-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NjYIZf6w76YJhAGPl2u/DvubRJJMbsYoY6YbiGI5bNzalRsfH3a6KQKEPhOENfMe xAgygzDYzYRLPlxCx21IjQ== 0000897069-97-000414.txt : 19971016 0000897069-97-000414.hdr.sgml : 19971016 ACCESSION NUMBER: 0000897069-97-000414 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971015 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EFFECTIVE MANAGEMENT SYSTEMS INC CENTRAL INDEX KEY: 0000853372 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 391292200 STATE OF INCORPORATION: WI FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23438 FILM NUMBER: 97696287 BUSINESS ADDRESS: STREET 1: 12000 WEST PARK PL CITY: MILWAUKEE STATE: WI ZIP: 53224 BUSINESS PHONE: 4143599800 10-Q 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1997. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO __________ Commission file number 0-23438 Effective Management Systems, Inc. (Exact name of registrant as specified in its charter) Wisconsin 39-1292200 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12000 West Park Place Milwaukee, WI 53224 (Address of principal executive offices, including Zip Code) 414-359-9800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Class Outstanding as of August 31, 1997 Common Stock, $.01 par value 4,054,783 EFFECTIVE MANAGEMENT SYSTEMS, INC. Form 10-Q August 31, 1997 INDEX PART 1 - FINANCIAL INFORMATION PAGE Item 1 Financial Statements Consolidated Balance Sheets at August 31, 1997 and November 30, 1996 3 Consolidated Statements of Income - Three and Nine Months Ended August 31, 1997 and August 31, 1996 5 Consolidated Statements of Cash Flows - Nine 6 Months Ended August 31, 1997 and August 31, 1996 Notes to Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 15 SIGNATURES 16 PART I Financial Information Item 1 Financial Statements EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited except for November 30, 1996 amounts) ASSETS 31-Aug 30-Nov 1997 1996 CURRENT ASSETS Cash $406 $866 Investments in available-for-sale securities 1 505 Accounts Receivable: Trade, less allowance for doubtful accounts 9,875 11,146 Related Parties 796 693 Inventories 380 391 Refundable Income Taxes - 159 Deferred Income Taxes 1,257 175 Prepaid Expenses and Other Current Assets 414 288 -------- -------- TOTAL CURRENT ASSETS 13,129 14,223 LONG TERM ASSETS Computer Software, net 6,911 5,781 Investments in and Advances to Unconsolidated Joint Ventures 260 199 Equipment and Leasehold Improvements, net 4,201 3,961 Intangible Assets, net 2,520 2,690 Other Assets 629 592 -------- -------- TOTAL LONG TERM ASSETS 14,521 13,223 -------- -------- TOTAL ASSETS $27,650 $27,446 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (unaudited except for November 30, 1996 amounts) LIABILITIES AND STOCKHOLDERS' EQUITY 31-Aug 30-Nov 1997 1996 CURRENT LIABILITIES Accounts Payable $1,359 $2,026 Accrued Liabilities 2,028 2,846 Deferred Revenues 5,005 4,605 Customer Deposits 199 109 Current portion of Long-term Obligations 5,550 127 -------- ------- TOTAL CURRENT LIABILITIES 14,141 9,713 LONG TERM LIABILITIES Deferred Revenue and Other Long-term Liabilities 360 453 Long-term Obligations 168 2,123 Deferred Income Taxes 560 560 ------- ------- TOTAL LONG TERM LIABILITIES 1,088 3,136 Commitments and Contingencies - - STOCKHOLDERS' EQUITY Preferred Stock, $.01 par value; authorized 3,000,000 shares; none issued or outstanding - - Common Stock, $.01 par value; authorized 20,000,000 shares; issued 4,067,408 and 4,011,018 shares; outstanding 4,054,783 and 4,008,393 shares 41 41 Common Stock Warrants 4 4 Additional Paid-in Capital 11,327 11,137 Retained Earnings 1,109 3,420 Cost of Common Stock in Treasury(12,625 shares) (60) (5) ------- ------- TOTAL STOCKHOLDERS' EQUITY 12,421 14,597 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,650 $27,446 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED 31-Aug 31-Aug 31-Aug 31-Aug 1997 1996 1997 1996 NET REVENUES: Software license fees $ 4,963 $ 4,040 $ 14,491 $ 11,970 Services 4,095 3,755 12,361 11,152 Hardware 624 1,278 2,687 5,297 ------- ------- ------- ------- Total net revenues $ 9,682 $ 9,073 $ 29,539 $ 28,419 COST OF PRODUCTS AND SERVICES Software license fees 1,321 922 3,983 2,587 Services 3,387 3,017 10,584 8,668 Hardware 468 844 2,074 3,932 ------- ------- ------- ------- Total cost of products and services $ 5,176 $ 4,783 $ 16,641 $ 15,187 Selling and marketing expenses 4,259 3,311 11,103 9,825 General and administrative expenses 631 942 2,993 2,736 Product development expenses 621 580 1,817 1,547 ------- ------- ------- ------- Total costs and operating expenses $ 10,687 $ 9,616 $ 32,554 $ 29,295 ------- ------- ------- ------- LOSS FROM OPERATIONS $ (1,005) $ (543) $ (3,015) $ (876) Other (Income)/ Expense Equity in earnings of unconsolidated joint ventures (55) 0 (57) (3) Interest (income) (13) (22) (41) (72) Interest expense 107 45 274 82 ------- ------- ------- ------- 39 23 176 7 ------- ------- ------- ------- LOSS BEFORE INCOME TAXES $ (1,044) $ (566) $ (3,191) $ (883) Income Tax Benefit - (233) (883) (372) ------- ------- ------- ------- NET LOSS $ (1,044) $ (333) $ (2,308) $ (511) ======= ======= ======= ======= Loss per share ($0.26) ($0.08) ($0.57) ($0.13) Weighted average common 4,054 3,973 4,038 3,952 shares outstanding
The accompanying notes are an integral part of these consolidated financial statements. EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) NINE MONTHS ENDED 31-Aug 31-Aug 1997 1996 OPERATING ACTIVITIES Net Loss ($2,308) ($511) Adjustments to reconcile net income(loss) to net cash provided(used) by operating activities: Depreciation and amortization 862 1,010 Amortization of capitalized computer software development costs 2,077 1,407 Equity in earnings of joint ventures - - Goodwill Amortization 170 - Changes in operating assets and liabilities: Accounts Receivable 1,226 38 Inventories and other current assets (1,266) (353) Accounts payable and other liabilities (1,821) (1,431) -------- ------- Total adjustments 1,248 671 Net cash provided by(used in) in operating activities (160) 160 INVESTING ACTIVITIES Additions to equipment and leasehold improvements (1,101) (1,056) Proceeds from sale of securities 504 253 Software development costs capitalized (3,207) (2,431) Other (97) (9) ------- ------- Net cash used in investing activities (3,901) (3,243) FINANCING ACTIVITIES Proceeds on long-term debt and other notes payable 3,466 2,734 Additional paid in capital 136 31 ------- ------- Net cash provided by financing activities 3,602 2,765 ------- -------- Net decrease in cash ($459) ($318) Cash-beginning of period 866 335 Cash-end of period 407 17 ======== ======= The accompanying notes are an integral part of these consolidated financial statements. EFFECTIVE MANAGEMENT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS August 31, 1997 (Unaudited) (In Thousands) Note 1 - Basis of Presentation The accompanying consolidated interim financial statements included herein have been prepared by Effective Management Systems, Inc. (the "Company"), without an audit, in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, the information furnished for the three and nine month periods ended August 31, 1997 and August 31, 1996 includes all adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations for the interim periods. The results of operations for the nine months ended August 31, 1997 are not necessarily indicative of the results of operations to be expected for the entire fiscal year ending November 30, 1997. It is suggested that the interim financial statements be read in conjunction with the audited consolidated financial statements for the year ended November 30, 1996 included in the Company's Form 10-KSB filed with the Securities and Exchange Commission. Note 2 - Additional Financial Disclosure Equipment and leasehold improvements consisted of the following: 8-31-1997 11-30-1996 Gross $9,276 $8,169 Less: Accumulated Depreciation < 5,075 > < 4,208 > ------- ------- Net $4,201 $3,961 Allowance for doubtful accounts consisted of the following: 8-31-1997 11-30-1996 Balance $ 391 $ 346 Provision for doubtful accounts consisted of the following: 8-31-1997 11-30-1996 Balance $ 49 $ 113 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company recorded an increase in net revenues (6.7%) and a net loss of $1,044,000 for the third quarter of 1997 compared with a net loss of $333,000 for the third quarter of 1996. Unlike prior quarters, the third quarter of 1997 does not reflect a tax benefit relating to the loss since for book purposes the Company is not in a loss carryforward position. Overall revenues were under budgeted levels reflecting both a continued delay in the release of a new version of the Company's software product and a corresponding decrease in the anticipated level of new account sales. Software revenues increased by 22.9% over the comparable quarter of 1996 reflecting a continuing demand for the Company's products. For the first three quarters of fiscal 1997, the Company recorded an increase in net revenues (3.9%) and a net loss of $2,308,000 compared with a net loss of $511,000 for the first three quarters of fiscal 1996. The increased net loss for all periods presented resulted mainly from the expense of building the infrastructure necessary to support higher levels of revenues which did not materialize. These expenses related to strategic investments in product development and field service infrastructure, which were related to personnel costs which the Company generally views as fixed in nature. In light of the third quarter loss of fiscal 1997, management is taking additional actions to improve the Company's financial performance, including a cost reduction program focused on reducing costs by approximately $2,000,000 on an annual basis. The cost reduction program involves selective reductions in staff, reduction of expenses in areas of immediate return and the tabling of marketing development efforts in new international markets. The Company is also reviewing other strategic alternatives available to it to deal with its recent financial performance. No assurance can be given that these measures will enable the Company to return to profitability. Results of Operations Total Revenues Net revenues increased to $9,682,000 for the three months ended August 31, 1997, which was an increase of 6.7% from the $9,073,000 for the same quarter in the previous year. The mix of revenues comparing software, services, and hardware revenues as a percentage of net revenues improved to 51.3%, 42.3%, and 6.4%, respectively, in the third quarter of 1997, from 44.5%, 41.4%, and 14.1%, respectively, in the third quarter of 1996. The overall increase in revenues for the three months ended August 31, 1997, was attributable, in part, to a $923,000 increase in the level of relatively high margin software revenues, and a $654,000 decrease in relatively low margin hardware revenues. Net revenues increased to $29,539,000 for the first three quarters of 1997, which was an increase of 3.9% from the $28,419,000 for the same period in the previous year. The increase in revenues was attributable to a $2,521,000 increase in the level of relatively high margin software revenues, a $1,209,000 increase in the level of service revenues and a $2,610,000 decrease in relatively low margin hardware revenues. The mix of revenues comparing software, services, and hardware revenues as a percentage of net revenues improved to 49.1%, 41.8%, and 9.1%, respectively, in the first three quarters of 1997 from 42.1%, 39.2%, and 18.6% , respectively, in the first three quarters of 1996. International revenues represented less than 10% of net revenues for all periods presented. The Company's operating revenues can vary substantially from quarter to quarter based on the size and timing of customer orders and market acceptance of new products. The Company has historically operated with little backlog because software orders are generally shipped as orders are received. As a result, product revenue in any quarter is substantially dependent on orders booked and shipped during that quarter. Software License Fees Software license fees are customer charges for the right to use the Company's software products. Software license fees increased 22.9% to $4,963,000 in the third quarter of 1997 from $4,040,000 in the third quarter of 1996. Software license fees increased 21.1% to $14,491,000 in the first three quarters of 1997 from $11,970,000 in the first three quarters of 1996. The increase in software license fees was attributable to both higher software sales per system unit of product sold and a rise in the number of system units sold. The Company also continued its strategic plan to undertake efforts to incorporate new technologies into its products and to integrate certain products into its product lines from its acquisition of Intercim Corporation in fiscal 1995. These activities are intended to be completed at various times in the future, and management believes that the successful completion of these efforts will ultimately provide the Company with significant competitive differentiation and advantage. Service Revenues The Company offers a number of optional services to its customers, including such services as a telephone support program, systems integration, custom software development, implementation consulting, and formal classroom and on-site training. Service revenues increased 9.1% to $4,095,000 for the three months ended August 31, 1997 from $3,755,000 for the same period of the prior year. Service revenues increased 10.8% to $12,361,000 for the nine months ended August 31, 1997 from $11,152,000 for the same period of the prior year. The increase in service revenues was mainly the result of new customers, as well as requirements of the established customer base. Hardware Revenues Hardware revenues decreased 51.2% to $624,000 in the third quarter of 1997 compared with $1,278,000 for the corresponding period of 1996. Hardware revenues decreased 49.3% to $2,687,000 in the first three quarters of 1997 compared with $5,297,000 for the corresponding period of 1996. The decrease was due to increased sales of software on platforms for which the Company does not supply hardware and a higher percentage of sales to established customers for which hardware was sold in a prior period. Management expects the trend of declining hardware sales to continue as the popularity of the Microsoft Windows NT platform continues to escalate as a percentage of Company sales. Hardware used with the Microsoft Windows NT platform is either already in place at the customer or readily available from local suppliers who can also provide local support. Cost of Software License Fees The cost of software license fees as a percentage of related revenue was 26.6% for the third quarter of 1997, an increase from 22.8% for the corresponding period of 1996. The cost of software license fees as a percentage of related revenue was 27.5% for the first three quarters of 1997, an increase from 21.6% for the corresponding period of 1996. Cost of software license fees is composed of both amortization of past investment in software development and the third party costs associated with the software revenues. Software amortization is related to past investment in software development and does not vary consistently with variations in software revenues. Due to this relationship, software amortization accounted for an increase of 3.0 percentage points and 2.8 percentage points in the cost of software license fees as a percent of software license fee revenues for the third quarter and first three quarters of 1997, respectively. Software amortization will increase in future fiscal periods based on the past increases of investment in capitalized product development. The cost of software license fees is also dependent on the level of third party costs associated with certain software revenues and include such items as purchased licenses and other components. The remaining increases in the cost of software license fees as a percentage of related revenue was due to these third party costs. Cost of Services The cost of services as a percentage of related revenue increased to 82.7% for the three months ended August 31, 1997 as compared with 80.4% for the same quarter in the previous year. The cost of services as a percentage of related revenue increased to 85.6% for the nine months ended August 31, 1997 as compared with 77.7% for the same period in the previous year. The increase was mainly due to reduced growth in new account business, allocation of resources to perform warranty work, and additional costs related to the building of a service infrastructure ($67,000 additional for the third quarter of 1997 and $256,000 additional for the first three quarters of 1997) for both ongoing business growth and the establishment of new third party selling relationships. The Company is restructuring its service organization to match its costs more closely with its current revenue levels. The Company is currently slowly reducing the levels of its people through the natural attrition that has been occurring. The Company is also refocusing its service staff to reduce the level of internal non-bill projects and thereby increase the level of billable customer work. Cost of Hardware The cost of hardware as a percentage of related revenue increased from 66.0% in the third quarter of 1996 to 75.0% in the third quarter of 1997. The cost of hardware as a percentage of related revenue increased from 74.2% in the first three quarters of 1996 to 77.2% in the first three quarters of 1997. The cost of hardware as a percentage of related revenue varies with the size of the system, the high versus low margin items comprising the system being sold, and the competitive pressure of the customer sale. Selling and Marketing Expenses Selling and marketing expenses increased $948,000 or 28.6% from $3,311,000 in the third quarter of 1996 to $4,259,000 in the third quarter of 1997. Selling and marketing expenses increased $1,278,000 or 13.0% from $9,825,000 in the first three quarters of 1996 to $11,103,000 in the first three quarters of 1997. The Company recorded a reclassification of administrative expense to selling and marketing in the amount of $544,000 in the third period of fiscal 1997. This reclassification was made to conform all amounts to the 1996 presentation. Exclusive of such reclassification, the growth in selling and marketing expenses grew at a slower rate than the growth in software license fees, mainly as a result of higher software sales per system unit of product sold. General and Administrative Expenses General and administrative expenses decreased $311,000 or 33.1%, from $942,000 in the third quarter of 1996 to $631,000 in the third quarter of 1997. General and administrative expenses increased $257,000 or 9.4%, from $2,736,000 in the first three quarters of 1996 to $2,993,000 in the first three quarters of 1997. The Company recorded a reclassification of administrative expense to selling and marketing in the amount of $544,000 in the third period of fiscal 1997. This reclassification was made to conform all amounts to the 1996 presentation. Exclusive of the reclassification, the increases for the three and nine month periods ended August 31, 1997, were mainly due to rising expenses for telephone service ($40,000, $215,000), computer maintenance ($18,000, $56,000), reclassification of the salary and expenses of the general manager of the Intercim division from sales to general expense ($0, $116,000), costs for internal systems support ($-28,000, $91,000) and other growth in expenses to support the growing level of revenues in the third quarter and first three quarters of 1997 as compared to the third quarter and first three quarters of 1996. As a percentage of net revenues, general and administrative expenses were 6.5% and 10.4% in the third quarter of 1997 and 1996, respectively, as compared with 10.1% and 9.6% in the first three quarters of 1997 and 1996, respectively. During the third quarter of 1997, the Company discontinued the practice of providing office space, accounting and administrative services, computer processing time, and other miscellaneous services to EMS Solutions, Inc., an affiliated entity. EMS Solutions, Inc. now operates as a stand-alone entity with no material ongoing relations to the Company. The amounts received by the Company for these items were $16,000 in the third quarter of 1997, as compared with $65,000 in the third quarter of 1996 and were $107,000 in the first three quarters of 1997, as compared with $203,000 in the first three quarters of 1996. Amounts received from EMS Solutions, Inc. were recorded as a reduction of general and administrative expenses. Product Development Expense Product development expense increased only marginally from $580,000 in the third quarter of 1996 to $621,000 in the third quarter of 1997. Product development expense increased 17.5% from $1,547,000 in the first three quarters of 1996 to $1,817,000 in the first three quarters of 1997. These increases were focused mainly on the incorporation of various new technologies into the Company's software products. The Company capitalizes costs in accordance with Statement of Financial Accounting Standard (SFAS) No. 86. The Company capitalized $1,045,000 of product development costs in the third quarter of 1997 compared to $814,000 in the third quarter of 1996 and $3,207,000 in the first three quarters of 1997 compared to $2,431,000 in the first three quarters of 1996. As a percent of software license fees, the total amount invested in software development was 33.6% and 34.5% in the third quarter of 1997 and 1996, respectively, and was 34.7% and 33.2% in the first three quarters of 1997 and 1996, respectively. Effective during the third quarter of 1997, the Company reassigned two of its key managers in order to improve both the time-to-market and the quality of its products. As part of its plan to control its overall costs, the Company expects to decrease the level of investment in product development beginning in the fourth quarter of 1997. Other Income\Expense-Net Other income\expense-net was $23,000 of expense for the third quarter of 1996 compared to $39,000 of expense for the third quarter of 1997. Other income\expense-net was $7,000 of expense for the first three quarters of 1996 compared to $176,000 of expense for the first three quarters of 1997. The increase in the level of expense was mainly the result of a reduction in interest income due to sales of investment securities and an increase in interest expense as a result of increased borrowings under the Company's bank line of credit. Income Tax No income tax benefit was recorded for the third quarter of 1997 compared to a benefit of 41.2% for the third quarter of 1996, since the Company, for book purposes, is in a tax loss carryforward position. Although the Company has had book profits in the past two years, it has had tax losses mainly due to the current deductibility of capitalized product development. Generally accepted accounting principles prohibit the Company from recording a tax benefit under these circumstances. The effective income tax rate provided a benefit of 27.7% for the first three quarters of 1997 compared to a benefit of 42.1% for the first three quarters of 1996. The change in the effective rate was mainly the result of the tax loss carryforward position. Liquidity and Capital Resources At August 31, 1997, the Company had cash and marketable securities aggregating $407,000. During the first three quarters of 1997, the Company's operating activities used $160,000 of cash compared to providing $160,000 of cash for the same period of the prior year. This increase in the use of cash was mainly attributable to the Company's operating losses. Investing activities used cash of $3,901,000 in the first three quarters of 1997 compared to $3,243,000 of cash in the first three quarters of 1996. The principal uses of the cash in the first three quarters of 1997 included $3,207,000 for capitalized product development and $1,101,000 for purchases of equipment and furniture. The principal uses of the cash in the first three quarters of 1996 included $2,431,000 for capitalized product development and $1,056,000 for purchases of equipment and furniture. Management expects a decrease in the current level of capital expenditures in conjunction with the cost restructuring plans described above. Financing activities provided $3,602,000 of cash in the first three quarters of 1997 compared with $2,765,000 in the first three quarters of 1996. The cash provided in 1997 reflected borrowings under the Company's bank line of credit. As of August 31, 1997, the Company had $79,000 of availability under its $5,500,000 line of credit, which is based on the level of the eligible accounts receivable. The Company obtained a waiver from its bank to the existing profitability covenant for the third quarter of 1997. During fiscal 1997, the Company entered into several amendments to its bank line of credit to remain in compliance with certain financial covenants. In September 1997, the Company signed an amendment with its bank to provide an additional $1,000,000 of availability to its line of credit. The line of credit is due on December 31, 1997, and will need to be refinanced or extended at that time. The Company has instituted a program to reduce its costs, but will still need to secure additional sources of financing in the short to medium term to fund its operations in addition to the increased availability under its existing line of credit. Although management believes that additional financing can be obtained, no assurance can be given that such additional financing will be available to the Company on acceptable terms. The Company is also reviewing other strategic alternatives available to it to deal with its current financial status. In the event that the Company is unable to secure additional financing sources, it would likely have a material adverse effect on the Company's liquidity, including its ability to fund continuing operations. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1996 IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS "FORWARD-LOOKING STATEMENTS", INCLUDING INFORMATION REGARDING FUTURE ECONOMIC PERFORMANCE AND PLANS AND OBJECTIVES OF MANAGEMENT, WHICH ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. SUCH UNCERTAINTIES, AND RISKS INCLUDE, BUT ARE NOT LIMITED TO, PRODUCT DEMAND AND MARKET ACCEPTANCE; THE IMPACT OF COMPETITIVE PRODUCTS; THE COMPANY'S ABILITY TO MAINTAIN EFFICIENT MARKETING AND DISTRIBUTION OPERATIONS WITH RESPECT TO NEW PRODUCTS; FUTURE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS; THE COMPANY'S ABILITY TO RETAIN KEY TECHNICAL AND MANAGEMENT PERSONNEL; THE COMPANY'S ABILITY TO SUCCESSFULLY IMPLEMENT ITS COST REDUCTION PROGRAM; THE SUCCESSFUL REFINANCING OR EXTENSION OF THE COMPANY'S LINE OF CREDIT; TIMING OF PRODUCT DEVELOPMENT; PRODUCT PRICING AND OTHER FACTORS DETAILED IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OTHER FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (4.1) Ninth Amendment to Loan and Security Agreement dated September 9, 1997 by and between Bank One, Milwaukee, NA, and Effective Management Systems, Inc. and certain affiliates (4.2) Tenth Amendment to Loan and Security Agreement dated September 30, 1997 by and between Bank One, Milwaukee, NA, and Effective Management Systems, Inc. and certain affiliates (10.1) IBM Market Development Program Agreement September 3, 1997 (27) Financial Data Schedule [EDGAR version only] (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EFFECTIVE MANAGEMENT SYSTEMS, INC. October 14, 1997 By: /s/ MICHAEL D. DUNHAM Michael D. Dunham President (principal executive officer) By: /s/JEFFREY J. FOSSUM Jeffrey J. Fossum Chief Financial Officer and Assistant Treasurer (principal financial and accounting officer) Exhibit Index Exhibit No. Description (4.1 ) Ninth Amendment to Loan and Security Agreement dated September 9, 1997 by and between Bank One, Milwaukee, NA, and Effective Management Systems, Inc. and certain affiliates (4.2) Tenth Amendment to Loan and Security Agreement dated September 30, 1997 by and between Bank One, Milwaukee, NA, and Effective Management Systems, Inc. and certain affiliates (10.1) IBM Market Development Program Agreement September 3, 1997 (27) Financial Data Schedule [EDGAR version only] EX-4.1 2 NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT This Ninth Amendment to Loan and Security agreement is dated as of September 9, 1997 by and between Bank One, Wisconsin successor by merger to Bank One, Milwaukee, NA, its successors and assigns (the "Secured Party") and Effective Management Systems, Inc. ("EMS"), Effective Management Systems of Michigan, Inc., EMS-East, Inc., Intercim Corp., Effective Management Systems of Illinois, Inc., and EMS Asia Pacific Limited (collectively, the "Debtors"). RECITALS WHEREAS, the Secured Party and certain of the Debtors entered into a Loan and Security Agreement dated as of November 9, 1992, which agreement has subsequently been amended as of April 23, 1993, February 8, 1994, May 11, 1995, August 31, 1995, May 31, 1996, October 31, 1996, February 27, 1997, July 11, 1997 and as of the date hereof (as amended and as hereafter renewed, extended, amended, modified, or supplemented, the "Loan Agreement"); and WHEREAS, the Secured Party and the Debtors desire to further amend the Loan Agreement as hereinafter set forth. NOW, THEREFORE, the parties hereto agree as follows: 1. Capitalized terms not defined herein shall have the meaning ascribed in the Loan Agreement. 2. Section 5 of the Loan Agreement shall be amended and restated in its entirety to read as follows: 5. Collections. (a) Lock Box Service. Debtors have entered into a Lock Box Service Agreement with Secured Party, pursuant to which Secured Party shall be granted access to the post office box to which all Customers shall be instructed to forward payments made with respect to all Collateral. (b) Receipt and Credit for Collections. All checks, drafts, cash, notes, money orders, acceptances and other remittances ("Collections") in part or full payment of and with respect to the Collateral received through the Lock Box Service Agreement shall be retained by Secured Party and processed in accordance with such Lock Box Service Agreement. All Collections received directly by a Debtor shall immediately be delivered by Debtors to Secured Party in precisely the form received (but endorsed by such Debtor if necessary for collection), and until such delivery Debtors shall not commingle any Collections with any other funds or property of any Debtor but shall hold the Collections in trust for Secured Party. The amount of any Collections received by or transferred to the Commercial Finance Department of Secured Party in Milwaukee, Wisconsin will be applied by Secured Party against the Obligations within two business days after such receipt by crediting Debtors's Loan Account. The application of all Collections with respect to the Obligations shall be conditional upon actual collection. In the event that any such item, the amount of which has been credited against the Obligations, is subsequently dishonored or otherwise returned unpaid, Secured Party may retroactively debit Debtors' Loan Account or any deposit account maintained by a Debtor or Debtors at Secured Party or any Secured Party Affiliate for the amount of such item plus applicable transaction and interest charges. (c) Verification and Notification. Secured Party may confirm and verify all Receivables in any manner, and Debtors shall assist Secured Party in so doing. Notwithstanding the existence of any Lock Box Service Agreement, Secured Party may at any time notify, or require Debtors to notify, all Customers or any of them to make payment directly to Secured Party, and Secured Party may enforce collection of, settle, compromise, extend or renew the indebtedness of any or all Customers without liability of any kind. (d) Authority to Perform for Debtors. Each Debtor appoints each and every officer of Secured Party as Debtor's attorney-in-fact to endorse the name of Debtor on any notes, acceptances, checks, drafts, money orders or other instruments for the payment of money that may come into Secured Party's possession; to sign Debtor's name on any invoice or bill of lading relating to any of the Receivables, on drafts against Customers and on notices to Customers. This power, because it is coupled with an interest, is irrevocable while any Obligation remains unpaid. Secured Party is hereby authorized and empowered to accept the return of goods represented by any of the Receivables, without notice to or the consent of Debtors and without discharging or in any way affecting Debtors' liability hereunder. All acts of Secured Party or its appointee are hereby ratified and approved, and Secured Party or its appointee shall not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law. 3. Debtors represents and warrants that (a) the representations and warranties contained in the Loan Agreement are true and correct in all material respects as of the date of this Amendment, (b) except as disclosed to Secured Party in writing, which defaults or Events of Default have not been waived by Secured Party (and shall not be waived by the execution hereof), no condition, act or event which could constitute an Event of Default under the Loan Agreement exists, and (c) no condition, event, act or omission has occurred, which, with the giving of notice or passage of time, would constitute an Event of Default under the Loan Agreement. 4. Debtors agrees to pay all fees and out-of-pocket disbursements incurred by the Secured Party in connection with this Amendment, including legal fees incurred by the Secured Party in the preparation, consummation, administration and enforcement of this Amendment. 5. This Amendment shall become effective as of September 9, 1997, notwithstanding the date of execution. Except as amended by this Ninth Amendment, the Loan Agreement shall remain in full force and effect in accordance with its terms. 6. This Amendment is a modification only and not a novation. Except for the above-quoted modification(s), the Loan Agreement, any agreement or security document, and all the terms and conditions thereof, shall be and remain in full force and effect with the changes herein deemed to be incorporated therein. This Amendment is to be considered attached to the Loan Agreement and made a part thereof. This Amendment shall not release or affect the liability of any guarantor, surety or endorser of the Loan Agreement or release any owner of collateral securing the Loan Agreement. The validity, priority and enforceability of the Loan Agreement shall not be impaired hereby. To the extent that any provision of this Amendment conflicts with any term or condition set forth in the Loan Agreement, or any agreement or security document executed in conjunction therewith, the provisions of this Amendment shall supersede and control. Each Debtor acknowledges that as of the date of this Amendment they have no offsets with respect to all amounts owed by Debtors to Secured Party and each Debtor waives and releases all claims which they may have against Secured Party arising under the Loan Agreement on or prior to the date of this Amendment. 7. The Debtors acknowledge and agree that this Amendment is limited to the terms outlined above, and shall not be construed as an amendment of any other terms or provisions of the Loan Agreement. The Debtors hereby specifically ratify and affirm the terms and provisions of the Loan Agreement. Each Debtor releases the Secured Party from any and all claims which may have arisen, known or unknown, in connection with the Loan Agreement on or prior to the date hereof. This Amendment shall not establish a course of dealing or be construed as evidence of any willingness on the Secured Party's part to grant other or future amendments, should any be requested. 8. All obligations of the Debtors under the Loan Agreement and this Amendment shall be their joint and several obligations. IN WITNESS WHEREOF, the parties have entered into this Amendment as of the day and year first above written. BANK ONE, WISCONSIN By: /s/ William E. Shaw William E. Shaw, Vice President EFFECTIVE MANAGEMENT SYSTEMS, INC. By:/s/ Michael D. Dunham Title:President EFFECTIVE MANAGEMENT SYSTEMS OF ILLINOIS, INC. By:/s/ Michael D. Dunham Title:Secretary [ ALL OTHER DEBTORS ON ATTACHED SIGNATURE PAGE ] EFFECTIVE MANAGEMENT SYSTEMS OF MICHIGAN, INC. By:/s/ Michael D. Dunham Title:Secretary EMS-EAST, INC. By:/s/ Michael D. Dunham Title:Treasurer EMS ASIA PACIFIC LIMITED By:/s/ Michael D. Dunham Title:President EX-4.2 3 TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT This Tenth Amendment to Loan and Security Agreement is dated as of September 30, 1997 by and between Bank One, Wisconsin, successor by merger to Bank One, Milwaukee, NA, its successors and assigns (the "Secured Party") and Effective Management Systems, Inc. ("EMS"), Effective Management Systems of Michigan, Inc., EMS-East, Inc., Effective Management Systems of Illinois, Inc., and EMS Asia Pacific Limited (collectively, the "Debtors"). RECITALS WHEREAS, the Secured Party and certain of the Debtors entered into a Loan and Security Agreement dated as of November 9, 1992, which agreement has subsequently been amended as of April 23, 1993, February 8, 1994, May 11, 1995, August 31, 1995, May 31, 1996, October 31, 1996, February 27, 1997, July 11, 1997, September 9, 1997 and as of the date hereof (as amended and as hereafter renewed, extended, amended, modified, or supplemented, the "Loan Agreement"); and WHEREAS, Intercim Corp. has been merged with and into EMS; and WHEREAS, the Secured Party and the Debtors desire to further amend the Loan Agreement as hereinafter set forth. NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Capitalized terms not defined herein shall have the meaning ascribed in the Loan Agreement. 2. Note A. The maturity date of Note A is hereby amended to be December 31, 1997. Notwithstanding anything to the contrary contained therein or in the Loan Agreement, Secured Party's obligation to lend monies to the Debtors shall terminate December 31, 1997, at which time all of the Obligations shall be due and payable. 3. Interest Rate. The LIBOR interest rate option is hereby deleted. Notwithstanding anything to the contrary in the Loan Agreement, Debtors shall not be liable for any breakage fees as a result of the conversion of LIBOR Borrowings prior to the end of the applicable Interest Periods. Effective October 1, 1997, Section 2(c) of the Loan Agreement is hereby amended to read in its entirety as follows: "(c) Interest Rate and Payment. The interest rate hereunder on Note A shall be equal to three-quarters percentage points (.75%) per annum in excess of the Reference Rate. The unpaid balances shall bear interest after default or maturity at two and one-half percentage points (2.5%) per annum in excess of Secured Party's Reference Rate as announced from time to time. Interest shall be computed daily based upon a 360-day year and the Reference Rate and the outstanding loan balances as they exist at the end of each day. Interest for each calendar month on Note A shall be due and payable to Secured Party by Debtors as of the first day of the next succeeding month, and at Secured Party's sole option may be debited to Debtors' loan account ledger for Credit Facility A or debited against any Debtor's commercial demand account maintained with Secured Party." 4. New Financing. So long as no event of default has occurred and is continuing, Secured Party agrees to lend Debtors up to an additional $1,000,000 (in addition to monies available under Credit Facility A), repayable in accordance with the terms set forth in the Promissory Note attached hereto. The Debtors' obligations under that note shall constitute "Obligations" as such term is used in the Loan Agreement and Secured Party's advances thereunder shall be cross-collateralized and cross-defaulted with all other Obligations. 5. Security Interests. Each of the Debtors hereby acknowledges that they have, by virtue of becoming party to the Loan Agreement, granted Secured Party a security interest in the Collateral and each of them hereby grants Secured Party a security interest and lien in all of the Collateral to secure all of the Obligations. 6. Consolidated Net Earnings from Operations. Secured Party hereby acknowledges that it waived effective August 31, 1997 the failure of the Debtors to comply with the "Default" levels of Consolidated Adjusted Net Earnings From Operations through August 31, 1997. EMS shall achieve Consolidated Adjusted Net Earnings From Operations of at least (or, where negative, not exceeding) the following amounts for the periods set forth below: Consolidated Adjusted Period Net Earnings from Operations Month ending September 30, 1997 ($ 725,000) Two Months ending October 31, 1997 ($1,150,000) Three Months ending November 30, 1997 $ 125,000 Failure to achieve such levels shall constitute an event of default under the Loan Agreement. 7. Operating Leases. Section 8(d) of the Loan Agreement is hereby amended to read in its entirety as follows: "(d) Operating Leases. Expend or contract to expend in any fiscal year in the aggregate for all Debtors under all operating leases more than $500,000." 8. Representations and Warranties. Debtor represents and warrants that (a) each Debtor's respective chief executive office and the respective places in which Collateral owned by it is located is as set forth in Schedule I hereto, (b) the representations and warranties contained in the Loan Agreement are true and correct in all material respects as of the date of this Amendment, (c) except as disclosed to Secured Party in writing, which defaults or events of default have not been waived by Secured Party (and shall not be waived by the execution hereof), no condition, act or event which could constitute an event of default under the Loan Agreement exists, and (d) no condition, event, act or omission has occurred, which, with the giving of notice or passage of time, would constitute an event of default under the Loan Agreement. 9. Termination. Section 10 of the Loan Agreement is amended by deleting "February 28, 1998" appearing therein and inserting "December 31, 1997" in its place. 10. Conditions Precedent. This Amendment shall become effective September 30, 1997 notwithstanding the date of execution, and every other provision of this Amendment shall be effective as of the date hereof, but only after it is fully executed by the Debtors and the Secured Party, and the Secured Party shall have received from the Debtors, in form satisfactory to Secured Party, the following: (a) The Promissory Note in the form attached hereto, duly executed by an authorized officer of each Debtor. (b) A $25,000.00 Amendment Fee (which may be debited to Debtor's loan account for Credit Facility A or debited against any Debtor's commercial demand account maintained with Secured Party). (c) An Officer's Certificate for each Debtor, certified by an authorized officer of such Debtor. (d) An Amendment to General Intangibles Mortgage and Security Agreement. (e) A Collateral Assignment Agreement, together with the Assigned Note referenced therein, duly endorsed, accompanied with proof of corporate authority for EMS Solutions, Inc. 11. Deliveries Subsequent. Within two business days of Secured Party's request, Debtors agree to execute and deliver such UCC financing statements as may be necessary to perfect Secured Party's security interest in all of the jurisdictions noted on Schedule I. 12. Expenses. Debtors agrees to pay all fees and out-of-pocket disbursements incurred by the Secured Party in connection with this Amendment, including legal fees incurred by the Secured Party in the preparation, consummation, administration and enforcement of this Amendment. 13. Other Terms; Release; Effect. Except as amended by this Tenth Amendment, the Loan Agreement shall remain in full force and effect in accordance with its terms. All Collateral Agreements shall remain in full force and effective and shall continue to secure all of the Obligations. Each Debtor releases the Secured Party from any and all claims which may have arisen, known or unknown, in connection with the Loan Agreement on or prior to the date hereof. This Amendment shall not establish a course of dealing or be construed as evidence of any willingness on the Secured Party's part to grant other or future amendments, should any be requested. 14. Joint and Several. All obligations of the Debtors under the Loan Agreement and this Amendment shall be their joint and several obligations. BANK ONE, WISCONSIN EFFECTIVE MANAGEMENT SYSTEMS, INC. By: /s/ William E. Shaw By:/s/ Michael D. Dunham William E. Shaw, Vice President Title:President EFFECTIVE MANAGEMENT SYSTEMS OF MICHIGAN, INC. By:/s/ Michael D. Dunham Title:Secretary EMS-EAST, INC. By:/s/ Michael D. Dunham Title:Treasurer EFFECTIVE MANAGEMENT SYSTEMS OF ILLINOIS, INC. By:/s/ Michael D. Dunham Title:Secretary EMS ASIA PACIFIC LIMITED By:/s/ Michael D. Dunham Title:President EX-10.1 4 Market Development Program Agreement Market Development Program Profile We welcome you as an IBM Business Partner whom we approve as a participant in our Market Development Program. By signing below, each of us agrees to the terms of the following (collectively called the "Agreement"): (a) this Profile; and (b) Market Development Program General Terms (Z125-5156-03 4/97). This Agreement and its applicable Transaction Documents (e.g. the Market Development Program Supplement) are the complete agreement regarding this relationship, and replace any prior oral or written communications between us. Once this Profile is signed, any reproduction of this Agreement made by reliable means (for example, photocopy or facsimile) is considered an original. DETAILS OF OUR RELATIONSHIP 1. Contract-Period Start Date (month/year): 9/97 End Date 12/31/97 The start date is always the first day of a month and may not be earlier than the month we sign this Profile. The end date is December 31 of the current year. 2. Confidential Information Disclosure: You may have access to our confidential information. If you have such access, you must sign the IBM Agreement for Exchange of Confidential Information (Z125-4322), unless you have already done so. Agreed to: (IBM Business Partner name) Agreed to: /s/_________________ International Business Machines Corporation By /s/___________________________ By /s/______________________ Authorized signature Authorized signature Name (type or print): Name (type or print): Date: September 3, 1997 Date: September 3, 1997 IBM Business Partner number: IBM Office address: IBM Business Partner address: IBM CORP. 1140 Burnet Road EMS Mailstop 1007 12000 W. Park Place Austin, TX 78758 Milwaukee, WI 53224 ATTN: J. B. Miles After signing, please return a copy of this Profile to the local "IBM Office address" shown above. Market Development Program Agreement General Terms Table of Contents Section Title Page 1. Definitions 2 2. Agreement Structure 2 3. Authorization 2 4. Mutual Responsibilities 2 5. Our Other Responsibilities 3 6. Your Other Responsibilities 3 7. Demonstration Products 3 8. Fund Processing and Reporting 3 9. Tademarks 4 10. No Property Rights 4 11. Limitation of Liability 4 12. Changes to the Agreement Terms 5 13. Ending the Agreement 5 14. Electronic Communications 5 15. Geographic Scope 5 16. Governing Law 5 Market Development Program Agreement General Terms 1. Definitions Customer is either an end user who acquires a Product from or our remartketer. Product is a machine or program 2. Agreement Structure We specify the details of our relationship (for example, the contract period) in a document called a "Profile." Each of us agrees to the terms of the Profile and the Market Development Program Agreement General Terms (collectively called the "agreement"), by signing the Profile. Transaction Documents We will provide to you the appropriate "Transaction Documents" (such as a Supplement) that provide the details of a specific relationship between us. You accept the terms in a Transaction Document by signing it. Conflicting Terms If there is a conflict among the terms in the various documents, those of the Profile prevail over those of the Market Development Program Agreement General Terms. The terms of a Transaction Document prevail over those of all the documents. 3. Authorization We may authorize you to perform market development activities with a transaction Document called a "Market Development Program Supplement." We may only change our Maximum Dollar Amount, as specified in the Supplement, on three months' written notice. Otherwise, changes to the Supplement will be made only upon mutual agreement. 4. Mutual Responsibilities Each of us agrees that under this Agreement: 1. each of us is an independent contractor and will be responsible for the direction and compensation of our respective employees. Each of us is free to have similar agreements with others and offer products competitive to those covered by this Agreement. Each of us will independently set the prices for our own products; 2. each of us will identify coordinators to represent us for various aspects of this Agreement. Each of us will notify the other if these coordinators change; 3. all information exchanged is nonconfidential, unless it is exchanged under a confidentially agreement signed by each of us. However, you agree not to disclose the existence of terms of this Agreement; 4. the purpose is to encourage you to promote the fact that your products operate with our Product. This Agreement dose not, however, grant either of us the right to use the other's patents, copyrights, trademarks, trade names, service marks or other designations, expect as explicitly stated in this Agreement; and 5. neither of us will bring a legal action more than two years after the cause of action arose. Our Other Responsibilities We will: 1. work with you to develop a market support plan designed to help you successfully market your products that work in conjunction with our Products. This may include revenue forecasts and revenue reporting for your products. 2. at our discretion, participate n marketing activities with you. 6. Your Other Responsibilities You agree not to do any of the following: 1. assign this Agreement or your rights under it without our prior written consent. Any attempt to do so is void; 2. assume or create any obligations on our behalf, or make any representations or warranties about us or our Products, other than those we authorize; or 3. conduct your business in a way that adversely affects our reputation or goodwill (for example, failure to maintain the highest quality professionalism in all your dealings with Customers). You agree to: 1. perform the marketing activities specified in each signed Supplement. All marketing activities will highlight your product's performance in conjunction with our Products and will portray our Products in a positive manner. You will be responsible for the costs of the marketing activities to the extent they exceed the amount to be paid by us. 2. use commercially reasonable efforts to optimize the performance of your products with our Products and ensure that each new release of your products will operate in conjunction with our Products. 3. ensure that your personnel can answer basic questions about our Products and will engage us as required. Upon request, you will participate with us in demonstrating the use of your products with our Products. 4. maintain the financial records relevant to this Agreement for two years and will make those records available to us upon request. 7. Demonstration Products We may offer selected Products (called "Demonstration Products"), and/or their associated upgrades, available to you under special terms pursuant to your IBM Customer Agreement, in support of your activities under this Agreement. The license for each program acquired as a Demonstration Product terminates at the end of this Agreement, unless you keep the program; if you do so, you may be required to pay the full license charge. We may limit the availability of Demonstration Products to you under this relationship an other IBM relationships. 8. Fund Processing and Reporting When a Supplement is executed, we will allocate a fixed dollar amount to be used for approved marketing activities during the year. We will pay you all amounts specified in the Supplement after receipt of an acceptable invoice from you. Allocated amounts are not carried over to subsequent years, so invoices must be dated no later than November 15 and must be received by us no later than December 1 of the current year. The allocation of funds by us does not guarantee that all such funds will be disbursed. Reconciliation We reconcile at the end of a contract period. We will deduct amounts due us from future credits or ask you to pay. You agree to promptly pay us amounts due. 9. Trademarks We will notify you in written guidelines of the IBM Business Partner title and emblem which you are authorized to use. You may not modify the emblem in any way. You may use our Trademarks (which include the title and emblem) only: 1. within the geographic scope of this Agreement; and 2. as described in the written guidelines provided to you. The royalty normally associated with non-exclusive use of the Trademarks will be waived, since the use of this asset is in conjunction with marketing activities for Products. You agree to promptly modify any advertising or promotional materials that do not comply with our guidelines. If you receive any complaints about your use of a Trademark, you agree to promptly notify us. When this Agreement ends, you agree to promptly stop using our Trademarks. If you do not, you agree to pay any expenses and fees we incur in getting you to stop. You agree not to register or use any mark that is confusingly similar to any of our Trademarks. Our Trademarks, and any goodwill resulting from your use of them, belong to us. 10. No Property Rights Your rights under this Agreement are not property rights and cannot be transferred to anyone else. For example, you may not sell your right to use our Trademarks. 11. Limitation of Liability Circumstances may arise where, because of a default or other liability, one of us is entitled to recover damages from the other. In each such instance, regardless of the basis on which damages can be claimed, the following terms apply as your exclusive remedy and our exclusive liability. Our Liability We are responsible only for: 1. bodily injury (including death), ad damage to real property and tangible personal property, and 2. the amount of any other actual loss or damage, up to $100,000. This limit also applies to any of our subcontractors and program developers. It is the maximum for which we are collectively responsible. Items for Which we are Not Liable Under no circumstances are we liable for either of the following: 1. third-party claims against you for losses or damages (other than those under the first item listed above); or 2. special, incidental, or indirect damages, or for any economic consequential damages (including lost profits or savings) even if we are informed of their possibility. Your Liability In addition to damages for which you are liable under law and the terms of this Agreement, you will indemnify us for claims made against us by others (particularly regarding statement, representation, or warranties not authorized by us) arising out of your conduct under this Agreement or as a result of your relations with anyone else. 12. Changes to the Agreement Terms In order to maintain flexibility in our relationship, we may change the terms of this Agreement by giving you one month's written notice. However, changes are not retroactive. The apply as of the effective date we specify in the notice. Otherwise, for a change to be valid; both of us must sign it. Additional or different terms in any order or written communication from you are void. 13. Ending the Agreement This Agreement ends when terminated or when the contract period ends. When it does, all Supplements under it will also end. If a Supplement ends, you may submit preapproved, invoiced expenses prior to the Supplement's end. If a supplement ends, or is terminated, and funds are due us, you agree to pay us that amount. We may offset any amounts due you against amounts due us or any of our subsidiaries. Any terms of this Agreement which by their nature extend beyond its end, remain in effect until fulfilled, and apply to respective successors and assignees. Termination You may terminate this Agreement or a Supplement, with or without cause, on one month's written notice. We may terminate this Agreement or a Supplement, with or without cause, on three months' written notice. If the termination is for cause, we may (at our discretion) allow you a reasonable opportunity to cure. If you fail to do so, the date of termination is that specified in the notice. If we terminate for cause, you will not receive any additional advances or reimbursements from the Fund. Certain acts or omissions are so serious as to warrant immediate termination. If you repudiate this Agreement, materially breach any of its terms or make any material misrepresentation to us, we may terminated this Agreement or a Supplement at any time, on written notice. In such event, you will not receive any additional advances or reimbursements from the Fund. An example of a material breach is you violation of our trademark terms. You agree that our only obligation is to provide the notice called for in this section and we are not liable for any claims or losses if we do so. 14. Electronic Communications Each of us may communicate with the other by electronic means, and such communication is acceptable as a signed writing to the extent permissible under applicable law. Both of us agree that for all electronic communications, an identification code (called a "user ID") contained in an electronic document is legally sufficient to verify the sender's identity and the document's authenticity. 15. Geographic Scope All your rights and all our obligations are valid only in the United States and Puerto Rico. 16. Governing Law The laws of the State of New York govern this Agreement. EX-27 5
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF EFFECTIVE MANAGEMENT SYSTEMS, INC. AS OF AND FOR THE NINE MONTHS ENDED AUGUST 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS NOV-30-1997 DEC-01-1996 AUG-31-1997 407 1 11,084 413 137 13,337 9,276 5,075 27,858 8,477 0 0 0 41 12,831 27,858 2,687 29,539 2,074 32,554 176 45 233 (3,191) (1,334) (1,857) 0 0 0 (1,857) (.46) 0 Not required to be calculated in accordance with generally accepted accounting principles.
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