Change in product strategy......... 1,003 (325) 678
Exit costs (for terminated
contracts).......................... 919 (356) 563
Costs of abandonment of excess
space............................... 972 (6) 966
Non-cash asset write-offs:
Acquisition related write-offs of
purchased software and other
assets............................ 6,428 (6,428) --
In-process research and development
costs............................. 1,400 (1,400) --
Change in product strategy......... 2,406 (2,406) --
------- -------- ------
$13,278 $(11,071) $2,207
======= ======== ======

Additionally, during fiscal 2000 we incurred the following special costs
that were charged to general and administrative expense and cost of license
revenue:

. $4.4 million for the write-off of non-productive technology-related
assets. These assets largely represent prepaid royalties for technology
and certain translation software that we believe would not have been
recovered through future sales of the related products. Of this amount,
$2.3 million is included in other non-current liabilities on the
consolidated balance sheets; and

. $500,000 for compensation expense recorded in connection with the
acquisition of Pivotpoint.

53

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table summarizes all of the restructuring and acquisition
costs and special costs incurred in fiscal 2000 (in thousands):

Cost of General and Restructuring and
License Administrative Acquisition Costs Total
------- -------------- ----------------- -------

Non-cash asset write-offs:
Prepaid royalties........ $ -- $1,805 $ 2,311 $ 4,116
Capitalized software
costs, including
in-process research and
development costs....... 327 -- 7,592 7,919
Accrual of royalty
contract obligation..... -- 2,290 -- 2,290
Other assets............. -- -- 331 331
Employee severance, special
compensation, and
related costs........... -- 500 1,153 1,653
Exit costs (for terminated
contracts)................ -- -- 919 919
Costs of abandonment of
excess space.............. -- -- 972 972
---- ------ ------- -------
$327 $4,595 $13,278 $18,200
==== ====== ======= =======

5. Allowance for Doubtful Accounts

The following is a summary of the activity in the allowance for doubtful
accounts during the last three fiscal years (in thousands):

Beginning of Provision End of
Year Balance for Bad Debts Write-Offs Other Year Balance
------------ ------------- ---------- ----- ------------

Fiscal 1998......... $1,702 $ 570 $ (383) $100 $1,989
Fiscal 1999......... 1,989 1,387 (1,595) -- 1,781
Fiscal 2000......... 1,781 1,214 (1,116) 644 2,523

We establish reserves for customer receivable balances when we believe it
is probable that we will not collect those receivables. We include the related
provision for bad debts in general and administrative expenses. During fiscal
1998, we reclassified $100,000 from accrued liabilities to the allowance for
doubtful accounts. In fiscal 2000, we added $644,000 to the allowance from the
acquisition of Pivotpoint.

6. Property and Equipment

Property and equipment consist of the following (in thousands):

September 30,
----------------
1999 2000
------- -------

Furniture and fixtures...................................... $ 1,143 $ 1,112
Computer equipment.......................................... 10,180 12,723
Leasehold improvements...................................... 651 777
------- -------
11,974 14,612
Accumulated depreciation and amortization................... (5,955) (8,539)
------- -------
$ 6,019 $ 6,073
======= =======

54

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During fiscal 1999 and fiscal 2000, we disposed of some of our computer
equipment, furniture and fixtures and leasehold improvements. The assets
disposed in fiscal 1999 had a total net book value of $101,000, which we
recorded as a loss, and related to the relocation of our head office
facilities. In fiscal 2000, the assets disposed had net book value of $82,000,
which we also recorded as a loss. The disposal of these assets related
primarily to the write-off of fixed assets relating to discontinued software.
This loss was recorded in the restructuring and acquisition costs.

7. Computer Software Costs

Computer software costs consist of the following (in thousands):

September 30,
------------------
1999 2000
-------- --------

Computer software development costs......................... $ 21,337 $ 30,419
Accumulated amortization.................................... (12,668) (16,210)
-------- --------
8,669 14,209
-------- --------
Computer software translation costs......................... 17,365 19,130
Accumulated amortization.................................... (12,279) (14,452)
-------- --------
5,086 4,678
-------- --------
Purchased software costs.................................... 6,741 1,439
Accumulated amortization.................................... (594) (680)
-------- --------
6,147 759
-------- --------
$ 19,902 $ 19,646
======== ========

8. Goodwill and Other Intangible Assets

Goodwill and other intangible assets consist of the following (in
thousands):

September 30,
------------------
1999 2000
-------- --------

Goodwill.................................................... $ 286 $ 47,113
Installed customer base and affiliate network............... 6,034 7,934
Tradenames and trademarks................................... 856 856
Assembled workforce......................................... -- 400
-------- --------
7,176 56,303
Accumulated amortization.................................... (3,400) (11,139)
-------- --------
$ 3,776 $ 45,164
======== ========

9. Long-Term Debt

Bank Credit Facility

In conjunction with our acquisition of Pivotpoint, we borrowed $40.0
million under the term loan portion of a new bank credit facility to finance a
portion of the purchase price. This new borrowing arrangement, as amended,
replaced our previous bank credit facility. In connection with the borrowing,
we incurred $1.4 million

55

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

in debt issue costs, which is included in other non-current assets, and we
were required to repay $2.7 million of long-term debt assumed in the
acquisition of Pivotpoint.

The term loan requires us to make quarterly installment payments in varying
amounts of principal from July 1, 2000 through December 31, 2002, the maturity
date of the term loan. However, we may be required under certain
circumstances, based on our excess cash flows as defined in our loan
agreement, to prepay all or a portion of the outstanding balance.
Alternatively, we may at our discretion elect, subject to some limitations, to
prepay all or a portion of the outstanding balance without penalty. From
inception of the term loan through September 30, 2000, we made principal
repayments of $11.0 million, including voluntary principal prepayments.

Aggregate scheduled principal repayments under our term loan are as follows
(in thousands):

Amount
Fiscal Years Ending September 30, --------

2001............................................................... $ 10,338
2002............................................................... 12,309
2003............................................................... 6,353
--------
Total future principal payments.................................... 29,000
Less current portion of long-term debt............................. (10,338)
--------
Long-term debt..................................................... $ 18,662
========

The interest rate on the term loan portion of the bank credit facility
varies depending upon our ability to maintain certain specified financial
ratios. The interest rate is generally adjusted quarterly based on either our
lender's base rate or LIBOR plus a predetermined margin. At September 30,
2000, the interest rate on our term loan, including the lender's margin, was
9.9%.

In October 2000, we amended the terms of the bank credit facility and we
repaid an additional $2.0 million of the term loan. We have never borrowed any
funds under the revolving credit portion of any bank credit facility, and in
connection with the October 2000 amendment of the bank credit facility, the
revolving credit portion was suspended pending future reinstatement based upon
materially acceptable terms. At such time, if any, that the revolving credit
portion is reinstated, we would be able to borrow up to $10.0 million under
the revolving credit loan, subject to certain limitations. Any such borrowings
would mature on January 12, 2004. We pay a quarterly commitment fee for unused
portions of the revolving credit facility.

We have pledged substantially all of our assets in the United States as
collateral for our obligations under the bank credit facility. Additionally
all of our domestic subsidiaries have guaranteed the repayment of our
obligations under the bank credit facility, and we have pledged the majority
of the capital stock of our foreign subsidiaries to the lenders.

The bank credit facility, as amended, contains covenants, which, among
other things, require us to maintain specific financial ratios and impose
limitations or prohibitions on us with respect to:

. incurrence of indebtedness, liens and capital leases;

. the payment of dividends on and the redemption or repurchase of our
capital stock;

. investments and acquisitions;

. mergers and consolidations; and

. the disposition of any of our properties or assets outside the ordinary
course of business.

56

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Interest Rate Protection Arrangement

The bank credit facility also required us to enter into an interest rate
protection arrangement. Accordingly, during fiscal 2000, we entered into an
interest rate swap arrangement with a bank. The purpose of the interest rate
swap arrangement is to reduce our exposure to interest rate fluctuations by
converting variable rate interest payments to fixed rate interest payments on
a portion of the outstanding balance under our term loan. Under the terms of
the interest rate swap arrangement, we have agreed to pay the bank a fixed
rate of 7.0% on a notional principal amount in exchange for a variable rate
payment based on LIBOR, which at September 30, 2000 was 6.6%. At September 30,
2000, the interest rate swap represented an off-balance sheet obligation with
a fair value of $69,000.

10. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in
thousands):

September 30,
---------------
1999 2000
------- -------

Accrued commissions and royalties........................... $ 9,630 $11,150
Accrued income taxes payable................................ 5,431 6,274
Accrued payroll and related expenses........................ 4,853 4,843
Accrued restructuring and acquisitions costs................ -- 1,615
Other....................................................... 1,612 4,801
------- -------
$21,526 $28,683
======= =======

Accrued payroll and related expenses include $949,000 and $1,238,000 for
compensated absences as of September 30, 1999 and 2000, respectively.

11. Income Taxes

The components of income tax expense (benefit) are as follows (in
thousands):

Fiscal Years Ended
September 30,
----------------------
1998 1999 2000
------- ------ -------

Federal:
Current............................................ $ 3,102 $3,565 $ (935)
Deferred........................................... 6,163 3,476 (1,933)
------- ------ -------
9,265 7,041 (2,868)
------- ------ -------
State:
Current............................................ 1,582 255 91
Deferred........................................... 75 79 (203)
------- ------ -------
1,657 334 (112)
------- ------ -------
Foreign:
Current............................................ 802 887 529
Deferred........................................... -- -- --
------- ------ -------
802 887 529
------- ------ -------
$11,724 $8,262 $(2,451)
======= ====== =======

57

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The components of income from domestic and foreign operations before income
tax expense (benefit) are as follows (in thousands):

Fiscal Years Ended
September 30,
----------------------------
1998 1999 2000
------- ------- --------

Domestic.................................... $29,993 $20,854 $(14,211)
Foreign..................................... 459 607 35
------- ------- --------
$30,452 $21,461 $(14,176)
======= ======= ========

The actual income tax expense (benefit) differs from the expected income tax
expense (benefit) calculated by applying the federal statutory rate of 35.0% to
income before income tax expense (benefit) as follows (in thousands):

Fiscal Years Ended
September 30,
----------------------------
1998 1999 2000
------- ------- --------

Expected income tax expense at the domestic
federal statutory rate..................... $10,658 $ 7,511 $ (4,962)
State income taxes, net of federal income
tax benefit................................ 1,077 217 (73)
Foreign income taxes........................ 403 335 529
Tax credits utilized........................ -- -- (456)
Permanent differences arising from
acquisitions............................... -- -- 2,618
Other....................................... (414) 199 (107)
------- ------- --------
$11,724 $ 8,262 $ (2,451)
======= ======= ========
Effective income tax expense (benefit)
rates...................................... 38.5 % 38.5 % (17.3)%

Significant components of our deferred tax assets and liabilities are as
follows (in thousands):

September 30,
---------------
1999 2000
------ -------

Deferred tax assets:
Federal and state net operating loss carryforwards........ $ 123 $ 7,457
Tax credits............................................... 3,168 3,861
Reserves and accruals..................................... 1,609 2,298
Allowance for doubtful accounts........................... 685 963
Intangible assets......................................... 514 --
Other..................................................... -- 201
------ -------
Total deferred tax assets............................... 6,099 14,780
------ -------
Deferred tax liabilities:
Computer software costs................................... (1,891) (1,689)
Intangible assets......................................... -- (1,450)
Other..................................................... (526) (307)
------ -------
Total deferred tax liabilities.......................... (2,417) (3,446)
------ -------
Net deferred tax assets................................. $3,682 $11,334
====== =======

58

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In assessing the realizability of deferred tax assets, we consider whether
it is more likely than not that we will realize some or all of the deferred
tax assets. Accordingly, we have recorded deferred tax assets at the amount we
believe is more likely than not to be realized.

At September 30, 1999 and 2000, we had federal net operating loss
carryforwards of $0 million and $19.6 million, respectively, and research and
experimentation and other credit carryforwards of $3.2 million and $3.9
million, respectively. Approximately $17.2 million of the net operating loss
carryforward came from the acquisition of the Pivotpoint business. The net
operating losses and tax credits at September 30, 2000 expire between 2001 and
2020. The utilization of a significant portion of the net operating losses and
tax credits is limited on an annual basis due to various changes in ownership
of both MAPICS and Pivotpoint. We do not believe that these limitations will
significantly impact our ability to utilize the net operating losses and tax
credits before they expire.

In July 1999, the Internal Revenue Service, or IRS, completed its
examination of our income tax returns for fiscal years 1990 through 1994. The
results of the examination indicate that we will receive income tax refunds of
approximately $1.6 million in the aggregate plus accrued interest. We
recognized interest income related to this refund of $680,000 in fiscal 1999
and $128,000 in fiscal 2000. The examination did not have a significant effect
on our net operating loss carryforwards or other tax credit carryforwards. The
IRS is currently examining the Pivotpoint income tax returns for the 1994 and
1995 tax years.

12. Commitments and Contingencies

Lease Commitments

We lease office space and equipment under operating leases, some of which
contain renewal options and generally requires us to pay insurance, taxes and
maintenance. The lease on our headquarters building includes scheduled base
rent increases over the term of the lease. We charge to expense the total
amount of the base rent payments using the straight-line method over the term
of the lease. In addition, we pay a monthly allocation of the building's
operating expenses. We have recorded a deferred credit to reflect the excess
of rent expense over cash payments since inception of the lease in March 1999.
Total rental expense under all operating lease agreements was $2,059,000,
$2,861,000, and $5,122,000 in fiscal 1998, fiscal 1999 and fiscal 2000,
respectively.

In fiscal 2000, we included $866,000 of rent expense related to future
rental payments on abandoned space at our location in Alpharetta, Georgia in
restructuring and acquisition costs in the statement of operations. The future
payments for this liability are included in the table below.

Future minimum lease payments under noncancelable operating leases having
initial or remaining lease terms longer than one year as of September 30, 2000
were as follows (in thousands):

Amount
Fiscal Years Ending September 30: -------

2001................................................................ $ 3,539
2002................................................................ 3,057
2003................................................................ 2,578
2004................................................................ 2,416
2005................................................................ 2,466
Thereafter.......................................................... 5,815
-------
Total............................................................. $19,871
=======

59

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Litigation

There is no material legal or governmental proceeding pending or threatened
against us.

13. Shareholders' Equity and Stock-Based Compensation Plans

Following the authorization of an additional 40,000,000 shares of common
stock in fiscal 1999, our authorized capital stock consists of 90,000,000
shares of common stock, par value $0.01 per share, and 1,000,000 shares of
preferred stock, par value $1.00 per share.

We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings to fund future development and growth, the
operation of our business, and to repay amounts outstanding under our bank
credit facility. Additionally, covenants in our bank credit facility prohibit
the payment of cash dividends.

Preferred Stock

Of the 1,000,000 authorized shares of preferred stock:

. one share has been designated as series A preferred stock;

. one share has been designated as series B preferred stock;

. one share has been designated as series C preferred stock;

. 225,000 shares have been designated as series D convertible preferred
stock;

. 100,000 shares have been designated as series E convertible preferred
stock; and

. 30,000 shares have been designated as series F junior participating
preferred stock.

On November 20, 1998, we issued 1,500,010 shares of common stock upon the
conversion of 100,000 shares of series D convertible preferred stock and
50,001 shares of series E convertible preferred stock. As of September 30,
1999 and 2000, we had outstanding 125,000 shares of series D convertible
preferred stock and 49,999 shares of series E convertible preferred stock. For
information regarding the series F junior participating preferred stock, see
"Rights Plan."

Each share of series D convertible preferred stock and series E convertible
preferred stock is convertible at any time at the option of the holder into 10
shares of common stock, subject to adjustment in the event of our liquidation
or dissolution as defined in the preferred stock agreements. The holders of
convertible preferred stock are generally entitled to vote on an as converted
basis and are entitled to receive dividends at the same rate as dividends are
paid with respect to common stock. If at any time after September 30, 1998,
for a period of not less than 30 consecutive trading days, the market value of
our common stock exceeds $30.14 per share, we may effect the mandatory
conversion of all then outstanding shares of series D convertible preferred
stock into shares of common stock. Likewise, if at any time after July 23,
1999, for a period of not less than 30 consecutive trading days, the market
value of our common stock exceeds $30.14 per share, we may effect the
mandatory conversion of all then outstanding shares of series E convertible
preferred stock into shares of common stock.

Upon any event of our liquidation or dissolution, we must pay holders of
convertible preferred, before any distribution is made upon stock ranking
junior to the convertible preferred stock, the greater of 1) $75.36 per share
plus an amount per share equal to any dividends declared but unpaid on the
convertible preferred stock or 2) such amounts per share as would have been
payable had each share been converted to common stock.

60

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Warrants

In May 1994, in connection with the sale of subordinated notes, we issued
warrants to purchase an aggregate of 383,333 shares of common stock, as
adjusted from time to time. We refer to these warrants as the sub debt
warrants. These sub debt warrants were originally exercisable at any time
during the period commencing June 30, 1994 and ending April 30, 2001, at an
exercise price of $8.93 per share, as adjusted from time to time. In
connection with the Distribution, we adjusted the sub debt warrants to
decrease the exercise price to $6.50 per share and to increase the number of
underlying shares to 526,309 on a basis intended to preserve the spread value
of the sub debt warrants.

In July 1996, in connection with the issuance and sale of the series E
convertible preferred stock, we issued and sold warrants to purchase an
aggregate of 1,000,000 shares of common stock, as adjusted from time to time.
We refer to these warrants as the GA warrants. The GA warrants were originally
exercisable at any time during the period commencing July 23, 1996 and ending
July 23, 2003, at an exercise price of $15.36 per share, as adjusted from time
to time. In connection with the Distribution, we adjusted the GA warrants so
that the exercise price was decreased to $11.53 per share on a basis intended
to preserve the spread value of the GA warrants.

Rights Plan

We have a shareholder rights plan under which we declared a dividend of 1)
one preferred stock purchase right, or a "right," for each outstanding share
of common stock, and 2) a number of rights for each outstanding share of
convertible preferred stock equal to the number of shares of common stock
issuable upon conversion of that convertible preferred stock. Each right
entitles holders to purchase one one-thousandth of a share, or a "unit," of
series F junior participating preferred stock at an exercise price of $60.00
per unit, subject to adjustment. The rights become exercisable for common
stock only under specific circumstances and in the event of particular events
relating to a change in control of us. Under specific circumstances pursuant
to the rights plan, we may redeem the rights. The rights expire on December
16, 2006, unless redeemed or exchanged earlier. The rights have an anti-
takeover effect, in that they would cause substantial dilution to a person or
group that acquires a significant interest in us on terms not approved by our
board of directors.

Stock-Based Compensation Plans

At September 30, 2000, we had five stock option plans and an employee stock
purchase plan, described below.

The 1998 Long-Term Incentive Plan. The MAPICS, Inc. 1998 Long-Term Incentive
Plan, or 1998 LTIP, allows us to issue up to 3,500,000 shares of common stock
through various stock-based awards to our directors, officers, employees and
consultants, including an additional 1,000,000 shares authorized in fiscal
1999 and 1,500,000 shares authorized in fiscal 2000. The stock-based awards
can be in the form of (a) incentive stock options, or ISOs, or non-qualified
stock options; (b) stock appreciation rights; (c) performance units; (d)
restricted stock; (e) dividend equivalents; and (f) other stock based awards.
In general, the exercise price specified in the agreement relating to each ISO
granted under the 1998 LTIP is required to be not less than the fair market
value of the common stock as of the date of grant.

During fiscal 1998, we provided long-term incentive compensation to some of
our officers and employees through grants of performance units and stock
options under the 1998 LTIP. Performance units represent the right to receive
a number of shares of common stock that will be determined by the achievement
of specific performance objectives. Those objectives were not met and the
vesting did not accelerate.

61

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During fiscal 1999 and fiscal 2000, we granted 113,501 and 53,000 shares,
respectively, of performance accelerated restricted stock, or PARS, to some of
our officers and employees under the 1998 LTIP. PARS shares are shares of
common stock that we granted outright without cost to the officer or employee.
The shares, however, are restricted in that they may not be sold or otherwise
transferred by the officer or employee until they vest, generally after the
end of three years. The vesting date may accelerate if we achieve specific
performance objectives. If the officer or employee leaves us prior to the
vesting date for any reason, the officer or employee generally will forfeit
the PARS shares, which will be returned to us. Once the PARS shares have
vested, they become unrestricted and may be transferred and sold like any
other shares of common stock. We recognize compensation expense over the
performance period based on the grant date fair value of the PARS shares
issued to officers and employees. Restricted stock compensation, which
represents compensation expense attributable to future periods, is presented
as a separate component of shareholders' equity.

We recognize compensation expense over the performance period based on the
grant date fair value of the performance-based stock awards issued to officers
and employees. During fiscal 1998, fiscal 1999 and fiscal 2000, we recognized
compensation expense, including the effect of forfeitures, of $231,000,
$251,000 and $(15,000), respectively, related to performance-based stock
awards.

The Directors Plan. The MAPICS, Inc. 1998 Non-Employee Director Stock Option
Plan allows us to issue non-qualified stock options to purchase up to 310,000
shares of common stock to eligible members of the board of directors who are
neither our employees nor our officers. In general, the exercise price
specified in the agreement relating to each non-qualified stock option granted
under the Directors Plan is required to be the fair market value of the common
stock at the date of grant. Subject to specific provisions, stock options
granted under the Directors Plan become exercisable in various increments over
a period of one to four years, provided that the optionee has continuously
served as a member of the board of directors through the vesting date. The
stock options granted under the Directors Plan expire ten years from the date
of grant.

The Directors Incentive Plan. The 1998 Non-Employee Directors Stock
Incentive Plan provides for the issuance of common stock, deferred rights to
receive common stock and non-qualified stock options to purchase up to 60,000
shares of common stock to eligible members of the board of directors who are
neither our employees nor our officers. During fiscal 1998, fiscal 1999 and
fiscal 2000, we issued 1,562, 1,765 and 4,404 shares of common stock,
respectively, under the Directors Incentive Plan.

The 1987 Plan. Prior to its expiration on December 31, 1996, the Marcam
Corporation 1987 Stock Plan allowed us to grant ISOs to our employees and non-
qualified stock options and stock awards to our officers, employees and
consultants. In general, the exercise price specified in the agreement
relating to each ISO granted under the 1987 Plan was required to be not less
than the fair market value of the common stock as of the date of grant.
Subject to specific provisions, stock options granted under the 1987 Plan were
fully exercisable on the date of grant or became exercisable thereafter in
installments specified by the board of directors. The stock options granted
under the 1987 Plan expire on dates specified by the board of directors not to
exceed a period of ten years from the date of grant.

The 1994 Plan. Prior to its discontinuation in February 1998, the Marcam
Corporation 1994 Stock Plan allowed us to grant ISOs to our employees and non-
qualified stock options and stock awards to our officers, employees and
consultants. In general, the exercise price specified in the agreement
relating to each ISO granted under the 1994 Plan was required to be not less
than the fair market value of the common stock as of the date of grant. The
1994 Plan required non-qualified stock options to be granted with an exercise
price that was not less than the minimum legal consideration required under
applicable state law. Subject to specific provisions, stock

62

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

options granted under the 1994 Plan were fully exercisable on the date of
grant or became exercisable after the date of grant in installments specified
by the board of directors. The stock options granted under the 1994 Plan
expire on dates specified by the board of directors not to exceed a period of
ten years from the date of grant.

The 1998 ESPP. Under the MAPICS, Inc. 1998 Employee Stock Purchase Plan we
are authorized to issue up to 700,000 shares of common stock to our full-time
employees, nearly all of who are eligible to participate. The 1998 ESPP is a
qualified plan under Section 423 of the Internal Revenue Code. Under the terms
of the 1998 ESPP, employees, excluding those owning 5 percent or more of the
common stock, can choose every six months to have up to 10 percent of their
base and bonus earnings withheld to purchase common stock, subject to
limitations. The purchase price of the common stock is 85 percent of the lower
of its beginning-of-period or end-of period market price. We refer to options
granted under the 1998 ESPP as look-back options. The 1998 ESPP was
discontinued on June 30, 2000 when it was replaced by the MAPICS, Inc. 2000
ESPP. Under the 1998 ESPP, we sold 30,973, 39,176, and 63,755 shares of common
stock to employees during fiscal 1998, fiscal 1999, and fiscal 2000,
respectively.

The 2000 ESPP. The MAPICS, Inc. 2000 Employee Stock Purchase Plan was
approved during fiscal 2000 and provides that we are authorized to issue up to
500,000 shares of common stock to our full-time employees, nearly all of who
are eligible to participate. The 2000 ESPP is a qualified plan under Section
423 of the Internal Revenue Code. Under the terms of the 2000 ESPP, employees,
excluding those owning 5 percent or more of the common stock, can choose every
six months to have up to 10 percent of their base and bonus earnings withheld
to purchase common stock, subject to limitations. The purchase price of the
common stock is 85 percent of the lower of its beginning-of-period or end-of-
period market price.

At September 30, 2000, we had available 500,000 shares for issuance under
the 2000 ESPP. The 2000 ESPP expires on December 31, 2007.

Additional Stock Option Grants. During prior fiscal years, the board of
directors authorized the issuance of stock options to purchase 25,260 shares
of common stock, which we granted outside of the existing stock option plans.

Except for the look-back options issued under the 1998 ESPP, all stock
options granted under our stock-based compensation plans, as well as those
stock options granted outside our stock-based compensation plans, were granted
at exercise prices not less than the fair market value of the common stock at
the date of grant.

63

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table reflects the activity and historical weighted average
exercise prices of our stock options for the periods from September 30, 1997
through September 30, 2000.

Weighted Average
Number of Shares Exercise
Under Options Price($)
---------------- ----------------

Balance as of September 30, 1997.............. 3,462,396 10.83
Granted..................................... 338,100 16.09
Exercised................................... (359,462) 9.18
Canceled/expired............................ (310,892) 11.17
---------
Balance as of September 30, 1998.............. 3,130,142 11.55
Granted..................................... 925,089 8.69
Exercised................................... (129,948) 9.85
Canceled/expired............................ (319,846) 12.88
---------
Balance as of September 30, 1999.............. 3,605,437 10.76
Granted..................................... 1,835,609 11.86
Exercised................................... (288,929) 9.38
Canceled/expired............................ (403,737) 11.96
---------
Balance as of September 30, 2000.............. 4,748,380 11.22
=========

The following table summarizes information about the stock options
outstanding at September 30, 2000:

Stock Options
Stock Options Outstanding Exercisable
------------------------------ ------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Range of Exercise Prices Number Life Price Number Price
------------------------ --------- ----------- -------- --------- --------

$ 4.19--5.13......... 342,501 8.5 $ 4.24 166,876 $ 4.24
5.28--6.57......... 451,676 9.3 5.59 27,226 6.44
6.75--8.25......... 424,483 6.5 7.83 237,733 7.88
8.73--10.88........ 1,296,707 6.4 9.71 1,012,189 9.73
10.98--13.25........ 639,464 7.3 11.57 285,100 11.71
13.89--17.27........ 1,139,865 7.4 15.46 318,940 15.09
17.46--19.88........ 369,850 3.1 17.69 324,500 17.59
21.94--22.50........ 83,834 7.8 22.14 46,411 22.26
--------- ---------
4,748,380 2,418,975
========= =========

64

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Pro Forma Information

We apply APB Opinion No. 25 and related interpretations in accounting for
our stock option plans and employee stock purchase plan and have adopted the
disclosure-only provisions of SFAS No. 123. In general, we have not recognized
compensation expense for stock options granted to our directors, officers or
employees under our stock-based compensation plans. If we did recognize
compensation cost for stock options issued to our directors, officers and
employees as prescribed in SFAS No. 123, we would have reduced or increased
our net income (loss), net income (loss) per common share (basic) and net
income (loss) per common share (diluted) as follows (in thousands, except per
share data):

Fiscal Years Ended
September 30,
--------------------------
1998 1999 2000
------- ------- --------

Net income (loss), as reported................. $18,728 $13,199 $(11,725)
Pro forma effect of SFAS 123................... (1,063) (1,748) (2,653)
------- ------- --------
Pro forma net income (loss).................... $17,665 $11,451 $(14,378)
======= ======= ========
Basic net income (loss) per common share, as
reported...................................... $ 1.01 $ 0.70 $ (0.66)
Pro forma effect of SFAS 123................... (0.06) (0.09) (0.14)
------- ------- --------
Pro forma basic net income (loss) per common
share......................................... $ 0.95 $ 0.61 $ (0.80)
======= ======= ========
Diluted net income (loss) per common share, as
reported...................................... $ 0.81 $ 0.62 $ (0.66)
Pro forma effect of SFAS 123................... (0.05) (0.08) (0.14)
------- ------- --------
Pro forma diluted net income (loss) per common
share......................................... $ 0.76 $ 0.54 $ (0.80)
======= ======= ========

We estimated the fair value of the options granted under the stock option
plans at the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:

Fiscal Years Ended
September 30,
----------------------------
1998 1999 2000
-------- -------- --------

Weighted average grant date fair value of
options.................................... $6.41 $5.51 $8.28
Dividend yield.............................. 0% 0% 0%
Expected volatility......................... 50% 73% 83%
Risk-free interest rate..................... 5.52% 5.06% 6.35%
Expected life of options.................... 5 years 5 years 5 years

We estimated the fair value of the look-back options granted under the 1998
ESPP at the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:

Fiscal Years Ended
September 30,
----------------------------
1998 1999 2000
-------- -------- --------

Weighted average grant date fair value of
options.................................... $3.73 $4.37 $2.80
Dividend yield.............................. 0% 0% 0%
Expected volatility......................... 50% 73% 83%
Risk-free interest rate..................... 5.52% 4.75% 6.15%
Expected life of options.................... 6 months 6 months 6 months

65

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Treasury Stock

In fiscal 1998 and fiscal 1999 we purchased 128,600 and 2,953,800 shares of
common stock for $1,281,000 and $24,266,000, respectively, pursuant to stock
repurchase plans authorized by our board of directors. In fiscal 1999 we
retired 128,600 shares of treasury stock with a cost of $1,281,000.

14. Employee Benefit Plans

Retirement Plan

We have a defined contribution 401(k) retirement plan covering
substantially all of our employees in the United States. Under this plan,
eligible employees may contribute a portion of their salary until retirement.
We match a portion of the employees' contributions and pay the administration
costs of the plan. We incurred total expenses under this plan of $443,000,
$594,000 and $854,000 in fiscal 1998, fiscal 1999 and fiscal 2000,
respectively.

Group Medical Plan

We have a partially self-insured group medical plan to which both we and
eligible employees are required to make contributions. The plan is
administered by a third party who reviews all claims filed and authorizes the
payment of benefits. We expense medical claims as they are incurred, and we
recognize a liability for claims incurred but not reported. As of September
30, 1999 and 2000, we had a reserve of $550,000 and $523,000, respectively,
for medical claims.

15. Operating Segments and Geographic Information

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," defines operating segments as components of an enterprise about
which separate financial data are available and are evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. Our chief operating decision-maker, for this purpose,
is our president and chief executive officer who acts with the support of
other executive officers and vice presidents. For fiscal 1998, fiscal 1999 and
fiscal 2000, we had primarily one operating segment that consists of
developing, marketing, licensing and supporting business software that is
marketed and delivered to manufacturing enterprises worldwide. Our principal
administrative, marketing, product development and support operations are
located in the United States. Areas of operation outside of the United States
include EMEA, LAAP and Canada.

We regularly prepare and evaluate separate financial information for each
of our principal geographic areas, including 1) North America, 2) EMEA and 3)
LAAP. In evaluating financial performance, we focus on operating profit as a
measure of a geography's profit or loss. Operating profit for this purpose is
income before interest, taxes and allocation of some corporate expenses. We
include our corporate division in the presentation of reportable segment
information because some of the income and expense of this division are not
allocated separately to the operating segments. We generally do not evaluate
assets by geography, except for accounts receivable.

66

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following tables include financial information related to our operating
segments and geographic areas (in thousands):

North
America EMEA LAAP Corporate Total
Fiscal 1998: -------- ------- ------- --------- --------

Revenue from unaffiliated
customers............... $ 91,595 $27,203 $10,943 $ -- $129,741
Income from operations... 23,059 8,352 2,523 (4,242) 29,692
Interest income.......... 816
Interest expense......... (56)
--------
Income before income tax
expense (benefit)....... $ 30,452
========
Depreciation and
amortization............ 8,662 191 20 516 $ 9,389
Accounts receivable, net
(at year end)........... 26,600 6,709 2,570 -- 35,879

Fiscal 1999:
Revenue from unaffiliated
customers............... $ 95,097 $27,769 $11,852 $ -- $134,718
Income from operations... 17,723 5,461 752 (4,276) 19,660
Interest income.......... 1,887
Interest expense......... (86)
--------
Income before income tax
expense (benefit)....... $ 21,461
========
Depreciation and
amortization............ 9,569 250 36 516 $ 10,371
Accounts receivable, net
(at year end)........... 22,936 4,140 3,704 24 30,804

Fiscal 2000:
Revenue from unaffiliated
customers............... $105,602 $25,378 $ 9,382 $ -- $140,362
Income (loss) from
operations.............. 16,508 3,119 33 (31,951) (12,291)
Interest income.......... 1,032
Interest expense......... (2,917)
--------
Loss before income tax
expense (benefit)....... $(14,176)
========
Depreciation and
amortization............ 9,376 222 94 7,739 $ 17,431
Accounts receivable, net
(at year end)........... 26,604 5,225 3,345 46 35,220

The information presented above may not be indicative of results if the
geographic areas were independent organizations. No single customer accounts
for more than 10% of our revenue. We eliminate transfers between geographic
areas in the preparation of the consolidated financial statements.

Fiscal Fiscal Fiscal
1998 1999 2000
-------- -------- --------
(in thousands)

Revenue from unaffiliated customers:
United States.................................. $ 86,896 $ 91,705 $ 96,675
Foreign countries.............................. 42,845 43,013 43,687
-------- -------- --------
$129,741 $134,718 $140,362
======== ======== ========
Long-lived assets:
United States.................................. $ 4,579 $ 5,291 $ 5,109
Foreign countries.............................. 459 728 964
-------- -------- --------
$ 5,038 $ 6,019 $ 6,073
======== ======== ========

67

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

No single foreign country had a material portion of total revenue from
unaffiliated customers or total long-lived assets. Long-lived assets consist
of property and equipment, net of accumulated depreciation.

16. Supplemental Disclosure of Cash Flow Information

Payments for Income Taxes and Interest

In fiscal 1998, fiscal 1999 and fiscal 2000, we made cash payments for
income taxes, net of income tax refunds, of $1,866,000, $3,921,000 and
$328,000, respectively.

In fiscal 1998, fiscal 1999 and fiscal 2000, we made cash payments for
interest of $51,000, $88,000 and $1,869,000, respectively.

Non-cash Investing and Financing Activities

Non-cash investing and financing activities are summarized below (in
thousands):

Fiscal Years Ended
September 30,
------------------
1998 1999 2000
---- ----- -------

Liabilities and debt assumed in acquisition................ $ -- $ -- $15,314
Restricted common stock issued in an acquisition........... -- -- 1,931
Expense for stock-based awards............................. 260 397 270
Tax benefit associated with the exercise of stock options
and stock awards.......................................... 903 267 581
Retirement of treasury stock............................... -- 1,281 --
Conversion of preferred stock.............................. -- 150 --

17. Supplemental Financial Information (Unaudited)

Selected Quarterly Financial Data (Unaudited)

The following quarterly information is unaudited and, in our opinion,
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the operating results for each quarter (in
thousands):

First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------

Fiscal 1999:
Total revenue.................... $38,461 $30,263 $32,065 $33,929 $134,718
Income before income tax
expense......................... 9,792 3,270 3,924 4,475 21,461
Net income..................... 6,022 2,011 2,414 2,752 13,199
Fiscal 2000:
Total revenue.................... $30,525 $34,521 $36,490 $38,826 $140,362
Income (loss) before income tax
expense (benefit)............... 4,101 (17,210) 1,900 (2,967) (14,176)
Net income (loss).............. 2,522 (12,307) 304 (2,244) (11,725)

We have experienced fluctuations in our quarterly operating results and
anticipate that these fluctuations will continue and may intensify.

We recorded restructuring and acquisition costs and special costs in the
second, third and fourth quarters of fiscal 2000 of $16.0 million, $(2.2)
million, and $4.4 million. These items consisted of restructuring and

68

MAPICS, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

acquisition costs of $13.3 million related to the Pivotpoint acquisition and
resultant change in product strategy and special costs of $4.9 million from
the write-off of non-productive technology-related assets and compensation
expense recorded in connection with the acquisition of Pivotpoint.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not applicable.

69

PART III

Item 10. Directors and Executive Officers of the Registrant.

We will provide information relating to our directors under the captions
"Proposal 1--Election of Directors--Nominees" and "--Information Regarding
Nominee and Continuing Directors" in our proxy statement for our 2001 annual
meeting of shareholders to be held on February 13, 2001 or in a subsequent
amendment to this report. We will provide information regarding compliance
with Section 16(a) of the Securities Exchange Act of 1934 by our directors and
executive officers and beneficial owners of more than 10% of our common stock
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in
the above referenced proxy statement or amendment. All such information that
is provided in the proxy statement is incorporated in this Item 10 by
reference.

The following information about our executive officers is as of September
30, 2000:

Richard C. Cook, age 53, has been our President and Chief Executive Officer
and a member of our board since August 1997. From October 1994 to July
1997, Mr. Cook served as the Senior Vice President and General Manager of
our MAPICS Business Group. Mr. Cook served as the President and Chief
Executive Officer of Mapics, Inc., a former subsidiary, from March 1993 to
October 1994. Mr. Cook was employed by IBM as Director of its Atlanta
Software Development Laboratory from March 1990 to February 1993 and as
Director of its Corporate Computer Integrated Manufacturing Project Office
from March 1988 to April 1990.

Stephen C. Haley, age 43, has been our Chief Operating Officer since our
acquisition of Pivotpoint, Inc. in January 2000. From July 1997 to January
2000 he was the Chief Executive Officer of Pivotpoint. From July 1996 to
July 1997, he was the Vice President of Sales for Pivotpoint. Prior to July
1996, Mr. Haley was the founder and owner of Spectrum Systems Technologies,
Inc., a software sales and services company. Mr. Haley is also a director
of Clearpath, Inc.

William J. Gilmour, age 45, has been our Chief Financial Officer, Vice
President of Finance and Treasurer since August 1997. From October 1994 to
August 1997, Mr. Gilmour was Controller of our MAPICS Business Group. From
January 1993 to September 1994, Mr. Gilmour was Controller of our former
Mapics, Inc. subsidiary. From November 1991 to January 1993, Mr. Gilmour
was Controller of our former subsidiary Marcam Canada Corporation. Before
joining us, Mr. Gilmour was Corporate Controller of Madison Chemical
Industries, a specialty chemical manufacturer. Mr. Gilmour received his
Chartered Accountant designation from the Canadian Institute of Chartered
Accountants in 1980.

Martin D. Avallone, age 39, has been our Vice President, General Counsel
and Secretary since October 1998. He has also served as our Vice President
of Business Development since October 2000. From July 1997 through
September 1998, Mr. Avallone was our General Counsel and Secretary. From
May 1986 though July 1997, Mr. Avallone held various legal positions within
IBM.

Item 11. Executive Compensation.

We will provide information relating to executive compensation under the
captions "Proposal 1--Election of Directors--Director Compensation" and "--
Benefits to Non-employee Directors," "Executive Compensation," "Report of the
Compensation Committee of the Board of Directors" and "Stock Performance
Graphs" in the proxy statement or subsequent amendment to this report referred
to in Item 10 above. All such information that is provided in the proxy
statement is incorporated in this Item 11 by reference, except for the
information under the captions "Report of the Compensation Committee of the
Board of Directors" and "Stock Performance Graphs" which specifically is not
so incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

We will provide information regarding ownership of our common stock by
specified persons under the caption "Stock Ownership" in the proxy statement
or subsequent amendment to this report referred to in Item 10 above. All such
information that is provided in the proxy statement is incorporated in this
Item 12 by reference.

70

Item 13. Certain Relationships and Related Transactions.

We will provide information regarding certain relationships and transactions
between us and some of our affiliates under the caption "Proposal 1--Election
of Directors--Director Compensation" in the proxy statement or subsequent
amendment to this report referred to in Item 10 above. All such information
that is provided in the proxy statement is incorporated in this Item 13 by
reference.

71

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) 1. Consolidated Financial Statements

Our consolidated financial statements listed below are set forth in Item 8
of this report:

Page
----

Report of Independent Accountants..................................... 39
Consolidated Balance Sheets as of September 30, 1999 and 2000......... 40
Consolidated Statements of Operations for the years ended September
30, 1998, 1999 and 2000 41
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 1998, 1999 and 2000.................................... 42
Consolidated Statements of Cash Flows for the years ended September
30, 1998, 1999 and 2000.............................................. 43
Notes to Consolidated Financial Statements............................ 44
Supplemental Financial Information.................................... 68

2. Financial Statement Schedules

We have omitted all schedules to our consolidated financial statements
because they are not required under the related instructions or are
inapplicable, or because we have included the required information in our
consolidated financial statements or related notes.

3. Exhibits

The following exhibits either (i) are filed with this report or (ii) have
previously been filed with the Securities and Exchange Commission and are
incorporated in Item 14 by reference to those prior filings. Previously filed
registration statements and reports which are incorporated by reference are
identified in the column captioned "SEC Document Reference." We will furnish
any exhibit upon request to Martin D. Avallone, our Vice President, General
Counsel and Secretary, 1000 Windward Concourse Parkway, Suite 100, Alpharetta,
Georgia 30005. We charge $.50 per page to cover expenses of copying and
mailing.

xhibitE
No. Description SEC Document Reference
- - - - - - - - ------- ----------- ----------------------

2.1 Agreement and Plan of Merger dated as of Exhibit 2.1 to Quarterly Report on Form
March 30, 1998 between MAPICS, Inc, a 10-Q dated May 14, 1998
Massachusetts corporation, and MAPICS,
Inc., a Georgia corporation
2.2 Agreement and Plan of Merger dated as of Exhibit 2.1 to Annual Report on Form 10-
December 15, 1999 by and among MAPICS, K for the fiscal year ended September
Inc., MAPICS Merger Corp. and 30, 1999.
Pivotpoint, Inc.
3.1 Articles of Incorporation Exhibit 4.1 to Registration Statement on
Form 8-A dated March 31, 1998, as
amended by Form 8- A/A dated August 21,
1998

72

xhibitE
No. Description SEC Document Reference
- - - - - - - - ------- ----------- ----------------------

3.2 By-laws Exhibit 4.2 to Registration Statement on
Form 8-A dated March 31, 1998, as
amended by Form 8-A/A dated August 21,
1998
4.1 Specimen certificate representing the Exhibit 3 to Registration Statement on
common stock Form 8-A dated March 31, 1998, as
amended by Form 8-A/A dated August 21,
1998
4.2 Amended and Restated Rights Agreement Exhibit 4 to Registration Statement on
dated as of March 30, 1998 among MAPICS, Form 8-A dated March 31, 1998, as
Inc., a Georgia corporation, MAPICS, amended by Form 8-A/A dated August 21,
Inc., a Massachusetts corporation, and 1998
BankBoston, N.A., as its rights agent,
which includes as Exhibit A the terms of
the Series F Preferred Stock, as Exhibit
B the Form of Rights Certificate and as
Exhibit C the Form of Summary of Rights
to Purchase Preferred Stock
10.1 Note and Warrant Purchase Agreement Exhibit 10.1 to Quarterly Report on Form
entered into by Marcam Corporation and 10-Q dated May 12, 1994, as amended by
each of The Northwestern Mutual Life Form 10- Q/A dated October 6, 1994
Insurance Company, John Hancock Mutual
Life Insurance Company and John Hancock
Life Insurance Company of America dated
as of May 12, 1994
10.2 Amendment Agreement dated as of August Exhibit 10.1 to Quarterly Report on Form
19, 1994 by and among the Registrant, 10-Q dated August 22, 1994
The Northwestern Mutual Life Insurance
Company, John Hancock Mutual Life
Insurance Company and John Hancock Life
Insurance Company of America
10.3 Amendment Agreement dated as of July 29, Exhibit 10.36 to Annual Report on Form
1995 by and among the Registrant, The 10-K for the fiscal year ended September
Northwestern Mutual Life Insurance 30, 1994, as amended
Company, John Hancock Mutual Life
Insurance Company and John Hancock Life
Insurance Company of America
10.4 Amendment Agreement dated as of Exhibit 10.4 to Registration Statement,
September 29, 1995 by and among the No. 33- 90670
Registrant, The Northwestern Mutual Life
Insurance Company, John Hancock Mutual
Life Insurance Company and John Hancock
Life Insurance Company of America and
Barnett & Co.
10.5 Amendment Agreement dated as of November Exhibit 10.31 to Annual Report on Form
14, 1995 by and among the Registrant, 10-K for the fiscal year ended September
The Northwestern Mutual Life Insurance 30, 1995, as amended
Company, John Hancock Mutual Life
Insurance Company and John Hancock
Insurance Company of America and Barnett
& Co.

73

xhibitE
No. Description SEC Document Reference
- - - - - - - - ------- ----------- ----------------------

10.6 Amendment Agreement dated as of December Exhibit 10.38 to Annual Report on Form
15, 1995 by and among the Registrant, 10-K for the fiscal year ended September
The Northwestern Mutual Life Insurance 30, 1995, as amended
Company, John Hancock Mutual Life
Insurance Company, John Hancock Life
Insurance Company of America and Barnett
& Co.
10.7 Letter dated March 29, 1996 to Exhibit 10.1 to Quarterly Report on Form
Northwestern Mutual Life Insurance 10-Q dated May 14, 1996
Company, John Hancock Life Insurance
Company of America and Barnett & Co.
from Marcam Corporation
10.8 Amendment and Waiver Agreement dated as Exhibit 10.1 to Quarterly Report on Form
of July 16, 1996 by and among the 10-Q dated August 14, 1996
Registrant, The Northwestern Mutual Life
Insurance Company, John Hancock Mutual
Life Insurance Company, John Hancock
Life Insurance Company of America and
Barnett & Co.
10.9 Convertible Preferred Stock Purchase Exhibit 10.2 to Current Report on Form
Agreement dated September 20, 1995 by 8-K dated September 29, 1995
and among Marcam Corporation, General
Atlantic Partners 21, L.P. GAP
Coinvestment Partners, L.P. and The
Northwestern Mutual Life Insurance
Company
10.10 Convertible Preferred Stock and Warrant Exhibit 10.1 to Current Report on Form
Purchase Agreement dated July 19, 1996 8-K dated July 23, 1996
among Marcam Corporation, General
Atlantic Partners 32, L.P. and GAP
Coinvestments Partners, L.P., including
the form of Marcam Corporation Common
Stock Purchase Warrants
10.11 Amended and Restated Registration Rights Exhibit 10.2 to Current Report on Form
Agreement dated July 23, 1996 by and 8-K dated July 23, 1996
among Marcam Corporation, General
Atlantic Partners 21, L.P., General
Atlantic Partners 32, L.P., GAP
Coinvestment Partners, L.P. and The
Northwestern Mutual Life Insurance
Company
10.12 Distribution Agreement between Marcam Exhibit 2 to Amendment No. 1 to
Solutions, Inc. and Marcam Corporation Registration Statement on Form 10, No.
000-22841, of Marcam Solutions, Inc.
dated July 22, 1997
10.13 Tax Sharing Agreement between Marcam Exhibit 10.2 to Amendment No. 1 to
Solutions, Inc. and Marcam Corporation Registration Statement on Form 10, No.
000-22841, of Marcam Solutions, Inc.
dated July 22, 1997
10.14 General Services Agreement between Exhibit 10.1 to Amendment No. 1 to
Marcam Solutions, Inc. and Marcam Registration Statement on Form 10, No.
Corporation 000-22841, of Marcam Solutions, Inc.
dated July 22, 1997
10.15* 1994 Stock Plan, as amended and restated Exhibit 4.4 to Registration Statement on
Form S-8, No. 333-02158
10.16* 1987 Stock Plan, as amended and restated Exhibit 10.33 to Annual Report on Form
10-K for the fiscal year ended September
30, 1996

74

xhibitE
No. Description SEC Document Reference
- - - - - - - - ------- ----------- ----------------------

10.17* 1998 Non-Employee Director Stock Option Exhibit 99.1 to Registration Statement
Plan on Form S-8, No. 333-48989
10.18* 1998 Non-Employee Director Stock Exhibit 99.2 to Registration Statement
Incentive Plan on Form S-8, No. 333-48989
10.19* 1998 Long-Term Incentive Plan, as Exhibit 99.1 to Registration Statement
amended and restated. on Form S-8, No. 333-35034
10.20* 2000 Employee Stock Purchase Plan Exhibit 99.2 to Registration Statement
on Form S-8, No. 333-35034
10.21* Change of Control Employment Agreement Exhibit 10.46 to Quarterly Report on
by and between MAPICS, Inc. and Richard Form 10-Q dated May 14, 1998
C. Cook dated as of March 24, 1998
10.22* Employment Agreement dated December 15, Exhibit 10.5 to Quarterly Report on Form
1999 between MAPICS, Inc. and Stephen C. 10-Q dated February 14, 2000
Haley
10.23* Change of Control Employment Agreement Exhibit 10.48 to Quarterly Report on
by and between MAPICS, Inc. and William Form 10-Q dated May 14, 1998
J. Gilmour dated as of March 31, 1998
10.24* Change of Control Employment Agreement Exhibit 10.36 to Annual Report on Form
by and between MAPICS, Inc. and Martin 10-K for the fiscal year ended September
D. Avallone dated as of March 27, 1998 30, 1998
10.25 Sublease Agreement by and between Exhibit 10.37 to Annual Report on Form
General Electric Capital Corporation and 10-K for the fiscal year ended September
MAPICS, Inc. dated as of October 29, 30, 1998
1998
10.26 Amendment to Convertible Preferred Stock Exhibit 2.1 to Annual Report on Form 10-
Purchase Agreement Among MAPICS, Inc., K for the fiscal year ended September
General Atlantic Partners 21, L.P., GAP 30, 2000.
Coinvestment Partners, L.P. and The
Northwestern Mutual Life Insurance
Company, dated as of August 4, 1999
10.27 Amendment to Convertible Preferred Stock Exhibit 2.1 to Annual Report on Form 10-
and Warrant Purchase Agreement Among K for the fiscal year ended September
MAPICS, Inc., General Atlantic Partners 30, 2000.
32, L.P. and GAP Coinvestment Partners,
L.P., dated as of August 4, 1999
10.28+ Revolving Credit and Term Loan Agreement
dated as of January 12, 2000 among
MAPICS, Inc., Fleet National Bank
(formerly known as BankBoston, N.A.) and
other lending institutions set forth on
Schedule 1 hereto and Fleet National
Bank (formerly known as BankBoston,
N.A.), as Agent, and FleetBoston
Robertson Stephens Inc., as Arranger, as
amended through Amendment No. 4
(composite).
21+ Subsidiaries of the Registrant
23.1+ Consent of PricewaterhouseCoopers LLP

75

Exhibit
No. Description SEC Document Reference
------- ----------- ----------------------

27.1+ Financial Data Schedule for the fiscal
year ended September 30, 2000 (for SEC
use only)

- - - - - - - - --------
* Compensatory management plan.
+ Filed with this report.

(b) Reports on Form 8-K

None.

(c) See Item 14(a)(3) above.

(d) See Item 14(a)(2) above.

76

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on December 22,
2000.

MAPICS, Inc.

/s/ Richard C. Cook
By: _________________________________
Richard C. Cook
President and Chief Executive
Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on
December 22, 2000.

Signature Title
--------- -----

/s/ Richard C. Cook President, Chief Executive Officer and
______________________________ Director
Richard C. Cook

/s/ George A. Chamberlain 3d Director
______________________________
George A. Chamberlain 3d

/s/ Roger Heinen, Jr. Director
______________________________
Roger Heinen, Jr.

/s/ Edward J. Kfoury Director
______________________________
Edward J. Kfoury

/s/ Terry H. Osborne Director
______________________________
Terry H. Osborne

/s/ H. Mitchell Watson, Jr. Director
______________________________
H. Mitchell Watson, Jr.

/s/ William J. Gilmour Vice President of Finance, Treasurer
______________________________ and Chief Accounting Officer
William J. Gilmour

77

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