<PAGE>
 
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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, 1998
 
                                       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 JURISDICTION OF       (I.R.S. EMPLOYER IDENTIFICATION NO.)
             INCORPORATION)
 
                             5775-D GLENRIDGE DRIVE
                          ATLANTA, GEORGIA 30328-5380
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                 (404) 705-3000
                        (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 $329,163,000 at December 14, 1998, based on the closing sale
price of $17.50 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
14, 1998 was 20,345,142.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  Specifically identified portions of the Proxy Statement for the 1999 Annual
Meeting of Shareholders to be held on February 10, 1999 are incorporated by
reference in Part III.
 
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<PAGE>
 
                                  MAPICS, INC.
 
                           ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
  ITEM                                                                    PAGE
 NUMBER                                                                  NUMBER
 ------                                                                  ------
 
                                     PART I
 
 <C>    <S>                                                              <C>
  1.    Business......................................................      1
  2.    Properties....................................................     12
  3.    Legal Proceedings.............................................     12
  4.    Submission of Matters to a Vote of Security Holders...........     12
   4(A) Executive Officers of the Registrant..........................     12
 
                                    PART II
 
  5.    Market for the Registrant's Common Equity and Related
        Stockholder Matters...........................................     13
  6.    Selected Financial Data.......................................     14
  7.    Management's Discussion and Analysis of Financial Condition
        and Results of Operations.....................................     16
   7(A) Quantitative and Qualitative Disclosures about Market Risk....     41
  8.    Financial Statements and Supplementary Data...................     42
  9.    Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure.....................................     73
 
                                    PART III
 
 10.    Directors and Executive Officers of the Registrant............     73
 11.    Executive Compensation........................................     73
 12.    Security Ownership of Certain Beneficial Owners and
        Management....................................................     73
 13.    Certain Relationships and Related Transaction.................     73
 
                                    PART IV
 
 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-
        K.............................................................     74
        Signatures....................................................     80
</TABLE>
<PAGE>
 
                                    PART I
 
ITEM 1. BUSINESS.
 
        SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
 
  This report as well as the Company's 1998 Annual Report include forward-
looking statements, including in particular the statements about the Company's
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 document. The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions identify forward-looking statements. Although the Company believes
that the plans, objectives, expectations and prospects reflected in or
suggested by such forward-looking statements are reasonable, such statements
involve uncertainties and risks, and the Company can give no assurance that
such, plans, objectives, expectations and prospects will be achieved.
Important factors that could cause actual results to differ materially from
the results anticipated by the forward-looking statements are set forth in
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Future Performance" and elsewhere in
this document. All written or oral forward-looking statements attributable to
the Company are expressly qualified in their entirety by these cautionary
statements.
 
GENERAL
 
  MAPICS, Inc. ("MAPICS" or the "Company") is a business software company
whose primary customers are discrete and batch process manufacturers. The
Company delivers Enterprise Resource Planning ("ERP") software that allows its
customers to automate the manufacturing process and coordinate multiple
functions and departments within their organizations, as well as extend their
interactions with their supply chain partners. The MAPICS XA product line
currently consists of 49 applications in the areas of Engineering Management,
Demand Management, Operations Management, Resource Planning, Financial
Management and Business Management. The design of the Company's applications
allows its customers to rapidly implement all or a portion of the Company's
solution with minimal disruption to their business. Furthermore, MAPICS
solutions enable customers to leverage existing information technology
investments and adopt new technologies gradually, which lowers costs and
increases their return on investment.
 
  The Company has a base of approximately 3,400 customer sites, of which
approximately 2,400 have selected MAPICS XA, the Company's current product
line, with the balance using the older MAPICS/DB product. The Company
principally markets to mid-sized ($20 million to $500 million in annual
revenues) manufacturers and divisions, sites and subsidiaries of large
companies, such as AP Technoglass, Bristol-Myers Squibb Company, Goodyear Tire
& Rubber Co., Honda Motor Co., Ltd., Michelin Corp., SANYO Energy, Sub-Zero
Freezer Co., Inc., Trans-matic Manufacturing, Inc., Volvo Construction
Equipment N.V., Weber Aircraft and York International. The primary channel for
selling and implementing the MAPICS products is a network of more than 80
independent local companies ("Affiliates") that sell to customers located in
more than 70 countries around the world. In addition to providing customers
with high quality and cost-effective local implementation, consulting and
other professional services, the Affiliate channel provides the Company with
an attractive variable cost structure for sales and marketing.
 
  With its integrated product line and cost-effective implementation and
support capabilities, the Company intends to further penetrate the ERP market
by: (i) continuing to expand its middle market presence, (ii) increasing the
capacity and strength of the Affiliates, (iii) broadening product
functionality to meet emerging customer needs, (iv) incorporating new
technologies to expand market opportunity, (v) pursuing strategic development
alliances and (vi) maintaining high customer satisfaction.
 
  The Company was incorporated in Massachusetts in 1980 under the name Marcam
Corporation. On July 29, 1997, the Company distributed to its shareholders, in
a tax-free distribution (the "Distribution"), all of the capital stock of its
subsidiary Marcam Solutions, Inc. and changed its name from Marcam Corporation
to MAPICS, Inc. As a result of the Distribution, Marcam Solutions, Inc. owns
and operates certain software product lines that had been owned and operated
by Marcam Corporation prior to the Distribution, and the Company
 
                                       1
<PAGE>
 
continues to own and operate the MAPICS product line. At the time of the
Distribution, the Company relocated its headquarters from Boston to Atlanta,
and in 1998 the Company reincorporated in Georgia. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 1 of Notes to Consolidated Financial Statements contained in "Item 8.
Financial Statements and Supplementary Data."
 
INDUSTRY BACKGROUND
 
  Approximately half of the manufacturing market consists of discrete and
batch-process manufacturers. Discrete manufacturers produce products by
assembling or machining component parts or sub-assemblies into finished
products. Batch-process manufacturers typically produce a specific quantity of
products on an order or "batch" basis in which a batch moves through a series
of operations in discontinuous mode. These manufacturers face increasingly
intense global competition, more demanding worldwide customer relationships
and rapidly changing business requirements. To remain competitive in this
environment, manufacturers are increasingly adopting methods such as rate-
based manufacturing and just-in-time inventory replenishment. In addition,
manufacturers are required to manage broadening product lines, provide multi-
national distribution, reduce product development and manufacturing cycles,
maintain lower inventory levels and adopt more flexible manufacturing
strategies. These requirements often involve global sourcing and assembly from
a supply chain consisting of internal and outsourced suppliers. Managing that
supply chain requires streamlined organizations, efficient business processes,
effective information flow and communication and an integration of the supply
chain from raw material suppliers to the ultimate customers.
 
  In an effort to strengthen their global competitive position, organizations
increasingly rely on ERP systems to manage and coordinate requirements and
resources across the entire manufacturing enterprise and its supply chain.
These systems typically provide applications to support engineering data
management, sales management, material procurement, inventory management,
manufacturing control, distribution, transportation, finance and other
functions. Information system technologies, such as the Internet, intranets,
extranets and client/server computing, can provide efficient and effective
information flow and networking for manufacturers using ERP systems. Advanced
programming architectures utilizing object-oriented technology enable software
providers to more rapidly deploy system functionality and decrease development
cycles to respond to changing market demands. The emergence of these new
technologies, as well as the need to address the Year 2000 problem and issues
associated with the conversion by 11 of the 15 member countries of the
European Union to the euro as their common currency beginning in January 1999
(the "Euro Conversion"), are creating increased demand for a new generation of
ERP solutions with expanded functionality.
 
  In order to compete effectively in their markets, mid-sized manufacturers
also require ERP solutions that provide a high return on investment. These
systems 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, ERP systems must provide sufficient depth of functionality and
flexibility to enable manufacturers to respond to constantly changing customer
needs. The systems must also be scalable to accommodate expansion of the
manufacturer's business. Mid-sized manufacturers prefer fully integrated ERP
solutions covering all aspects of their business as opposed to specialized
multi-vendor solutions that are more costly and difficult to integrate and
maintain.
 
  According to Advanced Manufacturing Research ("AMR"), the total worldwide
market for ERP systems is expected to increase from $15 billion in 1998 to $52
billion in 2002, representing a compound annual growth rate of 37%.
Additionally, industry sources estimate that the mid-sized manufacturing
segment constitutes over 50% of the total ERP market and is its fastest
growing segment.
 
THE MAPICS SOLUTION
 
With 20 years of manufacturing and technology expertise, the Company is a
leading provider of full-function client/server-based ERP systems that enable
manufacturers to respond to the demands of a rapidly growing, highly
competitive, global marketplace. In particular, the Company has been
successful at addressing the technology and business requirements of mid-sized
manufacturers by providing comprehensive product
 
                                       2
<PAGE>
 
functionality and high quality customer service on a cost-effective basis. The
MAPICS XA product line currently operates on International Business Machines
Corporation's ("IBM") AS/400 server platform, which the Company believes is
the leading server platform in the mid-sized manufacturing market due to its
reliability and low total cost of ownership. The MAPICS solution provides
value to the Company's customers through the following benefits:
 
  Comprehensive Functionality with Flexible Architecture. The Company has
developed a comprehensive solution focused on meeting the needs of mid-sized
manufacturers. The MAPICS XA product line currently consists of 49 integrated
applications that are designed to manage the most complex manufacturing
enterprises. Its flexible architecture allows customers to purchase and
implement only those applications that are required. Moreover, the MAPICS XA
product line is scalable to accommodate the diverse requirements of its broad
customer base. Current customers have implementations supporting up to 1,500
networked users. The Company leverages its strong manufacturing and technology
expertise to continually develop functionality that meets the emerging needs
of its customers. Since the introduction of MAPICS XA in 1994, the Company has
more than doubled the number of its MAPICS XA applications and significantly
enhanced the functionality of existing applications.
 
  Dedicated and Experienced Value-Added Affiliate Channel. The primary channel
for selling and implementing the MAPICS products is a network of more than 80
independent local Affiliates 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 MAPICS' customers. Each Affiliate has the right to
market the MAPICS products within a specific geographic territory and, in
return, Affiliates are not typically permitted to represent competitive ERP
systems. This arrangement has led Affiliates to invest significant resources
to develop their knowledge of the MAPICS products. Affiliates offer
experienced local professionals to implement and configure the MAPICS products
rapidly and in a cost-effective manner, as well as local services that enable
the Company's customers to maintain a limited information technology staff,
which is often a requirement of the mid-sized manufacturer.
 
  Rapid Implementation and High Return on Investment. The comprehensive
functionality and flexibility of MAPICS products minimize the need for
modification, thereby allowing rapid product implementation. In addition, the
Affiliates have refined implementation methodologies through in-depth
manufacturing, product and customer knowledge, which many have developed over
more than ten years of experience in implementing MAPICS solutions. Moreover,
the Company has introduced a standard implementation methodology to further
assist Affiliates in complex or multi-national implementations. MAPICS
implementations generally take from three to twelve months, depending upon the
number and type of applications purchased and the complexity of the
manufacturing enterprise. The high reliability and ease of user customization
of the MAPICS products, coupled with the Company's extensive quality assurance
and strong customer support, minimize the customer's need to maintain a large
information technology staff. Subsequent releases of the software are designed
to preserve existing investments in technology and user education, with
minimal disruption to the customer's business. The Company believes that all
these factors lead to the low total cost of ownership and high return on
investment that mid-sized manufacturers require.
 
  High Quality Worldwide Customer Support. The Company is dedicated to
providing high quality customer support for its products around the world
through a combination of its employee support staff and the Affiliate channel.
The Company was among the first in the ERP software industry to receive ISO
9001 certification for its primary development and support quality system, and
remains among the few to have achieved this status. In a 1995 customer
satisfaction survey performed by AMR, the Company received the highest overall
score (nearly one-third higher than the next competitor) based on 15 different
factors, including functionality, value, implementation results, quality of
support, service and maintenance, as well as knowledge of its sales force.
Indicative of the Company's continuing focus on customer satisfaction, the
Company engaged Gartner Group, Inc. in 1998 to perform another survey of its
customers, which again reflected high levels of customer satisfaction.
 
 
                                       3
<PAGE>
 
THE MAPICS STRATEGY
 
  The Company's primary objective is to further increase its share of the ERP
market by attracting new customers in existing and new market segments and
increasing sales to its growing installed base of customers. Key elements of
the Company's strategy are:
 
  Continue to Expand Middle Market Presence. The middle market is considered
to be one of the fastest growing segments in the ERP market. The Company
intends to further leverage its manufacturing and technology expertise and the
strengths of its Affiliates to expand its presence in that market. The Company
will continue to invest in new product functionality and technology to improve
the global competitiveness of its middle market customers. The Company also
intends to continue to leverage its large, installed customer base to generate
additional revenues by using positive references from existing customers to
assist in sales to new customers. Such references are often critical to the
buying decisions of middle market manufacturers. This installed base also
provides the Company with an opportunity to generate significant revenues by
selling additional applications and upgrades to existing customers. For
example, on average, MAPICS XA customers have purchased only 14 of the 49
currently available MAPICS XA applications.
 
  Increase the Capacity and Strength of the Affiliate Channel. The Company
intends to further enhance the Affiliate channel by assisting Affiliates with
recruiting efforts and providing Affiliates with on-line training facilities,
remote learning facilities and improved implementation methodologies to
further streamline the implementation process. These enhancements are intended
to increase the ability of the Affiliates to compete for new accounts as well
as serve the large installed customer base. In addition, the Company will seek
to increase worldwide channel capacity through cost sharing programs with, and
strategic capital investments in, Affiliates that are attempting to enter new
or under-penetrated territories, or expand their operations more rapidly than
their financial resources allow. The Company expects cost sharing programs to
include marketing assistance, telemarketing, education and joint recruiting.
The Company is also in the process of expanding its overlay sales force that
cooperatively assists Affiliates selling to multiple sites across territories.
The number of these multi-site opportunities has been increasing due to the
scalability of the MAPICS products, e-business via the Internet and expanded
MAPICS multi-plant support.
 
  Broaden Product Functionality to Meet Emerging Customer Needs. The Company
intends to continue to offer new functionality to attract additional customers
and allow existing customers to more easily adapt to changes in their
manufacturing enterprises and supply chains. The Company intends to focus its
product enhancements and extensions on e-business, advanced planning and
scheduling systems, warehouse and transportation planning and customer
interactive selling. Currently, MAPICS applications are available in 19
languages, including English, Chinese, French, German, Japanese, Portuguese
and Spanish, and the Company intends to further localize and expand the
functionality of its products to target additional geographic markets. For
example, in October 1998, the Company released support for the euro currency
and solutions to address the Euro Conversion. In addition, the Company
continually evaluates potential acquisitions of complementary technologies,
products and businesses in the ERP market.
 
  Incorporate New Technologies to Expand Market Opportunity. The Company
intends to continue to incorporate new technologies necessary to help mid-
sized manufacturers compete in their rapidly changing environments. These
technologies include: (i) object-oriented technology, to reduce development
and maintenance costs and allow the user to more easily customize the MAPICS
products to meet changing business conditions; (ii) full Internet, intranet or
extranet enablement to allow the customer to access any part of the MAPICS XA
application from any geographic location via an Internet connection, thus
greatly reducing network complexity and costs; and (iii) advanced decision
support to allow users to view and analyze information to solve business
problems. To broaden its current target base of customers, the Company is
continuing its Java-based development activities to re-engineer its
applications to also run on the Windows NT server platform.
 
  Pursue Strategic Development Alliances. The Company intends to expand its
product solutions and expertise by forming additional strategic development
alliances. The Company uses its innovative extended laboratory approach to
speed its time to market, leverage development investment dollars and reduce
 
                                       4
<PAGE>
 
development risk. The Company has created strategic development relationships
with third parties, referred to by the Company as "Solution Partners," and has
recently commenced or intends to commence joint development relationships,
called "Technology Alliances," with other third parties. Solution Partners
contribute solutions that supplement the core MAPICS application
functionality, and the Company remarkets these solutions under its own brand
name. Through Technology Alliances, the Company shares the development costs
of new core application functionality, acquires rights to it and builds
development expertise for the application internally so the Company can
enhance and support these core solutions. In June 1998, the Company entered
into a Technology Alliance with Symix Systems, Inc. ("Symix") to develop and
market an Advanced Planning and Scheduling ("APS") application. See "--Product
Development--Strategic Technology Alliances."
 
  Maintain High Customer Satisfaction. The Company believes that a highly
satisfied installed customer base is critical to expanding its middle market
presence. The Company intends to develop or acquire new implementation tools
and advanced user education offerings to further improve the Affiliates' and
customer's ability to install and use the MAPICS products efficiently and
improve the customer's return on investment. For example, in November 1998,
the Company introduced a standard worldwide implementation methodology to
further assist Affiliates in complex or multi-national implementations. The
Company also plans to extend customer support with Internet-based and other
tools that enhance customers' ability to quickly find answers to commonly
asked questions and rapidly and inexpensively download information or fixes to
their systems.
 
PRODUCTS
 
  The MAPICS I application system, the first comprehensive manufacturing
resource planning system, was introduced in 1978 by IBM. In 1984, IBM
introduced the enhanced MAPICS II application, which was designed to run on
IBM's System 36 and 38 computers. The Company has discontinued customer
support for these legacy systems. In 1989, IBM introduced MAPICS/DB to run on
IBM's AS/400 system. In 1993, the Company acquired from IBM the rights to the
MAPICS product line and retained approximately 150 former IBM employees to
continue the development and support of the MAPICS products.
 
  The Company introduced its current product line, MAPICS XA, in 1994. Since
its introduction, the Company has increased the number of the MAPICS XA
applications from 19 to 49, and has substantially enhanced and rewritten many
of its original applications. MAPICS XA has been designed to support, within a
single site or multiple sites, a variety of business processes, such as
Engineering Management, Demand Management, Operations Management, Resource
Planning, Financial Management and Business Management. The MAPICS
architecture provides the flexibility to expand to new applications, sites and
processes as a customer's business evolves. MAPICS applications are currently
available in 19 languages, including English, Chinese, French, German,
Japanese, Portuguese and Spanish, and the Company intends to further localize
and expand the functionality of its products to target additional geographic
markets.
 
  In December 1997, the Company introduced MAPICS XA Release 4, its first
major release since becoming a separate, stand-alone company as a result of
the Distribution. Release 4 includes six new applications and enhancements to
22 of the existing applications of MAPICS XA, including enriched multiple
language capabilities, expanded international financial management and
improved multi-facility demand and supply management. These new applications
and enhancements are designed to help manufacturers further streamline their
global communications and information exchange within their own enterprises,
across multinational sites and among their supply chain partners.
 
  Recently, the Company announced the world-wide availability of MAPICS XA
Release 5, which includes three new applications and enhancements to 20 of the
existing applications. Release 5 offers a complete solution for the Euro
Conversion and allows companies to maximize the benefits of e-commerce through
a complete Java user interface (eWorkPlace) and an Internet-based customer
service application (COM Net). Using eWorkPlace, remote or local users can
obtain controlled access to MAPICS applications via an intranet, an extranet
or the Internet. COM Net helps companies service their customers over the
Internet, enabling them to place orders, review inventory availability, obtain
current pricing and promotional information, specify product configurations
and inquire into the status of an order 24 hours a day, seven days a week.
 
                                       5
<PAGE>
 
  The Company's MAPICS XA product line integrates the following applications
in the noted business solution areas:
 
<TABLE>
<CAPTION>
     BUSINESS SOLUTION AREAS                    APPLICATIONS
------------------------------------------------------------------------------------------------------
 <S>                               <C>                             <C>
 ENGINEERING MANAGEMENT            Estimating and Quote              Enterprise Product Data
 applications assist in the        Management(1) Product Data         Management(1)
 development of data that          Management Plus(1) Product Data
 describe the materials,           Management(1)
 processes and facilities
 required to estimate costs and
 produce manufactured items.
------------------------------------------------------------------------------------------------------
 DEMAND MANAGEMENT applications    Customer Order Management         COM-Net(1)
 provide for the configuration     Market Monitoring and             Sales Analysis
 and entry of customer orders,     Analysis(1) Knowledge-Based
 the control of these orders       Configurator(1)
 through pricing, shipping and
 invoicing and the analysis of
 customer and sales order
 information.
------------------------------------------------------------------------------------------------------
 OPERATIONS MANAGEMENT             Plant Maintenance                 Multi-Environment InterSite
 applications support the          Entity Management                  Logistics(1)
 procurement and tracking of       Preventive Maintenance            Procurement Management(1)
 material, the launch and          Work Order Management             Inventory Management(1)
 control of manufacturing          MRO Inventory                     Repetitive Production
 activity and the management of    Maintenance Imaging                Management(1)
 plant maintenance.                Maintenance Executive             Purchasing(1)
                                    Information System               Production Control and Costing(1)
                                   InterSite Logistics(1)            Production Monitoring and Control
------------------------------------------------------------------------------------------------------
 RESOURCE PLANNING applications    Finite Capacity Planning and      Capacity Requirements Planning
 assist in preparing the master     Scheduling(1)                    Master Production Schedule
 schedule to produce items         Advanced Planning and              Planning(1)
 ordered by customers and           Scheduling System(2)             Material Requirements Planning(1)
 project the demand for            Forecasting
 materials, personnel and
 equipment based on forecasts.
------------------------------------------------------------------------------------------------------
 FINANCIAL MANAGEMENT              International Financial           Accounting Management
 applications provide financial    Management  Accounts Payable(1)   Accounts Payable
 and managerial accounting          Accounts Receivable(1)           Accounts Receivable
 functions and track historical     General Ledger(1)                General Ledger
 performance of key management     Contract Accounting(1)            Payroll (USA)
 measurements and contracts.       ControllerVision(2)               Financial Analysis and Fixed
                                   Manufacturing Performance         Assets
                                   Analysis
------------------------------------------------------------------------------------------------------
 BUSINESS MANAGEMENT               PowerVision(1)                    MAPICS Browser(1)
 applications provide common       Electronic Commerce(1)            Visual WorkPlace(1)
 services (e.g., security          eWorkPlace(1)                     Cross Application Support(1)
 control, data retrieval, report   Info WorkPlace(1)                 MAPICS Integrator(2)
 development, data transmission)   Executive Information System(1)   Approvals
 for applications as well as       Foundation(1)
 high level views of the MAPICS
 data used to make executive
 business decisions.
</TABLE>
-------------------------------------------------------------------------------
 (1) Application has been introduced or enhanced since December 1, 1997.
 (2) Application is currently being integrated into MAPICS XA product line
     and is expected to be released in the near future.
 
                                       6
<PAGE>
 
  When it first licenses its software, the Company generally receives both an
initial license fee and a periodic license fee. The typical initial license
fee for a new MAPICS system ranges from $100,000 to $600,000, depending on the
number and type of applications licensed, the size of the processor and the
number of users. The periodic license fee, which is usually paid annually in
advance, entitles the customer to continue using the software and to receive
certain support services. The typical periodic license fee is based on a
percentage (usually 15%) of the then current amount of the applicable initial
license fee.
 
  The MAPICS XA client/server offering uses IBM's AS/400 as a server and a
Windows-based personal computer as a client. This client architecture allows
users to easily customize their view of MAPICS without modifying the
underlying application programs.
 
  MAPICS XA releases since 1995 and the most recent release of MAPICS/DB have
been converted to be Year 2000 compliant, and the MAPICS development processes
are Information Technology Association of America 2000 certified. Many Company
applications that are currently in use were sold before 1995 and are not Year
2000 enabled. The Year 2000 enabled versions of the products are available at
no additional charge to MAPICS' customers using older versions of MAPICS XA
and MAPICS/DB that pay periodic license fees. While the Company has made Year
2000 enabled replacement software available to most customers using older
applications, not all have adopted these replacements. The Company cannot
assure that its customers will not bring Year 2000-related claims against the
Company. These claims could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Performance--Failure to Obtain Year 2000
Compliance May Have Adverse Effects on the Company."
 
PRODUCT DEVELOPMENT
 
  The Company's ongoing product development efforts focus on addressing the
emerging needs of the market by expanding the breadth and depth of the
functionality of MAPICS applications and incorporating new technologies. To
support its strategic initiatives to expand the MAPICS XA product line, the
Company increased its spending on product development by 40.4% in the fiscal
year ended September 30, 1998 compared to the fiscal year ended September 30,
1997. The Company anticipates that core development expenditures will continue
to increase as a result of the Company's plans to enhance its existing
offerings to take advantage of new technologies, offer new applications and
business functions and continue its Java-based development activities.
 
  Development direction is established by senior management with guidance from
the marketing staff and the Affiliates. The development team is responsible
for design and design verification, coding, quality assurance, documentation
and language conversion of new enhancements, products and releases. The
Company was among the first in the ERP software industry to receive ISO 9001
certification for its primary development and support quality system, and
remains among the few to have achieved this status. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Factors Affecting Future Performance--The Company is Subject to Risks
Resulting from Rapid Technological Change and Evolving Industry Standards."
 
 Internal and Solution Partner Development
 
  In addition to internal development efforts, the Company has developed
several software applications in collaboration with third party Solution
Partners. Solution Partners are expected to maintain development quality
commensurate with that of the Company's internal development laboratory. As a
result of working closely with its Solution Partners, the Company believes
that its software applications attain consistent quality, implementation and
support standards and that most applications developed by Solution Partners
are virtually indistinguishable from those developed by the Company's internal
development team. The Solution Partners are generally paid royalties by the
Company when the Company receives license fees from customers for Solution
Partner-developed applications.
 
                                       7
<PAGE>
 
 Strategic Technology Alliances
 
  In June 1998, the Company entered into an agreement with Symix to develop
and market an APS application, which helps production planners make better
decisions by analyzing the implications of alternative approaches to meeting
customer demand. Unlike traditional planning systems, APS solutions
concurrently consider all resources and their constraints, and then provide
achievable plans and schedules which result in lower manufacturing costs and
improved on-time delivery to customers. As part of the agreement, the Company
acquired certain ongoing rights to use and redistribute the APS software
solution and enhancements made thereto during the term of the agreement. The
Company and Symix will both contribute product development resources and
personnel to advance the APS product and will market and distribute the
resulting APS application as separate products in each company's ERP product
line. The Company plans to continue to evaluate and pursue additional
strategic Technology Alliances.
 
CUSTOMERS
 
  The Company's primary customers are mid-sized discrete and batch-process
manufacturers, consisting of independent companies and divisions, sites and
subsidiaries of larger companies. Mid-sized manufacturers generally seek
software solutions to help manage the manufacturing process as it relates to
accounting, engineering, production, production planning, customer asset
management and finance. The Company believes that it meets the practical
business requirements of mid-sized manufacturers by offering a cost-effective
integrated solution that can be implemented rapidly using the Company's local
Affiliate network. The Company's products assist customers in meeting their
internal goals of maintaining operational flexibility and responding to market
changes, while minimizing cost, waste and disruption through the utilization
of an ERP solution with a high return on investment. The Company has over 20
years of experience in the development of its products and relies upon its
considerable industry knowledge to continually anticipate the needs of the
mid-sized manufacturer.
 
  The Company has a base of approximately 3,400 customer sites, of which
approximately 2,400 have selected MAPICS XA, the Company's current product
line, with the balance using MAPICS/DB. The Company intends to leverage this
large installed customer base to generate additional revenues by using
existing customers to assist in sales to new customers through positive
references, as well as by selling additional applications and upgrades to
existing customers. Because the Company does not actively support its older
MAPICS I and II products, it does not include users or former users of those
products on its customer site lists and treats MAPICS I and II users as
prospective new customers for sales and marketing purposes.
 
  The Company's installed base of customers includes the following
enterprises:
 
<TABLE>
   <S>                               <C>
     ABB Asea Brown Boveri
      (Holding) Ltd.                 Matsushita Electronic Industrial Co., Ltd.
     AP Technoglass                  Michelin Corporation
     Bayer Corporation               Michigan Bulb Company Inc., Ltd.
     Bristol-Myers Squibb Company    MTD Products, Inc.
     Bostick, Inc.                   Pall Corporation
     Braun AG                        Peg Perego Pines USA, Inc.
     Colgate-Palmolive Company       Philips Electronics N.V.
     Coltec Industries Inc.          Sanyo Energy
     Cooper Industries               Shiseido Cosmetics (America) Ltd.
     Eaton Controlls PTY, Ltd.       Sub-Zero Freezer Co., Inc.
     Emerson Electric Co.            Sylvania Lighting International B.V.
     General Electric Company, plc   Thomas Lighting Inc.
     Giddings and Lewis, Inc.        Trans-matic Manufacturing, Inc.
     Goodyear Tire & Rubber Company  Volvo Construction Equipment N.V.
     Honda Motor Co., Ltd.           Weber Aircraft
     International Game Technology   Westinghouse Electric Corporation
     Kerry Ingredients UK Ltd.       York International
</TABLE>
 
                                       8
<PAGE>
 
  None of the Company's customers accounted for more than 5% of total revenues
in the fiscal year ended September 30, 1998. The Company does not believe that
its backlog at any particular point in time is indicative of future sales.
 
MARKETING AND SALES
 
  The Company's marketing strategy focuses on positioning the Company as a
leading provider of ERP solutions and increasing the name recognition of the
Company and its products. In support of this strategy, the Company's marketing
programs include advertising, public relations, direct marketing, worldwide
web marketing, customer and internal events and product management.
 
  The Company sells its products to customers located in over 70 countries
throughout North America, Europe, the Middle East, Africa ("EMEA") and the
Latin America and Asia Pacific regions through a network of more than 80
independent local Affiliates. The use of Affiliates provides the Company with
strong market access. Affiliates provide sales, consulting, implementation and
other services directly to the Company's customer base usually on a local
basis. The Company does not currently own any interest in any of the
Affiliates. Each Affiliate has the right to market the MAPICS products within
a specific geographic territory and, in return, Affiliates are not typically
permitted to represent competitive ERP systems. The Company's sales management
team has encouraged the consolidation of smaller Affiliates into larger
organizations, the elimination of overlapping territories and the development
among Affiliates of a higher level of sales skills with a greater focus on
selling to new accounts.
 
  The Affiliate channel provides significant benefits to the Company and its
customers. For example, the Affiliates provide a variable cost channel because
Affiliates receive a sales commission only when the Company receives its
license fees. In addition, Affiliates typically have extensive knowledge of
the manufacturing industry in their geographic region and develop long-
standing relationships with MAPICS' customers. Moreover, the Affiliate channel
continually provides the Company with local input and feedback regarding
customer requirements, industry trends and competitive products, thus enabling
the Company to respond to and anticipate the future product needs of its
customer base and to incorporate such requirements into its product
development efforts.
 
  The Company historically has had excellent relations with its Affiliates.
The Company believes these strong relations are attributable to a number of
factors, including the significant revenues that the Affiliates receive
directly from the Company in the form of commissions, as well as from
consulting, implementation and other services rendered to users of the MAPICS
products in the territory they represent and in some instances from IBM for
sales of AS/400 hardware. In addition, the Affiliates have generally made
significant investments in developing MAPICS knowledge within their
organizations.
 
  The Company intends to further enhance the Affiliate channel by assisting
Affiliates with recruiting efforts and providing Affiliates with on-line
training facilities, remote learning facilities and improved implementation
methodologies to further streamline the implementation process. These
enhancements are intended to increase the ability of the Affiliates to compete
for new accounts as well as serve the large installed customer base. In
addition, the Company will seek to increase channel capacity through cost
sharing programs with, and strategic capital investments in, Affiliates that
are attempting to enter new or under-penetrated territories, or expand their
operations more rapidly than their financial resources allow. The Company
expects cost sharing programs to include marketing assistance, telemarketing,
education and joint recruiting. The Company is also in the process of
expanding its overlay sales force that cooperatively assists Affiliates
selling to multiple sites across territories. The number of these multi-site
opportunities has been increasing due to the scalability of the MAPICS
products, e-business via the Internet and expanded MAPICS multi-plant support.
 
CUSTOMER SUPPORT AND SERVICE
 
  The Company believes that providing high quality customer service and
technical support is necessary to achieve rapid product implementation which,
in turn, is essential to long-term customer satisfaction and
 
                                       9
<PAGE>
 
continued revenue growth. Accordingly, the Company is committed to maintaining
a high-quality, knowledgeable Affiliate channel supported by the Company's
internal service and support staff. The Company's customer service and support
activities can be grouped into two key areas, as follows:
 
  Implementation Consulting, Education and Applications Integration
Services. These services are typically provided on a project consulting basis
directly by the Affiliates. The Company does not record revenue related to
these services provided by the Affiliates. Implementation consulting services
are provided on-site to assist customers in the installation and use of the
Company's products whether entire systems are implemented or individual
applications are installed to augment existing applications. The Company has
developed educational materials and instructions for use by Affiliates in
customer classroom environments. The Company intends to provide additional
tools to assist Affiliates and customers in simplifying the implementation
effort. For example, in November 1998, the Company introduced a standard
worldwide implementation methodology to further assist Affiliates in complex
or multi-national implementations. The Company also intends 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. These supplemental
services and tools will provide only limited additional revenue for the
Company.
 
  Installed Product Maintenance. The Company maintains a central telephone
response and assistance program. In North America, this program is available
24 hours a day, seven days a week to customers that pay periodic license fees.
All supported customers receive assistance in operational issues and resolving
possible code errors. A standardized telephone support management system is
used by support centers 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, the Company provides similar support services to its customers
in conjunction with the Affiliates. The Company has recently made available to
customers a tool to access the Company's knowledge database which permits
customers to quickly locate, without the assistance of direct support
personnel, answers to operational issues.
 
  The Company presently maintains three support centers: Atlanta, Georgia,
which services North America and the Latin America region; Eindhoven,
Netherlands, which services EMEA; and Kuala Lumpur, Malaysia, which services
the Asia Pacific region.
 
PROPRIETARY RIGHTS AND TECHNOLOGY
 
  The Company's success and ability to compete depends heavily upon its
proprietary technology, including its software. To protect its proprietary
technology, the Company relies on a combination of copyright, trademark and
trade secret laws and license and non-disclosure agreements, which may afford
only limited protection. In addition, effective copyright protection may be
unavailable or limited in certain foreign countries.
 
  The Company's software is protected as a copyrighted work. In addition, some
of the Company's source code for its software is protected as a trade secret.
The Company generally provides its products to customers under a non-exclusive
license that is renewable upon payment of annual license fees. It also
generally enters into confidentiality or license agreements with third parties
and controls access to and distribution of its software, documentation and
other proprietary information. The Company presently has no patents or patent
applications pending. The Company relies upon license or joint development
agreements with Solution Partners and Technology Alliance partners to allow
the Company to use technologies that are developed on terms that are favorable
to the Company. The Company also relies on the knowledge, skills and
experience of its employees, frequent product enhancements and the timeliness
and quality of its support services. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Performance--The Company May Not Be Successful in Protecting its
Proprietary Rights or in Avoiding Claims That it Infringes the Proprietary
Rights of Others."
 
COMPETITION
 
  The market for business software within the mid-sized manufacturing industry
is highly competitive and changes rapidly. The market activities of industry
participants, such as new product introductions, frequently
 
                                      10
<PAGE>
 
result in increased competition. The Company targets its products and related
services primarily at the market for business applications software for use
with the IBM AS/400. The Company's current and prospective competitors offer a
variety of products that address this and similar markets. The Company
primarily competes with a large number of independent software vendors. These
competitors include, among others, Baan Company N.V.; Computer Associates,
Inc.; Intentia AB; JBA Holdings Plc; J.D. Edwards & Company, Inc.; SAP AG and
System Software Associates, Inc. The Company also competes with certain
vendors of specialized applications. The Company may be unable to compete
successfully with existing or new competitors.
 
  To be successful in the future, the Company must continue to respond
promptly and effectively to changes in technology. It must also respond to its
competitors' innovations. Certain of the Company's competitors have
significantly greater financial, marketing, service, support and technical
resources and greater name recognition than the Company. Accordingly, the
Company's competitors may be able to respond more quickly than the Company 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 than the Company.
 
  The Company also expects to face additional competition as other established
and emerging companies enter the market for business software for use with the
AS/400 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 the
Company's 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. For the Company, this could result in
fee rate 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 the Company's business.
 
  In addition, the Company principally relies on a network of Affiliates for
implementation and other support of its products. If the Affiliates fail to
maintain sufficiently high quality standards, the Company's reputation and
competitive position could weaken. 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."
 
EMPLOYEES
 
  As of December 1, 1998, the Company employed approximately 400 persons, of
which 260 were employed in product development and support, 85 were employed
in sales and marketing and 55 were employed in management and administration.
None of the Company's employees is represented by a labor union. The Company
has experienced no work stoppages and believes that its employee relations are
good.
 
  The Company's future operating results depend in significant part upon the
continued service of its key technical and senior management personnel. The
Company's future success also depends on its continuing ability to attract and
retain highly qualified technical and managerial personnel. Competition for
such personnel is intense and may further intensify due to the hiring needs of
numerous competitors and others, including resources needed to address the
Year 2000 problem and the Euro Conversion. The Company cannot assure that it
will retain its key managerial or technical personnel or will be able to
attract such personnel in the future. The Company has at times experienced and
continues to experience difficulty recruiting qualified personnel, and there
can be no assurance that the Company will not continue to experience such
difficulties in the future. The Company, either directly or through personnel
search firms, actively recruits qualified product development, consulting and
sales and marketing personnel. If the Company is unable to hire and retain
qualified personnel in the future, such inability could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting Future Performance--The
Company Depends on its Retention of Key Personnel and its Ability to Attract
and Retain Other Qualified Personnel."
 
                                      11
<PAGE>
 
ITEM 2. PROPERTIES.
 
  The Company's principal administrative, marketing, product development and
support facilities are located in Atlanta, Georgia, where the Company leases a
total of approximately 74,000 square feet under four leases that expire at
various times between March 1999 and June 2002. The Company has other leases
for regional sales and support facilities for operations in North America,
EMEA, and the Latin America and Asia Pacific regions.
 
  On October 29, 1998, the Company entered into an agreement to lease
approximately 120,000 square feet of new office space (the "New Lease") in
Alpharetta, Georgia, a suburb of Atlanta. The new office space is required to
meet the needs of the Company's growing employee population. The New Lease
will become effective on March 1, 1999, at which time the Company will vacate
its current facilities in Atlanta. The Company has reached an agreement to
assign the four leases for its current facilities in Atlanta (the "Old
Leases") to a third party which will assume all of the Company's obligations
under the Old Leases effective March 1, 1999. See Notes 10 and 18 of Notes to
Consolidated Financial Statements contained in "Item 8. Financial Statements
and Supplementary Data."
 
ITEM 3. LEGAL PROCEEDINGS.
 
  The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's
business, financial condition or results of operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
  No matters were submitted to a vote of the Company's shareholders during the
Company's fourth fiscal quarter ended September 30, 1998.
 
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT.
 
  Set forth below is certain information as of September 30, 1998 regarding
the executive officers of the Company.
 
  Richard C. Cook, age 51, has been the Company's President and Chief
Executive Officer and a director of the Company since August 1997. From July
1996 to August 1997, Mr. Cook served as the Company's Senior Vice President
and General Manager, MAPICS Business Group. From October 1994 to July 1996, he
served as the Company's Vice President and General Manager, MAPICS Business
Group. Mr. Cook served as the President, Chief Executive Officer and Chairman
of the Board of Mapics, Inc., a former subsidiary of the Company (the "Mapics
Subsidiary"), from February 1993 to September 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.
 
  Thomas F. Aery, age 53, has been the Company's Vice President of Worldwide
Customer Support since August 1997. From October 1994 to August 1997, he
served as Vice President of Worldwide Customer Support, MAPICS Business Group.
From May 1993 to September 1994, Mr. Aery served as Director of Worldwide
Customer Support of the Mapics Subsidiary. Prior to joining the Company, Mr.
Aery was employed by IBM as Worldwide Product Manager, MAPICS.
 
  William J. Gilmour, age 43, has been the Company's Chief Financial Officer,
Vice President of Finance and Treasurer since August 1997. From October 1994
to August 1997, Mr. Gilmour served as Controller of the Company's MAPICS
Business Group. From January 1993 to September 1994, Mr. Gilmour served as
Controller of the Mapics Subsidiary. From November 1991 to January 1993, Mr.
Gilmour served as Controller of Marcam Canada Corporation, an indirect
subsidiary of the Company. Prior to joining the Company, Mr. Gilmour served as
Corporate Controller of Madison Chemical Industries, a specialty chemical
manufacturer. Mr. Gilmour obtained his Chartered Accountant designation from
the Canadian Institute of Chartered Accountants in 1980.
 
                                      12
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
 
COMMON STOCK PRICE
 
  Prior to the Distribution on July 29, 1997, the Common Stock was traded on
the Nasdaq National Market under the symbol "MCAM." Following the
Distribution, the Common Stock began trading on the Nasdaq National Market
under the symbol "MAPX." The table set forth below provides, on a per share
basis for the periods indicated, the high and low sales prices of the Common
Stock as reported on the Nasdaq National Market.
 
<TABLE>
<CAPTION>
                                                             HIGH      LOW
                                                             ----      ----
   <S>                                                       <C>       <C>
   FISCAL 1997
   First Quarter............................................ $13 1/8   $10 1/2
   Second Quarter...........................................  17 1/2    12 1/4
   Third Quarter............................................  15 3/16    8 1/2
   Fourth Quarter (under the symbol "MCAM") for the period
    from July 1, 1997 to July 29, 1997...................... $14 7/8   $11 3/4
 
   Fourth Quarter (under the symbol "MAPX") for the period
    from July 30, 1997 to September 30, 1997................ $14 1/4    $ 9
   FISCAL 1998
   First Quarter............................................ $13 1/4   $ 8 3/4
   Second Quarter...........................................  17 11/16  10 1/2
   Third Quarter............................................  20 1/4    15 3/8
   Fourth Quarter........................................... $22 7/8   $16 3/4
</TABLE>
 
HOLDERS
 
  As of December 14, 1998, there were approximately 540 record holders of the
Common Stock, and the Company estimates that there were approximately 4,700
beneficial owners of the Common Stock.
 
DIVIDEND POLICY
 
  The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain future earnings to fund future development
and growth and the operation of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future. Additionally, covenants
in the Company's bank credit facility prohibit the payment of cash dividends.
Any future determination to pay cash dividends will be at the discretion of
the Company's board of directors and will depend upon the Company's 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 8 of Notes to Consolidated Financial Statements
contained in "Item 8. Financial Statements and Supplementary Data."
 
RECENT SALES OF UNREGISTERED SECURITIES
 
  On November 20, 1998, the Company (i) issued 880,920 shares of Common Stock
to General Atlantic Partners 21, L.P. ("GAP 21") upon the conversion by GAP 21
of 88,029 shares of the Company's Series D Convertible Preferred Stock into
Common Stock, (ii) issued 188,120 shares of Common Stock to GAP Coinvestment
Partners, L.P. ("GAP Coinvestment") upon the conversion by GAP Coinvestment of
11,971 shares of Series D Preferred Stock and 6,841 shares of the Company's
Series E Convertible Preferred
 
                                      13
<PAGE>
 
Stock into Common Stock and (iii) issued 431,600 shares of Common Stock to
General Atlantic Partners 32, L.P. ("GAP 32") upon the conversion by GAP 32 of
43,160 shares of Series E Preferred Stock into Common Stock. The Company did
not receive any proceeds from the issuance of such shares of Common Stock. The
issuance of such shares of Common Stock was exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 3(a)(9)
thereof. Such shares currently are eligible for sale in the public market
subject to the conditions of Rule 144 of the Securities and Exchange
Commission.
 
ITEM 6. SELECTED FINANCIAL DATA.
 
  The following table sets forth selected statements of operations and balance
sheet data of the Company for the fiscal years ended, and as of, September 30,
1994, 1995, 1996, 1997 and 1998. The selected financial data for each of the
five fiscal years in the period ended September 30, 1998 and as of September
30, 1995, 1996, 1997 and 1998 have been derived from the Company's financial
statements which have been audited by PricewaterhouseCoopers LLP, independent
accountants. The selected financial data as of September 30, 1994 have been
derived from the Company's unaudited financial statements which, in the
opinion of management, have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the Company's
financial position as of such date. The selected financial data should be read
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."
 
<TABLE>
<CAPTION>
                                          FISCAL YEARS ENDED SEPTEMBER 30,
                                       ----------------------------------------
                                        1994    1995    1996    1997     1998
                                       ------- ------- ------- -------  -------
                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                    <C>     <C>     <C>     <C>      <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
  License............................. $33,410 $42,745 $45,341 $56,368  $79,189
  Services............................  19,373  26,553  32,261  39,036   50,552
                                       ------- ------- ------- -------  -------
    Total revenues....................  52,783  69,298  77,602  95,404  129,741
                                       ------- ------- ------- -------  -------
Operating expenses:
  Cost of license revenues............   3,280   5,689   6,913   9,816   13,108
  Cost of services revenues...........   5,428   7,567   9,499  11,838   14,873
  Selling and marketing...............  17,765  24,780  27,851  31,905   48,111
  Product development.................   6,692   7,432   6,398  10,259   15,073
  General and administrative..........   4,810   5,384   5,965   8,256    8,884
                                       ------- ------- ------- -------  -------
    Total operating expenses..........  37,975  50,852  56,626  72,074  100,049
                                       ------- ------- ------- -------  -------
Income from operations................  14,808  18,446  20,976  23,330   29,692
Interest income (expense), net........     --      --      --     (218)     760
                                       ------- ------- ------- -------  -------
Income before income tax expense
 (benefit)............................  14,808  18,446  20,976  23,112   30,452
Income tax expense (benefit) (1)......   4,641   7,112   8,076  (6,004)  11,724
                                       ------- ------- ------- -------  -------
Net income (1)........................ $10,167 $11,334 $12,900 $29,116  $18,728
                                       ======= ======= ======= =======  =======
Net income per common share (basic)
 (1) (2)..............................                 $  0.82 $  1.79  $  1.01
                                                       ======= =======  =======
Net income per common share (diluted)
 (1) (2)..............................                 $  0.70 $  1.47  $  0.81
                                                       ======= =======  =======
Weighted average number of common
 shares
 outstanding (basic) (2)..............                  15,717  16,239   18,579
                                                       ======= =======  =======
Weighted average number of common
 shares and common equivalent shares
 outstanding (diluted) (2)............                  18,514  19,810   23,100
                                                       ======= =======  =======
</TABLE>
 
                                      14
<PAGE>
 
<TABLE>
<CAPTION>
                                               AS OF SEPTEMBER 30,
                                      -----------------------------------------
                                       1994    1995    1996     1997     1998
                                      ------  ------  -------  -------  -------
<S>                                   <C>     <C>     <C>      <C>      <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $  107  $  226  $   378  $ 5,562  $33,442
Working capital (deficit) (3)........ (2,040) (8,527) (13,945) (12,413)  12,282
Total assets......................... 36,392  41,226   45,405   76,970  110,042
Long-term liabilities................    493     196      884       --       --
Shareholders' equity (4)............. 17,091  11,492    9,193   24,707   46,941
</TABLE>
 
--------
(1) Excluding an income tax benefit of $14.9 million in the fiscal year ended
    September 30, 1997, net income for such fiscal year was $14.2 million, or
    $0.88 per share (basic) and $0.72 per share (diluted). Pursuant to a tax
    sharing agreement between the Company and Marcam Solutions, the Company
    became entitled to utilize certain favorable income tax attributes
    (principally net operating loss carryforwards and tax credits) of Marcam
    Corporation immediately following the Distribution. As a result, the
    Company recognized the income tax benefit during the quarter ended
    September 30, 1997. Prior to the Distribution, Marcam Corporation did not
    reflect a benefit corresponding to these favorable income tax attributes
    in its consolidated financial statements because Marcam Corporation's
    management believed it was more likely than not that such benefits would
    not be realized due to Marcam Corporation's history of operating losses.
(2) See Note 2 of Notes to Consolidated Financial Statements contained in
    "Item 8. Financial Statements and Supplementary Data" for information
    concerning the computation and presentation of net income per common
    share.
(3) Excluding $9.7 million, $15.2 million, $18.6 million, $25.1 million and
    $31.1 million of deferred revenues as of September 30, 1994, 1995, 1996,
    1997 and 1998, respectively, working capital would have been $7.7 million,
    $6.7 million, $4.6 million, $12.7 million and $43.4 million as of such
    dates.
(4) Balances as of September 30, 1994, 1995 and 1996 represent divisional
    equity. See Notes 2 and 11 of Notes to Consolidated Financial Statements
    contained in "Item 8. Financial Statements and Supplementary Data" for
    information concerning divisional equity and shareholders' equity.
 
                                      15
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
 
  The following discussion and analysis should be read in conjunction with
"Item 6. Selected Financial Data" and "Item 8. Financial Statements and
Supplementary Data." This discussion contains forward-looking statements that
involve uncertainties and risks, such as statements of the Company's plans,
objectives, expectations and prospects. The Company's actual results could
differ materially from those discussed herein as a result of certain factors,
including but not limited to those discussed below in "--Factors Affecting
Future Performance" and elsewhere in this document.
 
  As used herein, the terms "fiscal 1995," "fiscal 1996," "fiscal 1997" and
"fiscal 1998" refer to the Company's fiscal years ended September 30, 1995,
1996, 1997 and 1998, respectively.
 
OVERVIEW
 
  The Company is a business software company whose primary customers are
discrete and batch process manufacturers. The Company delivers ERP software
that allows its customers to automate the manufacturing process and coordinate
multiple functions and departments within their organizations, as well as
extend their interactions with their supply chain partners. The MAPICS XA
product line currently consists of 49 applications in the areas of Engineering
Management, Demand Management, Operations Management, Resource Planning,
Financial Management and Business Management. The design of the Company's
applications allows its customers to rapidly implement all or a portion of the
Company's solution with minimal disruption to their business. Furthermore,
MAPICS solutions enable customers to leverage existing information technology
investments and adopt new technologies gradually, which lowers costs and
increases their return on investment.
 
  The financial statements and other financial information as of dates and for
periods prior to the Distribution included herein have been prepared using
Marcam Corporation's historical basis in the assets and liabilities and
historical results of operations of the business related to the MAPICS product
line. These financial statements are combined and generally reflect the
financial position, results of operations and cash flows of the MAPICS
business as if it were a separate entity for those periods. Certain expenses
presented in the combined financial statements and other financial information
included herein have been allocated based on management's estimates of the
cost of services provided to the MAPICS business by Marcam Corporation. The
Company's management believes that these allocations are reasonable. The
combined financial statements and other combined financial information
included herein, however, may not necessarily reflect the financial position,
results of operations and cash flows of the Company in the future or what the
results of operations, financial position and cash flows of the Company would
have been had the MAPICS business been a separate, stand-alone entity as of
the dates and during the periods presented. The financial statements and other
financial information as of dates and for periods after the Distribution
included herein are consolidated, consisting solely of the separate financial
statements of MAPICS, Inc. and its wholly owned subsidiaries. See "--Factors
Affecting Future Performance--The Company is Subject to Risks Resulting From
Rapid Technological Change and Evolving Industry Standards" and Note 1 of
Notes to Consolidated Financial Statements contained in "Item 8. Financial
Statements and Supplementary Data."
 
  The Company generates revenues primarily from licensing its software, which
is conducted principally through a global network of independent Affiliates.
The Affiliates provide the principal channel through which the Company's
products are distributed to its customers. However, the ultimate customer
typically executes a license agreement directly with the Company rather than
the Affiliate. When it first licenses its software, the Company receives both
an initial license fee and a periodic license fee. Initial license fees are
recorded as license revenues and typically recognized upon delivery of the
software to the ultimate customer. Periodic license fees are recorded as
services revenue and recognized ratably over the term of the periodic license
agreement. The periodic license fee, which is typically paid annually in
advance, entitles the customer to continue using the software and to receive
certain support services, as available. If a customer does not renew its
periodic license, it is no longer entitled to use the Company's software. The
Company believes this licensing arrangement provides a source of recurring
revenues from its installed base of customers and enables customers to take
advantage of new releases and enhancements of its software.
 
                                      16
<PAGE>
 
  The Affiliates, rather than the Company, provide the Company's customers
with consulting and implementation services relating to the MAPICS products.
As a result, the Company does not generate revenues from providing consulting
and implementation services.
 
  The Company's cost structure is designed so that a significant portion of
the Company's costs vary in direct relation to license revenues, particularly
commissions paid to Affiliates, which are included in selling and marketing
expenses, and product royalties, which are included in cost of license
revenues. The Company's single largest expense is commissions paid to
Affiliates, which are based on the revenues they generate from licensing the
MAPICS products.
 
  Cost of license revenues consists primarily of royalties paid to Solution
Partners for products licensed by the Company and amortization of computer
software costs. The Company expects that cost of license revenues will vary
from period to period based on the mix of products licensed during the
applicable period between Company-developed products and Solution Partner-
developed products and the timing of computer software amortization.
 
  The Company licenses from its Solution Partners complementary software
products or technology which have been integrated into the MAPICS product
line. Generally, when the Company licenses a Solution Partner product to a
customer, the Company pays a royalty to the Solution Partner. As a result, a
significant portion of its cost of license revenues varies in direct relation
to license revenues based on Solution Partners' products. Through its Solution
Partner arrangements, the Company has been able to enhance the functionality
of its existing products and introduce new products utilizing this variable
cost approach to expand its product offerings. During the three fiscal years
ended September 30, 1998, the mix of products licensed by the Company has
included increasing percentages of Solution Partner-developed products, which
has resulted in both increasing revenues and increasing royalty costs.
 
  Computer software costs represent the costs of certain software products
sold or to be sold by the Company, including purchased software costs,
software development costs and costs incurred to translate software into
various foreign languages. Amortization of computer software costs commences
upon general release of the product to customers and is computed product-by-
product based on the greater of the amount determined using (i) the ratio that
current period gross revenues bear to the total of current and anticipated
future gross revenues or (ii) the straight-line method over the estimated
economic life of the product, 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. In fiscal 1997, the
Company shortened the estimated useful life of its 1997 and future computer
software translation costs from five years to two years. This change in
estimate decreased net income in fiscal 1997 by approximately $446,000, or
$0.03 per common share (basic) and $0.02 per common share (diluted).
 
  Cost of services revenues consists primarily of personnel costs related to
the ongoing maintenance and support of the MAPICS products, fees paid to
Affiliates outside the United States and Canada to provide certain support
services in those regions and fees paid to Solution Partners to provide
similar services with respect to their products. In the United States and
Canada, the Company provides support services (primarily via telephone) to its
customers. Elsewhere, the Company engages local Affiliates to provide varying
degrees of support services for a fee. For certain Solution Partner-developed
products, the Solution Partners provide varying levels of support for a fee.
The costs of the Company's direct support services and the fees paid to
Affiliates and Solution Partners for providing support services are recorded
as cost of services revenues.
 
  Selling and marketing expenses consist primarily of commissions paid to the
Company's independent Affiliates, compensation for the Company's sales and
marketing personnel and direct costs associated with the Company's marketing
campaigns. The Company anticipates that selling and marketing expenses will
increase as a result of various initiatives to increase license sales. The
Company intends to further enhance the Affiliate channel by assisting
Affiliates with recruiting efforts and providing Affiliates with on-line
training facilities,
 
                                      17
<PAGE>
 
remote learning facilities and improved implementation methodologies to
further streamline the implementation process. These enhancements are intended
to increase the ability of the Affiliates to compete for new accounts as well
as serve the large installed customer base. In addition, the Company will seek
to increase channel capacity through cost sharing programs with, and strategic
capital investments in, Affiliates that are attempting to enter new or under-
penetrated territories or to expand their operations more rapidly than their
financial resources allow. The Company expects cost sharing programs to
include marketing assistance, telemarketing, education and joint recruiting.
The Company is also in the process of expanding its overlay sales force that
cooperatively assists Affiliates selling to multiple sites across territories.
The number of these multi-site opportunities has been increasing due to the
scalability of the MAPICS products, e-business via the Internet and expanded
MAPICS multi-plant support.
 
  Product development expenses consist primarily of compensation for software
engineering personnel and independent contractors retained to assist with the
Company's product development efforts. The Company charges 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
thereafter amortized to cost of license revenues.
 
  In fiscal 1996, the Company reduced its level of spending on product
development activities other than those to translate products into new
languages ("core product development") because, at the time, Marcam
Corporation anticipated that the MAPICS products would use certain
technologies being developed in connection with its ProteanTM product line.
Subsequently, the Company determined that such a development strategy was not
consistent with the demands of its target market and commenced a revised
development strategy which is designed to enhance the MAPICS products and
allow future server platform independence. In fiscal 1997, the Company
initiated Java-based development activities to re-engineer certain of its
applications to run on the Windows NT server platform. As a result of these
and other development efforts to continually enhance its product offerings,
the Company's core product development expenditures have increased, and the
Company currently anticipates that core product development expenditures will
continue to increase. Because the costs of establishing technological
feasibility of computer software products are charged to product development
expense as they are incurred, the Company's operating results may be affected
adversely by significant increases in the level of product development
investments.
 
  General and administrative expenses consist primarily of compensation for
executive, financial, legal and administrative personnel, outside professional
and service fees and provisions for bad debts.
 
  Net income per common share presented in the statements of operations for
fiscal 1996 and 1997 was calculated using the capital structure of Marcam
Corporation for periods prior to the Distribution, including the weighted
average number of common shares and common share equivalents, giving effect to
the Distribution on a pro forma basis for all periods presented through the
Distribution. See Note 2 of Notes to Consolidated Financial Statements
contained in "Item 8. Financial Statements and Supplementary Data."
 
                                      18
<PAGE>
 
RESULTS OF OPERATIONS
 
  The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain line items in the Company's statement of
operations.
 
<TABLE>
<CAPTION>
                                           FISCAL YEARS ENDED SEPTEMBER 30,
                                           ----------------------------------
                                              1996        1997        1998
                                           ----------  ----------  ----------
     <S>                                   <C>         <C>         <C>
     Revenues:
      License.............................       58.4%       59.1%       61.0%
      Services............................       41.6        40.9        39.0
                                           ----------  ----------  ----------
       Total revenues.....................      100.0       100.0       100.0
                                           ----------  ----------  ----------
     Operating expenses:
      Cost of license revenues............        8.9        10.3        10.1
      Cost of services revenues...........       12.2        12.4        11.5
      Selling and marketing...............       35.9        33.4        37.1
      Product development.................        8.3        10.8        11.6
      General and administrative..........        7.7         8.6         6.8
                                           ----------  ----------  ----------
     Total operating expenses.............       73.0        75.5        77.1
                                           ----------  ----------  ----------
       Income from operations.............       27.0        24.5        22.9
     Other:
      Interest income.....................         --          --         0.6
      Interest expense....................         --        (0.3)         --
                                           ----------  ----------  ----------
     Income before income tax expense
      (benefit)...........................       27.0        24.2        23.5
     Income tax expense (benefit).........       10.4        (6.3)        9.1
                                           ----------  ----------  ----------
     Net income...........................       16.6%       30.5%       14.4%
                                           ==========  ==========  ==========
</TABLE>
 
 FISCAL 1997 COMPARED TO FISCAL 1998
 
  Revenues. Total revenues increased 36.0% from $95.4 million in fiscal 1997
to $129.7 million in fiscal 1998. License revenues increased 40.5% from $56.4
million in fiscal 1997 to $79.2 million in fiscal 1998 due to a volume
increase in license sales to existing customers for additional applications
and upgraded systems and a volume increase in license sales to new customers
(which include both new named accounts and migrations from the older MAPICS I
and II product lines). The Company achieved similar license revenue growth in
each of its primary geographic markets in fiscal 1998.
 
  Operations in (i) North America, (ii) EMEA and (iii) the combined Latin
America and Asia Pacific regions accounted for 69.2%, 21.9% and 8.9% of total
license revenues, respectively, in fiscal 1997 compared to 68.5%, 22.0% and
9.5%, respectively, in fiscal 1998. The Company believes that future license
revenue growth will be most significant in North America and EMEA, and that
license revenue growth in its two smallest geographic markets, the Latin
America and Asia Pacific regions, will be less predictable.
 
  Services revenues increased 29.5% from $39.0 million in fiscal 1997 to $50.6
million in fiscal 1998, principally due to the increase in the Company's
installed customer base.
 
  Cost of License Revenues. Cost of license revenues increased 33.5% from $9.8
million in fiscal 1997 to $13.1 million in fiscal 1998, primarily as a result
of an increase in amortization expense related to computer software costs and
an increase in product royalty expense due to the increased volume in
licensing of Solution Partner-developed products. Cost of license revenues as
a percentage of license revenues decreased from 17.4% in fiscal 1997 to 16.6%
in fiscal 1998, primarily as a result of proportionally lower amortization of
computer software costs.
 
                                      19
<PAGE>
 
  Cost of Services Revenues. Cost of services revenues increased 25.6% from
$11.8 million in fiscal 1997 to $14.9 million in fiscal 1998. This increase
resulted from the additional distribution and support costs associated with
the increase in new customers, a volume increase in fees paid to Affiliates
and Solution Partners for providing support services in EMEA and the Latin
America and Asia Pacific regions and the added personnel costs associated with
hiring additional personnel. Cost of services revenues as a percentage of
total services revenues decreased from 30.3% in fiscal 1997 to 29.4% in fiscal
1998 because the fixed cost component relating primarily to personnel costs
was a proportionally lower percentage of cost of services revenues in fiscal
1998.
 
  Selling and Marketing. Selling and marketing expenses increased 50.8% from
$31.9 million in fiscal 1997 to $48.1 million in fiscal 1998. As a percentage
of total revenues, selling and marketing expenses increased from 33.4% in
fiscal 1997 to 37.1% in fiscal 1998. These increases were due to increased
commissions earned by Affiliates on increased license revenues, the hiring of
additional sales and marketing personnel and increased spending on selling and
marketing programs.
 
  Product Development. Overall product development expenses increased 46.9%
from $10.3 million in fiscal 1997 to $15.1 million in fiscal 1998. As a
percentage of total revenues, product development expenses increased from
10.8% in fiscal 1997 to 11.6% in fiscal 1998. Gross core product development
expenditures increased 40.4% from $15.7 million in fiscal 1997 to $22.1
million in fiscal 1998. This increase was due primarily to the hiring of
additional personnel and incremental spending on product development resources
to support the on-going Java development effort to re-engineer the Company's
software server applications to the Windows NT server platform, while
continuing efforts to expand the MAPICS XA product line. The amounts of core
product development expenditures capitalized in fiscal 1997 and fiscal 1998
were $2.5 million and $3.0 million, respectively, representing 19.6% and 16.9%
of gross core product development expenditures during those periods. The
amount of core product development expenditures capitalized as a percentage of
gross core product development expenditures decreased in fiscal 1998 because a
lower proportion of these expenditures had reached the technological
feasibility stage as compared to those in fiscal 1997. Gross computer software
translation expenditures increased 36.1% from $3.1 million in fiscal 1997 to
$4.2 million in fiscal 1998. Translation expenditures are typically project
related, and the timing of these expenditures is subject to change from period
to period. The amounts of translation expenditures capitalized in fiscal 1997
and fiscal 1998 were $3.0 million and $4.0 million, respectively, representing
96.2% and 94.3%, respectively, of gross translation expenditures during those
periods.
 
  In addition to the spending on core product development and computer
software translation, the Company spent approximately $1.0 million in fiscal
1997 and $3.0 million in fiscal 1998 to acquire certain rights to computer
software. The amounts spent to acquire computer software were capitalized and
are included in computer software costs.
 
  General and Administrative. General and administrative expenses increased
7.6% from $8.3 million in fiscal 1997 to $8.9 million in fiscal 1998. These
expenses represented 8.6% and 6.8% of total revenues in fiscal 1997 and 1998,
respectively. The decrease in general and administrative expenses as a
percentage of total revenues reflects the generally fixed nature of the
general and administrative expenses.
 
  Interest Income. Interest income increased from $45,000 in fiscal 1997 to
$816,000 in fiscal 1998. Prior to the Distribution, any surplus cash generated
by operations associated with the MAPICS products was routinely transferred to
other operations of Marcam Corporation. The increase in interest income is due
to the increase in cash and cash equivalents during fiscal 1998.
 
  Interest Expense. Interest expense decreased from $263,000 in fiscal 1997 to
$56,000 in fiscal 1998. Interest expense in fiscal 1997 reflects interest paid
on $64.0 million of indebtedness of the Company borrowed in connection with
the Distribution (the "Debt Financing") and on the Company's senior secured
term loan and revolving credit facility (the "Bank Credit Facility"). Interest
expense in fiscal 1998 reflects commitment fees incurred for unused portions
of the revolving credit facility. See "--Liquidity and Capital Resources."
 
                                      20
<PAGE>
 
  Income Tax Expense (Benefit). The Company recorded an income tax benefit of
$6.0 million in fiscal 1997 compared to income tax expense of $11.7 million in
fiscal 1998. Prior to the Distribution, the operations represented by MAPICS
were included in the consolidated United States federal and certain state and
foreign income tax returns filed by Marcam Corporation. For financial
reporting purposes, income tax expense was reflected on a separate return
basis for all periods presented in the combined financial statements through
the Distribution.
 
  Pursuant to a tax sharing agreement between the Company and Marcam
Solutions, the Company became entitled to utilize certain favorable tax
attributes (principally net operating loss carryforwards and tax credits) of
Marcam Corporation immediately following the Distribution. As a result, the
Company recognized an income tax benefit of $14.9 million during the fourth
quarter of fiscal 1997. Prior to the Distribution, Marcam Corporation did not
reflect a benefit corresponding to these favorable tax attributes in its
consolidated financial statements because Marcam Corporation's management
believed it was more likely than not that such benefits would not be realized
due to Marcam Corporation's history of operating losses. See "--Liquidity and
Capital Resources" and Notes 9 and 15 of Notes to Consolidated Financial
Statements contained in "Item 8. Financial Statements and Supplementary Data."
 
  The income tax benefit of $6.0 million for fiscal 1997 reflects income tax
expense of $8.9 million offset by the income tax benefit of $14.9 million.
Excluding the income tax benefit in fiscal 1997, the effective tax rate in
fiscal 1997 and fiscal 1998 was 38.5% which differs from the statutory federal
rate of 35.0% principally due to the impact of state income taxes.
 
  Net Income. Net income decreased 35.7% from $29.1 million, or $1.47 per
common share (diluted), in fiscal 1997 to $18.7 million, or $0.81 per common
share (diluted), in fiscal 1998. Excluding the income tax benefit of $14.9
million in fiscal 1997, net income in fiscal 1998 increased 31.5% from $14.2
million, or $0.72 per common share (diluted), in fiscal 1997.
 
 FISCAL 1996 COMPARED TO FISCAL 1997
 
  Revenues. Total revenues increased 22.9% from $77.6 million in fiscal 1996
to $95.4 million in fiscal 1997. License revenues increased 24.3% from $45.3
million in fiscal 1996 to $56.4 million in fiscal 1997. This increase resulted
primarily from an increase in license sales to new customers and, to a lesser
extent, an increase in license sales to existing customers for new sites,
upgraded systems and additional applications, primarily in North America.
 
  Services revenues increased 21.0% from $32.3 million in fiscal 1996 to $39.0
million in fiscal 1997, principally due to the increase in the Company's
installed customer base.
 
  Cost of License Revenues. Cost of license revenues increased 42.0% from $6.9
million in fiscal 1996 to $9.8 million in fiscal 1997. These costs as a
percentage of license revenues increased from 15.2% in fiscal 1996 to 17.4% in
fiscal 1997. These increases were primarily due to: (i) increased royalty
costs as the volume of Solution Partner products licensed by the Company
increased in fiscal 1997; (ii) increased amortization of capitalized software
development costs which resulted from the increased capitalized software
asset; and (iii) increased amortization of capitalized software translation
costs resulting from a change in estimate of useful life which increased
amortization expense by approximately $446,000 in fiscal 1997.
 
  Cost of Services Revenues. Cost of services revenues increased 24.6% from
$9.5 million in fiscal 1996 from $11.8 million in fiscal 1997, primarily as a
result of the increased fees paid to Affiliates and Solution Partners for
providing support services. As a percentage of services revenues, these costs
increased from 29.4% in fiscal 1996 to 30.3% in fiscal 1997. This increase
resulted primarily from increased fees paid to Solution Partners and
Affiliates for support services in fiscal 1997.
 
                                      21
<PAGE>
 
  Selling and Marketing. Selling and marketing expenses increased 14.6% from
$27.9 million in fiscal 1996 to $31.9 million in fiscal 1997. This increase
was due primarily to increased commissions earned by Affiliates on increased
license revenues. As a percentage of total revenues, selling and marketing
expenses decreased from 35.9% in fiscal 1996 to 33.4% in fiscal 1997. This
decrease resulted primarily from the Company's direct selling and marketing
costs being relatively fixed in nature.
 
  Product Development. Overall product development expenses increased 60.3%
from $6.4 million in fiscal 1996 to $10.3 million in fiscal 1997 and increased
as a percentage of total revenues from 8.3% in fiscal 1996 to 10.8% in fiscal
1997. These increases resulted primarily from an increase in core development
spending and a decrease in the percentage of costs qualifying for
capitalization in fiscal 1997. See "--Overview" and "Item 1. Business--Product
Development."
 
  Gross core product development expenditures increased 39.4% from $9.1
million in fiscal 1996 to $12.6 million in fiscal 1997. This increase was
primarily due to increased development expenditures as a result of the
Company's change in product development strategy. See "--Overview" and "Item
1. Business--Product Development." The amounts of core product development
expenditures capitalized in fiscal 1996 and fiscal 1997 were $2.9 million and
$2.5 million, respectively, representing 31.9% and 19.6% of gross core product
development expenditures during those periods, respectively. The amount of
development expenditures capitalized in fiscal 1997 decreased because a higher
proportion of development expenditures was related to the establishment of
technological feasibility of the products under the Company's revised
development strategy. Gross translation expenditures decreased 16.5% from $3.7
million in fiscal 1996 to $3.1 million in fiscal 1997. Translation
expenditures are typically project related, and the timing of these
expenditures is subject to change from period to period. The amounts of
translation expenditures capitalized in fiscal 1996 and fiscal 1997 were $3.5
million and $3.0 million, respectively, representing 93.6% and 96.2%,
respectively, of gross translation expenditures during those periods.
 
  General and Administrative. General and administrative expenses increased
38.4% from $6.0 in fiscal 1996 to $8.3 million in fiscal 1997, due primarily
to increases in facilities and personnel costs in EMEA. General and
administrative expenses represented 7.7% of total revenues in fiscal 1996 as
compared to 8.6% in fiscal 1997.
 
  Interest Income. Interest income increased from $0 in fiscal 1996 to $45,000
in fiscal 1997. Interest income reflects interest earned on cash and cash
equivalents. Prior to the Distribution, any surplus cash generated by
operations associated with the MAPICS products was routinely transferred to
other operations of Marcam Corporation.
 
  Interest Expense. Interest expense increased from $0 in fiscal 1996 to
$263,000 in fiscal 1997. Interest expense in fiscal 1997 reflects interest
paid in connection with the Debt Financing and the Bank Credit Facility. See
"--Liquidity and Capital Resources."
 
  Income Tax Expense (Benefit). The Company recorded income tax expense of
$8.1 million in fiscal 1996 compared to an income tax benefit of $6.0 million
in fiscal 1997. The income tax benefit of $6.0 million in fiscal 1997 reflects
income tax expense of $8.9 million offset by the income tax benefit of $14.9
million recognized during the fourth quarter of fiscal 1997, as discussed
above. Excluding the income tax benefit in fiscal 1997, the effective tax rate
in fiscal 1996 and fiscal 1997 was 38.5%, which differs from the statutory
federal rate of 35.0% principally due to the impact of state income taxes.
 
  Net Income. Net income increased 125.7% from $12.9 million, or $0.70 per
share (diluted), in fiscal 1996 to $29.1 million, or $1.47 per common share
(diluted), in fiscal 1997. Excluding the income tax benefit of $14.9 million
in fiscal 1997, net income in fiscal 1997 was $14.2 million, or $0.72 per
common share (diluted), a 10.4% increase over fiscal 1996.
 
                                      22
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The following table sets forth a summary of the Company's cash flow activity
for the periods indicated and should be read in conjunction with the Company's
statements of cash flows contained in "Item 8. Financial Statements and
Supplementary Data."
<TABLE>
<CAPTION>
                                                SUMMARY OF CASH FLOWS
                                           ----------------------------------
                                           FISCAL YEARS ENDED SEPTEMBER 30,
                                           ----------------------------------
                                              1996        1997        1998
                                           ----------  ----------  ----------
                                                    (IN THOUSANDS)
   <S>                                     <C>         <C>         <C>
   Net cash provided by operating
    activities............................ $   23,322  $   27,744  $   38,824
   Net cash used for investing
    activities............................     (7,971)     (8,414)    (13,287)
   Net cash (used for) provided by
    financing activities..................    (15,199)    (14,146)      2,343
                                           ----------  ----------  ----------
     Net increase in cash and cash
      equivalents......................... $      152  $    5,184  $   27,880
                                           ==========  ==========  ==========
</TABLE>
 
  The Company has funded its operations and capital expenditures primarily
with cash generated from operating activities. Prior to the Distribution, any
surplus cash generated by operations associated with the MAPICS products was
routinely transferred to other operations of Marcam Corporation. During fiscal
1996 and fiscal 1997, net cash from operations associated with the MAPICS
products of $26.1 million and $15.9 million, respectively, was transferred to
other operations of Marcam Corporation.
 
  As of September 30, 1997, the Company had cash and cash equivalents of $5.6
million and a working capital deficit of $12.4 million. Excluding deferred
revenues of $25.1 million, working capital as of September 30, 1997 was $12.7
million. During fiscal 1997, the Company increased cash and cash equivalents
and working capital, excluding deferred revenues, by $5.2 million and $8.1
million, respectively.
 
  As of September 30, 1998, the Company had cash and cash equivalents of $33.4
million and working capital of $12.3 million. Excluding deferred revenues of
$31.1 million, working capital as of September 30, 1998 was $43.4 million.
During fiscal 1998, the Company increased cash and cash equivalents and
working capital, excluding deferred revenues, by $27.8 million and $30.7
million, respectively.
 
  Net cash provided by operating activities in fiscal 1996, fiscal 1997 and
fiscal 1998 was $23.3 million, $27.7 million and $38.8 million, respectively.
The increase in net cash provided by operating activities in each of these
fiscal years generally reflects growth in revenues and earnings plus the
effect of changes in working capital. In fiscal 1996, working capital was
principally affected by an increase in deferred revenues as a result of growth
in services revenues. In fiscal 1997, working capital changes included an $8.7
million increase in accrued expenses due to increased Affiliate commissions,
product royalties and employee bonuses payable and a $6.6 million increase in
deferred revenues as a result of growth in services revenues and the deferral
of license revenues related to a significant fourth quarter license agreement.
Those increases were offset partially by a $10.7 million increase in accounts
receivable principally resulting from the growth in sales over the prior year.
In fiscal 1998, working capital changes included a $6.0 million increase in
deferred revenues as a result of growth in services revenues and a $3.3
increase in accrued expenses due to increased 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 sales.
 
  Net cash used for investing activities in fiscal 1996, fiscal 1997 and
fiscal 1998 was $8.0 million, $8.4 million and $13.3 million, respectively. In
each fiscal year, the Company increasingly used cash for investing activities
related to computer software development, computer software translation and
purchases of property and equipment, reflecting the incremental investments
made in its computer software development activities and the additional
computer equipment and office furniture needed for its growing employee
population. In fiscal 1997 and fiscal 1998, the Company spent $1.0 million and
$3.0 million, respectively, to acquire certain rights to computer software to
be integrated with the Company's product offerings.
 
  Net cash used for financing activities in fiscal 1996 and fiscal 1997 was
$15.2 million and $14.1 million, respectively, including net cash transferred
to other operations of Marcam Corporation of $15.2 million and $6.6 million,
respectively. Net cash provided by financing activities in fiscal 1998 was
$2.3 million.
 
                                      23
<PAGE>
 
  In July 1997, the Company borrowed $64.0 million in the Debt Financing to
fund a $39.0 million cash transfer to Marcam Solutions payable as part of the
Distribution and to repay Marcam Corporation's $25.0 million aggregate
principal amount of 9.82% Subordinated Notes due 2001. The indebtedness
incurred in the Debt Financing had an interest rate of 9.0%. In connection
with the Debt Financing, Marcam Corporation's $20.0 million revolving credit
facility was terminated.
 
  In August 1997, the Company executed the Bank Credit Facility to repay a
portion of the borrowings from the Debt Financing and for general corporate
purposes. Substantially all of the Company's assets are pledged as collateral
for any obligations under the Bank Credit Facility. The Bank Credit Facility
contains covenants which, among other things, require the Company to maintain
certain financial ratios and impose certain limitations or prohibitions on the
Company with respect to the incurrence of indebtedness, liens and capital
leases; the payment of dividends on and the redemption or repurchase of
capital stock of the Company; investments and acquisitions; the merger or
consolidation of the Company with any person or entity; and the disposition of
any of the Company's properties or assets.
 
  Also in August 1997, the Company completed an underwritten public offering
of 6.9 million shares of its Common Stock (the "1997 Offering"), raising net
proceeds of approximately $56.0 million, after deducting offering costs of
approximately $6.1 million. The net proceeds of the 1997 Offering along with
borrowings of $6.4 million under the term loan portion of the Bank Credit
Facility and working capital of $1.6 million were used to repay the $64.0
million of indebtedness from the Debt Financing. As of September 30, 1997, the
principal amount of this term loan was repaid with interest of $254,000, after
which no additional amount is available for future borrowings under the term
loan portion of the Bank Credit Facility.
 
  In fiscal 1997 and fiscal 1998, the Company received proceeds from stock
options exercised and employee stock purchases of $452,000 and $3.6 million,
respectively. In fiscal 1998, the Company purchased 128,600 shares of Common
Stock for $1.3 million pursuant to a stock repurchase plan authorized by the
Company's board of directors in December 1997. The stock repurchase plan was
rescinded in December 1998.
 
  In addition to the cash provided by operating and financing activities,
additional borrowings of up to $15.0 million, subject to certain limitations,
are available to the Company under the revolving portion of the Bank Credit
Facility. Availability of revolving credit loans and the rate of interest
thereon vary depending upon the Company's ability to maintain certain
financial ratios. Any outstanding revolving credit borrowings under the Bank
Credit Facility mature on June 30, 2000. As of September 30, 1997 and 1998,
the Company met all of those financial ratios, although no revolving credit
borrowings have been outstanding under the revolving credit portion of the
Bank Credit Facility since its inception. The Company pays a quarterly
commitment fee for unused portions of the revolving credit facility.
 
  Pursuant to a tax sharing agreement between the Company and Marcam
Solutions, the Company became entitled to utilize certain favorable income tax
attributes (principally net operating loss carryforwards and tax credits) of
Marcam Corporation immediately following the Distribution. These favorable
income tax attributes resulted in cash savings in fiscal 1998, and the Company
believes that these favorable income tax attributes will continue to result in
cash savings from the reduction of income taxes payable in future periods as
these favorable income tax attributes are utilized. The utilization of the
inherited net operating loss carryforwards and tax credits from periods on or
before September 30, 1996 is limited on an annual basis due to a change in
ownership of Marcam Corporation during fiscal 1996. The Company does not
believe that this limitation will have a significant impact on its ability to
utilize the net operating loss carryforwards or tax credits prior to their
expiration. As of September 30, 1998, the Company had approximately $10.7
million of net operating loss carryforwards and approximately $2.5 million of
research and experimentation and other credit carryforwards. Such
carryforwards and tax credits expire between the years ending September 30,
1999 and September 30, 2013.
 
  Pursuant to the same tax sharing agreement, Marcam Solutions is generally
responsible for certain state, local and foreign taxes for periods ended on or
before the Distribution, and the Company is responsible for all other taxes
for such periods. In addition, the Company is generally liable for any taxes
arising out of the
 
                                      24
<PAGE>
 
Distribution. In the quarter ended September 30, 1997, the Company provided
for income taxes arising out of the Distribution, principally foreign income
taxes, expected to approximate $1.1 million, of which the Company paid
$325,000 in fiscal 1998.
 
  As of September 30, 1998, the Company did not have any material commitments
for capital expenditures.
 
  The Company believes that cash and cash equivalents on hand as of September
30, 1998, together with cash flows from operations and available borrowings
under the Bank Credit Facility, will be sufficient to maintain its current
level of operations for at least the next 12 months.
 
YEAR 2000 ISSUE
 
  Many existing computer hardware and software systems are designed to use
only two digits to identify a year in date fields (e.g., "98" for "1998").
These systems may not properly recognize a year that begins with "20" instead
of "19." If not corrected, these systems could fail or could create erroneous
results when working with dates beyond the year 1999. This is commonly
referred to as the "Year 2000 issue." The Company believes that the Year 2000
issue may affect the Company in two principal ways: through the Company's
products and its operations.
 
 THE COMPANY'S READINESS STATUS
 
  The Company develops and markets software programs which are date sensitive
and may be affected by the Year 2000 issue. The Year 2000 issue may also
affect the demand for the Company's products and the spending patterns of the
Company's customers.
 
  In July 1997, the Company received Information Technology Association of
America 2000 ("ITAA 2000") certification, validating that the Company's
development processes meet the information technology industry's best software
development practices for addressing the Year 2000 issue. MAPICS XA releases
since 1995 and the last release of MAPICS/DB have been converted and tested to
be Year 2000 compliant. The Company believes that the products it currently
produces adequately address the Year 2000 issue. The Company's Solution
Partners have certified to the Company that their products are also Year 2000
compliant. However, the Company cannot assure that these products or future
products that the Company or its Solution Partners develop contain or will
contain all necessary date code changes or that errors will not be found in
these products at a later time. The costs to resolve any resulting Year 2000
related errors could have a material adverse impact on the Company's business,
financial condition and results of operations.
 
  Many hardware, operating system and application products developed by third
parties interact or operate with MAPICS applications. In addition, customers
or others may modify MAPICS products after they have been installed. The
Company cannot assess the Year 2000 readiness of these hardware, operating
system and application products or modified MAPICS products. If these products
are not Year 2000 compliant, it could adversely affect the performance and
functionality of the Company's applications that work with these products.
While the Company would not be responsible for these Year 2000 problems, it is
unable to assess the effect they may have on the Company's business, financial
condition and results of operations.
 
  The Company believes that the Year 2000 issue has increased current demand
for Year 2000 enabled hardware and software products, including those offered
by the Company. However, this demand is likely to decrease once companies have
repaired or replaced their existing systems which are not Year 2000 enabled.
Demand may also decrease if customers are required to divert their resources
to address other Year 2000 issues within their businesses. The Company is
unable to quantify the effect that the demand for Year 2000 enabled products
has had on its current business, financial condition and results of operations
and cannot predict the effect that any increase or decrease in demand will
have on the Company in the future.
 
  The Company principally relies on its MAPICS XA product to support its
internal accounting, payables and invoicing operations. While MAPICS XA has
been converted and tested to be Year 2000 compliant, the
 
                                      25
<PAGE>
 
Company also relies on third party systems developed by others for many of its
critical internal operations. If these systems are not Year 2000 compliant, it
may have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the Company's internal
operations may also be affected by Year 2000 issues affecting third parties
with whom the Company has relationships, including Affiliates, Solution
Partners and other vendors (e.g., utilities, distributors, banks and other
suppliers). A Year 2000 problem effecting one or more of these third parties
may also have a material adverse effect on the Company's business, financial
condition and results of operations.
 
  The Company has assembled a Year 2000 taskforce made up of representatives
from the Company's development, marketing, support, information systems,
facilities, finance and legal departments to assess the Year 2000 readiness of
the Company's internal operations and the readiness of third parties on which
it relies. The taskforce has identified and assessed the Year 2000 readiness
of most of the material information technology ("I/T") and non-information
technology ("non-I/T") systems, including fax machines, phone switches and
badge access readers, used internally as part of the Company's operations, but
such work is ongoing. The taskforce has tested or will test these systems
where feasible and practicable. The Company expects testing to be complete by
the end of the first quarter of calendar 1999. The Company believes that it
has the appropriate plans in place to achieve timely Year 2000 readiness for
its internal systems. However, the Company's on-going assessment program may
in the future reveal Year 2000 issues which are not currently identified or
fully understood.
 
  The taskforce has also worked to identify those third parties on which the
Company's operations materially rely. This includes the Company's Affiliates,
Solution Partners and other suppliers. The taskforce has gathered written
materials published by such third parties or otherwise communicated directly
with such third parties in order to determine the Year 2000 readiness of their
business operations or the readiness of the products or services they supply
to the Company. While the taskforce has collected many responses and other
materials from such third parties regarding their Year 2000 readiness, the
process is ongoing. The Company expects to gather materials on all third
parties with whom it relies by the end of the second quarter of calendar 1999.
The Company is not certain that the Year 2000 issue will be properly and
timely resolved by all of its suppliers, Affiliates, or Solution Partners, and
if not so resolved, this could have a material impact on the Company's
business, financial condition and results of operations.
 
 COMPANY COSTS TO ADDRESS THE YEAR 2000 ISSUE
 
  The Company has incurred approximately $330,000 in costs to make its
products and internal systems Year 2000 compliant. It does not expect to incur
material additional costs to remedy any remaining Year 2000 problems with its
products and internal systems. However, the Company cannot currently assess
the costs of remedying problems resulting from the Year 2000 issues of others.
If the costs of remedying these Year 2000 problems proves to be significant,
it may have a material adverse effect on the Company's business, financial
condition and results of operations.
 
 RISKS
 
  The Company's customer operations are heavily dependent on the constant
availability of telecommunications equipment and other utilities. As a result,
the Company currently believes that the most reasonably likely worst case Year
2000 scenario would involve the temporary interruption of electric power,
telephone or other utility supplies to the Company's headquarters or its other
support operations facilities due to a failure of a utility supplier to be
Year 2000 compliant. In addition, despite assurances and testing, it is also
possible that the Company's internal systems or those of its Affiliates or its
suppliers may not be Year 2000 ready. Such failure could have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
  In addition, "business interruption" litigation may arise out of the Year
2000 issue. The Company is not aware of any possible claim against it arising
from instances of business interruption. However, the Company is
 
                                      26
<PAGE>
 
uncertain how it may be affected by any such litigation. In particular, many
of the Company's applications that are currently in use but were sold before
the Company's 1995 application releases are not Year 2000 enabled. These
applications are no longer supported by the Company. While the Company has
made Year 2000 enabled replacement software available to most customers using
older applications, it cannot assure that all of these customers are aware of
the Year 2000 issue or that they have adopted these replacements or other
remedies. In addition, it cannot assure that these customers will not bring
Year 2000-related claims against the Company which, with or without merit,
could be time consuming and expensive for the Company to defend or resolve.
Any adverse outcome in any such litigation could subject the Company to
significant liability. As a result, business interruption litigation could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
 CONTINGENCY PLANS
 
  The Company has not yet established a contingency plan to address the most
reasonably likely worst case scenario described above. Because the Company has
not completed the testing of those internal systems which it can test feasibly
and practically, and since it has not received all responses from those
suppliers on which it relies, it has not fully assessed the potential Year
2000 exposures. Accordingly, the Company has not yet fully developed Year 2000
specific contingency plans. These plans will be developed in or before the
third quarter of calendar 1999 if the foregoing assessment identifies a
material business function that is substantially at risk.
 
CAUTIONARY STATEMENTS
 
  The continued assessment, progress and timing of the Company's Year 2000
readiness efforts and potential exposures as described above depend upon the
cooperation and responsiveness of third parties, the accuracy and reliability
of responses provided and testing procedures, and the availability of skilled
resources, both internal and external, to address Year 2000 issues that exist
or may arise. There can be no assurance that assessments to date will prove to
be accurate. Serious deficiencies which are not currently identified or fully
understood may arise in the future and may have a material adverse impact on
the Company's business, financial condition and results of operations. The
Company plans to continue its taskforce into the Year 2000 to assess Year 2000
issues affecting the Company, apprise management of the status of its findings
and develop appropriate contingency plans where necessary in an effort to
minimize the potential exposure of the Company to the Year 2000 issue.
 
EURO CONVERSION ISSUE
 
  On January 1, 1999, 11 of the 15 member countries of the European Union are
scheduled to initiate the Euro Conversion. The Company has established a
taskforce to conduct an internal analysis of the effects of the Euro
Conversion on the Company's operations, but the Company is currently unsure of
the potential impact that the Euro Conversion will have on its business,
financial condition and results of operations, particularly as the Euro
Conversion relates to the Company's European operations. See "--Factors
Affecting Future Performance--The Conversion to a Single European Currency May
Adversely Affect the Company."
 
INFLATION
 
  To date, the Company believes inflation has not had a material impact on the
Company's operations.
 
RECENTLY ISSUED PRONOUNCEMENTS
 
  In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires businesses to disclose comprehensive
income and its components in their general-purpose financial statements, with
reclassification of comparative (earlier period) financial statements. The
Company adopted SFAS No. 130 on October 1, 1998. For the fiscal years ended
September 30, 1996, 1997 and 1998, there was no component of comprehensive
income other than those included in net income as presented in the Company's
statements of operations. As a result, the adoption of SFAS No. 130 is not
expected to have a material impact on the presentation of comprehensive income
in the Company's general-purpose financial statements.
 
                                      27
<PAGE>
 
  In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The Company
adopted SFAS No. 131 on October 1, 1998, and expects to make the required
disclosures for the first time in its financial statements for the fiscal year
ending September 30, 1999.
 
  In October 1997, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants issued SOP 97-2
"Software Revenue Recognition," which provides guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions
and supersedes SOP 91-1. The Company adopted the provisions of SOP 97-2 on
October 1, 1998. The Company believes that the adoption of SOP 97-2 will not
have a material impact on its financial position, results of operations or
financial statement disclosures.
 
  In March 1998, the AcSEC issued SOP 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use," which is effective for
fiscal years beginning after December 15, 1998. The Statement distinguishes
accounting for the costs of computer software developed or obtained for
internal use from guidance under SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." The Company will
adopt SOP 98-1 on October 1, 1999. The adoption of SOP 98-1 is not expected to
have a material impact on the Company's software capitalization policies,
financial position, results of operations or financial statement disclosures.
 
                                      28
<PAGE>
 
                     FACTORS AFFECTING FUTURE PERFORMANCE
 
VARIOUS FACTORS OUTSIDE THE COMPANY'S CONTROL MAY AFFECT THE COMPANY'S
OPERATING RESULTS AND CAUSE FLUCTUATIONS IN THE COMPANY'S QUARTERLY RESULTS
 
  The Company's future success depends on a number of factors, many of which
are unpredictable and beyond its control. Moreover, many of these factors are
likely to cause the Company's 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 the Company's license transactions the Company's
       license revenues in any quarter depend substantially on the number and
       size of orders booked and shipped to customers in that quarter;
 
  .    the proportion of the Company's revenues attributable to fees for
       licenses versus fees for services;
 
  .    the proportion of products licensed by the Company that are developed
       by the Company alone versus those developed by a third party alone or
       by the Company in collaboration with a third party;
 
  .    how much money the Company must spend to improve its business and
       expand its operations;
 
  .    changes in the level of the Company's operating expenses;
 
  .    the amount of capital expenditures by the Company's customers;
 
  .    delays in the purchase of the Company's products and services by its
       customers due to customers' budgetary constraints and the time
       customers often require to authorize purchases of the Company's
       products and services;
 
  .    the demand for the Company's products;
 
  .    whether customers accept new and enhanced products and services offered
       by the Company;
 
  .    how quickly the Company is able to develop new products and services
       that its customers require;
 
  .    whether and how quickly alternative technologies, products and services
       introduced by the Company's competitors gain market acceptance;
 
  .    the timing of the introduction of new or enhanced products offered by
       the Company or its competitors;
 
  .    the ability of the Company's Affiliates to sell products or service
       additional sales;
 
  .    the competitive conditions in the Company's industry;
 
  .    whether the Company retains its key employees;
 
  .    whether the Company's business is subject to disruptions resulting from
       Year 2000 computer problems; and
 
  .    prevailing conditions in the ERP marketplace and other general economic
       and political factors.
 
  Due to one or more of these factors, the Company's operating results could
fail to meet the expectations of securities analysts or investors. If that
happens, the price of the Common Stock could decline materially.
 
THE COMPANY'S EXPECTED INCREASE IN ITS PRODUCT DEVELOPMENT EFFORTS WILL
ADVERSELY AFFECT THE COMPANY'S RESULTS OF OPERATIONS
 
  The Company expects to increase its product development expenditures in the
future in an effort to develop new or enhanced products and services. The
increased product development efforts will adversely affect the Company's
operating results because certain costs related to product development are
charged to the Company's product development expense as they are incurred.
 
                                      29
<PAGE>
 
THE COMPANY'S QUARTERLY OPERATING RESULTS ARE SUBJECT TO SEASONAL FLUCTUATIONS
AND ARE DIFFICULT TO PREDICT
 
  The Company's quarterly operating results are subject to seasonal
fluctuations. The Company believes that in the first fiscal quarter (ending
December 31), calendar year-end capital expenditures by certain customers of
the Company and calendar year-end incentives provided by IBM to resellers of
its hardware, which include many of the Company's Affiliates, increase the
Company's overall license revenues. In the Company's fourth fiscal quarter
(ending September 30), the incentives the Company provides to its employees
through its sales compensation plans also increase the Company's license
revenues. In addition, the Company's revenues 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, the Company's quarterly operating results are
difficult to predict. Delays in product delivery or in closings of sales near
the end of a quarter could cause the Company's quarterly revenues to fall
substantially short of the levels the Company anticipates. Moreover, the
Company establishes its spending levels based on its expected future operating
results. If results of operations are less than the Company anticipates, the
Company may not be able to reduce spending levels proportionately. As a
consequence, the Company's operating results, cash flows and liquidity will
likely be adversely affected. These and other factors are likely to continue
to affect the Company's results of operations.
 
  Due to these factors, the Company's operating results could fail to meet the
expectations of securities analysts or investors. If that happens, the price
of the Common Stock could decline materially.
 
THE COMPANY DEPENDS ON A NETWORK OF INDEPENDENT LOCAL COMPANIES TO SELL AND
SUPPORT THE COMPANY'S PRODUCTS
 
  The Company markets and provides professional services for its products
primarily through a network of more than 80 independent local Affiliates. As a
result, the Company maintains a limited direct sales force. The Company relies
on its Affiliates for sales, product implementation, customization and,
outside North America, customer support services that are provided in
conjunction with the Company. If the Company is unable to maintain effective
long-term relationships with its Affiliates, or if its Affiliates fail to meet
the needs of the Company's customers, the Company's business, financial
condition and results of operations would be adversely affected.
 
  From time to time certain of the Company's competitors have established, and
may continue to seek to establish, a comparable distribution channel, in part
by attempting to attract the Company's Affiliates. The Company's agreements
with its Affiliates are generally of short duration. In some instances, either
the Company or its Affiliate can terminate an agreement. If the Affiliates
reduce or discontinue their relationships with the Company or their support of
the Company's products, the Company's business, financial condition and
results of operations would be adversely affected.
 
  In addition, the ability of the Affiliates to meet the needs of the
Company's customers 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. If the Affiliates are unable to attract and retain
sufficient numbers of professional and technical personnel, it could adversely
affect the Company's business, financial condition and results of operations.
 
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. The Company targets its products and services primarily
at the market for business applications software that is used with IBM's
AS/400 series of computers. The Company's competitors offer a variety of
products that address this and similar markets. The Company primarily competes
with a large number of independent software vendors. These competitors
include, among others, Baan Company N.V.; Computer
 
                                      30
<PAGE>
 
Associates, Inc.; Intentia AB; JBA Holdings Plc; J.D. Edwards & Company, Inc.;
SAP AG and System Software Associates, Inc. The Company also competes with
certain vendors of specialized applications. The Company may be unable to
compete successfully with existing or new competitors.
 
  To be successful in the future, the Company must respond promptly and
effectively to changes in technology. It must also respond to its competitors'
innovations. Certain of the Company's competitors have significantly greater
financial, marketing, service, support and technical resources than the
Company. Certain of these competitors also have greater name recognition than
the Company. Accordingly, the Company's competitors may be able to respond
more quickly than the Company 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 than the Company.
 
  The Company expects to face additional competition as other established and
emerging companies enter the market for business software that is used with
IBM's AS/400 series of computers 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 the Company's 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 ERP market.
For the Company, this could result in fee rate reductions, the loss of current
or prospective customers, fewer customer orders and reduced net income. In
addition, the Company principally relies on its network of Affiliates for the
implementation and support of its products. If the Affiliates fail to maintain
sufficiently high quality standards, the Company's reputation and competitive
position could weaken. Any or all of these events could materially and
adversely affect the Company's business, financial condition and results of
operations.
 
THE COMPANY DEPENDS ON ITS RETENTION OF KEY PERSONNEL AND ITS ABILITY TO
ATTRACT AND RETAIN OTHER QUALIFIED PERSONNEL
 
  The Company's 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 the Company's business, financial condition and
results of operations. The Company's future financial results also will depend
upon its ability to attract and retain highly skilled technical, managerial
and marketing personnel. The Company currently maintains no key-person life
insurance on any of its key employees.
 
  Competition for qualified personnel is intense and is likely to intensify in
the future. The Company competes for qualified personnel against numerous
companies, including larger, more established companies with significantly
greater financial resources than those of the Company. The Company has at
times experienced and continues to experience difficulty recruiting and
retaining qualified personnel. If the Company is unable to hire and retain
qualified personnel in the future, it could materially and adversely affect
its business, financial condition and results of operations.
 
THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY MANAGE ITS GROWTH
 
  The Company's business has grown rapidly in the last four years. This recent
growth has strained, and may continue to strain, the Company's management and
systems. The Company's future operating results depend in part on the ability
of its officers and other key employees to continue to implement and improve
the Company's operational and financial controls, to expand, train and manage
its employees effectively and to successfully develop new products and
enhancements to existing products. The Company's growth also depends upon its
Affiliates' ability to grow, to manage this growth and to implement the
Company's products in response to the projected demands of the Company's
customers. The Company cannot assure that it or its Affiliates will be able to
manage any future expansion successfully. If the Company and its Affiliates
are unable to do so, it would materially and adversely affect the Company's
business, financial condition and results of operations.
 
                                      31
<PAGE>
 
THE COMPANY IS SUBJECT TO RISKS RESULTING FROM RAPID TECHNOLOGICAL CHANGE AND
EVOLVING INDUSTRY STANDARDS
 
  The market for the Company's ERP software products is constantly changing.
These changes include, among others:
 
  .  rapid technological advances,
 
  .  evolving industry standards in computer hardware and software
     technology,
 
  .  changes in customer requirements and
 
  .  frequent new product introductions and enhancements.
 
  The Company's future success depends upon its ability to continue to enhance
its products. Its success also depends upon its ability to develop and
introduce new products that keep pace with technological developments, satisfy
increasingly sophisticated customer requirements and achieve market
acceptance. In particular, the Company must anticipate and respond adequately
to advances in standard business applications software, client/server
solutions, object-oriented technology and Internet technology. If the Company
is unable to develop and market new products and product enhancements that
achieve market acceptance on a timely and cost-effective basis, it could
materially and adversely affect its business, financial condition and results
of operations.
 
  As a result of the high level of functionality and performance demanded by
ERP software customers, major new products and product enhancements can
require long development and testing periods. Despite testing, however, the
complex ERP software programs offered by the Company may contain errors that
customers discover only after the programs have been installed and used.
Undetected errors may impair the market acceptance of the Company's products
or adversely affect the Company's business, financial condition and results of
operations. Problems encountered by customers installing and implementing the
Company's new products or releases or with the performance of new products,
including product functionality, product response time and program errors,
also could adversely affect the Company's business, financial condition and
results of operations.
 
THE COMPANY'S PRODUCT DEVELOPMENT AND ENHANCEMENT EFFORTS DEPEND IN PART ON
OTHER SOFTWARE COMPANIES
 
  The Company developed several of its applications in collaboration with
other software companies, referred to by the Company as "Solution Partners."
The Company expects 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 the Company. Under a license agreement between
the Company and a Solution Partner, the Company ordinarily is obligated to pay
a royalty to the Solution Partner for sales of the applications developed by
the Solution Partner. If the Company fails to pay the required royalty when
due or otherwise breaches the license agreement, 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 the Company's business, financial condition and results of
operations. In addition, the Company is generally entitled to obtain a non-
exclusive license to the source code for an application if the Solution
Partner fails to maintain or update the application, goes out of business or
otherwise breaches the terms of the license agreement. The Company, however,
may not be able to maintain or upgrade the application adequately or on a
timely basis. If the Company is not able to do so, it could adversely affect
its business, financial condition and results of operations.
 
  The Company's success depends in part on its continued ability to license
applications from Solution Partners. However, Solution Partners may not be
available to develop or support applications for the Company in the future.
Even if available, Solution Partners may not complete applications for the
Company on a timely basis and within acceptable guidelines. Accordingly, the
Company cannot assure that it will be able to license applications from
Solution Partners on terms acceptable to the Company, or at all.
 
                                      32
<PAGE>
 
  As part of its strategy to develop new applications, the Company recently
commenced a joint development relationship with another software company,
referred to by the Company as a "Technology Alliance." Through a Technology
Alliance, the Company shares the development costs of an application and
acquires rights to it. The Company also builds development expertise for the
application internally so that it can enhance and support the application.
Technology Alliances involve a number of risks. These risks include, among
others:
 
  .  the Company's investment of substantial resources in Technology
     Alliances may divert resources from other areas of the Company's
     business;
 
  .  the Company may fail to realize the intended benefits of Technology
     Alliances;
 
  .  the Company will increase its reliance on others for product development
     and support;
 
  .  the Company may be required to pay license fees or royalties to a third
     party for the use of applications or other technology developed through
     a Technology Alliance;
 
  .  the Company may lose key employees to partners in Technology Alliances;
     and
 
  .  the Company may inadvertently transfer its proprietary technology to
     partners in Technology Alliances, some or all of which may be or become
     competitors of the Company.
 
  A partner in a Technology Alliance may also have or develop a relationship
with the Company's existing or prospective customers. The partner could use
this relationship to become a competitor of the Company. If the partner is
already a competitor of the Company, it may use this relationship to enhance
its competitive position. The partner could, as a competitor or otherwise,
cause the Company to lose existing or prospective customers. The Company
cannot assure that it will be successful in identifying and entering into
Technology Alliances. In addition, it cannot assure that, if entered into,
Technology Alliances will provide the results the Company expects. Moreover,
if the Company successfully identifies and enters into Technology Alliances,
the occurrence of any of the events described above could materially and
adversely affect the Company's business, financial condition and results of
operations.
 
THE COMPANY DEPENDS ON IBM'S A/S 400 SERIES OF COMPUTERS AND MAY NOT BE ABLE
TO EFFECTIVELY DEVELOP PRODUCTS THAT USE INDEPENDENT SERVER PLATFORMS
 
  Substantially all of the Company's revenues have been derived from products
designed to operate primarily on IBM's AS/400 series of computers and the
related OS/400 operating system. Therefore, the Company's future revenues from
initial and periodic license fees will primarily depend upon the continued
widespread use of the AS/400 series of computers and IBM's continued support
of these computers. Any decline in customers' use or in IBM's support and
marketing of the AS/400 series of computers would adversely affect the
Company's business, financial condition and results of operations. The Company
has devoted a significant part of its resources to develop and support
business software that uses the AS/400 series of computers. The Company's
future success depends in part on its continued devotion of significant
resources to further develop and support products that are used on these
computers.
 
  The Company plans to develop new products for use on independent server
platforms, as well as the A/S 400 series of computers. However, the Company's
existing and potential new customers may not choose to purchase the Company's
products if the customers decide to use independent server platforms instead
of the A/S 400 series of computers. If a significant number of the Company's
existing or potential customers decide to use independent server platforms,
the Company would be required to expend substantial resources to develop new
software that could be used on these platforms. This expenditure would
materially and adversely affect the Company's business, financial condition
and results of operations. Moreover, the Company may not be able to develop
the required new software on a timely basis, or at all. This would likely
result in the loss of existing and potential customers and would materially
and adversely affect the Company's business, financial condition and results
of operations. Similarly, to retain its AS/400 customers, the Company may be
required to adapt its products to any changes made in the OS/400 operating
system in the future. If the Company is unable to adapt to these future
changes, or the Company delays in doing so, it could materially and adversely
affect the Company's business, financial condition and results of operations.
 
                                      33
<PAGE>
 
THE COMPANY IS SUBJECT TO RISKS ASSOCIATED WITH MAKING ACQUISITIONS AND MAY
NOT BE ABLE TO GROW THROUGH ACQUISITIONS
 
  As part of its business strategy, the Company continually evaluates
potential acquisitions of complementary technologies, products and businesses
in the ERP market. In its pursuit of acquisitions, the Company may be unable
to:
 
  .  identify suitable acquisition candidates;
 
  .  compete for acquisitions with other companies, many of which have
     substantially greater resources than the Company;
 
  .  obtain sufficient financing on acceptable terms to fund acquisitions;
 
  .  complete the acquisitions;
 
  .  complete the acquisitions on terms favorable to the Company;
 
  .  integrate acquired technologies, products and businesses into its
     existing operations; and
 
  .  profitably manage acquired technologies, products and businesses.
 
  Acquisitions may also involve a number of risks including, among others,
that:
 
  .  technologies, products or businesses acquired by the Company may not
     perform as expected;
 
  .  technologies, products or businesses acquired by the Company may not
     achieve levels of revenues, profitability or productivity comparable to
     those of the Company's existing technologies, products and operations;
 
  .  acquisitions may adversely affect the Company's results of operations;
 
  .  acquisitions may divert the attention of management and the Company's
     resources;
 
  .  the Company may experience difficulty in assimilating the acquired
     operations and personnel; and
 
  .  the Company may experience difficulty in retaining, hiring and training
     key personnel.
 
  Any or all of these risks could materially and adversely affect the
Company's business, financial condition or results of operations. Currently
the Company is not a party to any written agreements with regard to any
material acquisitions.
 
THE COMPANY IS SUBJECT TO RISKS ARISING FROM THE DISTRIBUTION AND ITS
RELATIONSHIP WITH MARCAM SOLUTIONS
 
  The Company has entered into agreements with Marcam Solutions that govern
certain aspects of their relationship on an ongoing basis. For example, these
agreements contain provisions which require the Company and Marcam Solutions
to indemnify each other for certain liabilities, including liabilities related
to the Distribution. These agreements may be material to the conduct of the
Company's business. In addition, prior to the Distribution, the business
currently conducted by Marcam Solutions was conducted through Marcam
Corporation, the Company's predecessor. As a result, the Company may become
liable for the obligations and other liabilities of Marcam Solutions arising
from conduct prior to the Distribution. If, for example, Marcam Solutions
cannot satisfy its obligations to third parties under agreements entered into
prior to the Distribution, the Company may become liable for these
obligations. If Marcam Solutions fails to perform these obligations and
satisfy these liabilities, it may materially and adversely affect the
Company's business, financial condition and results of operations.
 
                                      34
<PAGE>
 
THE COMPANY'S 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 the Company's
combined financial statements and other financial information as of dates and
for periods prior to the Distribution, management has allocated certain
expenses based on its 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 the Company's
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 reflect the Company's financial
position, results of operations and cash flows in the future. In particular,
the Company's combined financial statements and other financial information as
of dates and for periods prior to the Distribution:
 
  .  may not indicate what the Company's results of operations, financial
     position and cash flows would have been had the MAPICS business been a
     separate, stand-alone entity as of those dates and for those periods;
 
  .  contain allocations of certain costs and expenses based on management's
     estimates of the cost of services provided to the MAPICS business by
     Marcam Corporation;
 
  .  do not reflect the changes in the Company's financial position, results
     of operations and cash flows resulting from the Distribution and the
     related transactions; and
 
  .  include certain assets, liabilities, revenues and expenses that were not
     historically recorded at the entity level by Marcam Corporation, but
     were associated with the MAPICS business.
 
THE COMPANY DEPENDS ON THE WORLDWIDE MANUFACTURING INDUSTRY
 
  The Company's business depends substantially upon the capital expenditures
of mid-sized 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 the Company's target market to reduce or postpone capital expenditures on
business information systems. This change in the amount or timing of capital
expenditures by mid-sized manufacturers could materially and adversely affect
the Company's business, financial condition and results of operations.
 
THE COMPANY MAY NOT BE SUCCESSFUL IN PROTECTING ITS PROPRIETARY RIGHTS OR IN
AVOIDING CLAIMS THAT IT INFRINGES THE PROPRIETARY RIGHTS OF OTHERS
 
  The Company's success depends heavily upon the protection of its proprietary
software. The Company relies on a combination of copyright, trademark and
trade secret laws and license and non-disclosure agreements to establish and
protect its proprietary rights in its products. To further protect these
rights, the Company (1) enters into confidentiality and/or license agreements
with its employees, distributors, contractors, customers and potential
customers and (2) limits access to and distribution of its software,
documentation and other proprietary information. Despite these precautions, an
unauthorized person could copy or reverse-engineer certain portions of the
Company's products or obtain and use information that the Company regards as
proprietary. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as do the laws of the
United States. Accordingly, the Company cannot assure that its steps to
protect its software will be adequate. Moreover, the Copmany's competitors may
independently develop software products that are substantially equivalent or
superior to the Company's software products.
 
  The Company may receive notices claiming that it is infringing the
proprietary rights of others. Third parties could also institute legal
proceedings against the Company claiming that the Company's current or future
products infringe their proprietary rights. Alternatively, the Company may
make claims or initiate litigation against others for infringement of the
Company's proprietary rights or to establish the validity of the Company's
proprietary rights. Any claims against the Company, with or without merit, or
claims by the Company against
 
                                      35
<PAGE>
 
others could be time consuming and expensive to defend, prosecute or resolve.
In addition, these claims could cause product shipment delays or force the
Company 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 the Company to significant
liabilities to others, (2) require the Company to allocate significant
resources to develop non-infringing technology, (3) require disputed rights to
be licensed from others or (4) prohibit the Company from using certain
marketing materials or products. If the Company is required to license
proprietary rights from others or it wishes to do so, the Company cannot
assure that the necessary licenses will be available on terms that are
acceptable to the Company, or at all. One or more of these events could
materially and adversely affect the Company's business, financial condition
and results of operations.
 
THE COMPANY IS SUBJECT TO THE RISK OF PRODUCT LIABILITY CLAIMS
 
  The Company's products are generally used to manage data critical to large
organizations. As a result, the Company's development, sale and support of
products may entail the risk of product liability claims. The Company's
license agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential product liability claims. However,
these provisions may not be effective under the laws of all jurisdictions. The
insurance maintained by the Company may not be sufficient in scope or amount
to cover all personal injury, property damage and other claims if the
limitations on the Company's liability contained in its license agreements are
ineffective. A successful product liability claim brought against the Company
could therefore materially and adversely affect the Company's business,
financial condition and results of operations. In addition, defending such a
suit, regardless of its merits, could require the Company to incur substantial
expense and require the time and attention of key management personnel. This
could also materially and adversely affect the Company's business, financial
condition and results of operations.
 
THE COMPANY'S STOCK PRICE WILL FLUCTUATE, AND COULD FLUCTUATE SIGNIFICANTLY
 
  The market price of the Common Stock has fluctuated significantly in the
past and will continue to fluctuate in the future. Various factors and events
have caused this fluctuation and are likely to continue to cause the market
price of the Common Stock to fluctuate. These include, among others:
 
  .  quarterly variations in the Company's actual or anticipated operating
     results;
 
  .  the depth and liquidity of the trading market for the Common Stock;
 
  .  growth rates;
 
  .  changes by securities analysts in estimates regarding the Company;
 
  .  conditions in the ERP industry;
 
  .  the condition of the stock market;
 
  .  announcements by the Company's competitors;
 
  .  regulatory actions affecting the Company; 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, such as the Company. These
fluctuations may be unrelated to the operating performance of these companies.
Furthermore, the Company's 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 the Common Stock to decline materially.
 
                                      36
<PAGE>
 
THE COMPANY'S INTERNATIONAL OPERATIONS SUBJECT THE COMPANY TO A NUMBER OF
RISKS
 
  A material portion of the Company's business comes from outside the United
States. The Company believes that its continued growth and profitability will
require expansion of its sales in international markets. To expand
international sales successfully, the Company has invested, and will continue
to invest, substantial resources to (1) grow its existing foreign operations,
(2) establish new foreign operations, (3) improve existing or establish new
Affiliate relationships and (4) hire additional personnel. International
expansion of the Company's operations has required, and will continue to
require, the Company to localize its applications and translate them into
foreign languages. If the Company cannot expand its international operations
or localize and translate its applications in a timely and accurate manner, it
is likely to impact negatively the Company's operating results. In addition,
even if the Company successfully expands its international operations, the
Company cannot assure that it will be able to maintain or increase its
international market presence or demand for its products.
 
  Risks inherent in the Company's 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 license fees;
 
  .  longer accounts receivable payment collection cycles in certain
     countries;
 
  .  burdens of complying with a wide variety of foreign laws and
     regulations;
 
  .  management of an organization spread over various countries;
 
  .  unexpected changes in regulatory requirements;
 
  .  overlap of different tax structures; and
 
  .  effective copyright, trademark and trade secret protection may not be
     available in every foreign country in which the Company sells its
     products.
 
  Any or all of these risks could materially and adversely affect the
Company's business, financial condition and results of operations.
 
  As a result of the continued expansion of the Company's international
operations, the fluctuations in the value of foreign currencies in which the
Company conducts its business may cause the Company to experience currency
transaction gains and losses. To date, currency transaction gains and losses
have not been material to the Company. However, because of the number of
foreign currencies involved, the Company's constantly changing currency
exposure and the volatility of currency exchange rates, the Company cannot
predict the effect of exchange rate fluctuations upon its future operating
results. These currency risks could materially and adversely affect the
Company's business, financial condition and results of operations.
 
THE CONVERSION TO A SINGLE EUROPEAN CURRENCY MAY ADVERSELY AFFECT THE COMPANY
 
  On January 1, 1999, 11 of the 15 member countries of the European Union are
scheduled to adopt the euro as their common legal currency. The Company has
established a taskforce to conduct an internal analysis of the effects that
this conversion to a single European currency will have on the Company.
Currently, however, the Company is unsure of the potential impact that the
conversion will have on its business, particularly as the conversion relates
to its European operations. The conversion may involve a number of risks for
the Company, including:
 
                                      37
<PAGE>
 
  .  increased costs of conducting business during an initial transition
     period in which the operations of the Company and others will be
     conducted in both existing or "legacy" currencies and the euro;
 
  .  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;
 
  .  increased risks of conducting business in multiple currencies resulting
     from, among other things, changes in currency exchange costs;
 
  .  difficulty for the Company and others in the performance of contracts
     requiring payments in legacy currencies;
 
  .  whether the Company will realize taxable gains, and the timing of this
     realization, for its financial instruments that are denominated in
     legacy currencies;
 
  .  third parties such as the Company's customers, suppliers and service
     providers may be unable to operate using the euro; and
 
  .  during the transition from the legacy currencies to the euro, these
     third parties may be unable to operate using both legacy currencies and
     the euro.
 
  Any or all of these risks could materially and adversely affect the
Company's business, financial condition and results of operations.
 
FAILURE TO OBTAIN YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON THE COMPANY
 
  Many existing computer hardware and software systems are designed to use
only two digits to identify a year in date fields (e.g., "98" for "1998").
These systems may not properly recognize a year that begins with "20" instead
of "19." If not corrected, these systems could fail or could create erroneous
results when working with dates beyond the year 1999. This is commonly
referred to as the "Year 2000 issue."
 
  The Company is subject to a number of risks resulting from the Year 2000
issue including, among others, that:
 
  .  existing and future products developed by the Company and its Solution
     Partners may not contain all necessary date code changes to address the
     Year 2000 issue;
 
  .  existing and future products developed by the Company and its Solution
     Partners may contain errors related to the Year 2000 issue that are not
     discovered until a later time;
 
  .  hardware, operating system and application products developed by others
     that interact with MAPICS applications may not be Year 2000 compliant
     and may adversely affect these MAPICS applications;
 
  .  MAPICS products that have been modified by customers or others after the
     products have been installed may not be Year 2000 compliant as a result
     of these modifications;
 
  .  demand for the Company's products is likely to decrease once companies
     have repaired or replaced their existing systems which are not Year 2000
     enabled;
 
  .  demand for the Company's products may decrease if customers are required
     to divert their money and other resources to address Year 2000 issues;
 
  .  the systems used by the Company for its own operations, some of which
     have been developed by others, may not be Year 2000 compliant;
 
  .  the Company's operations may be impacted by Year 2000 issues affecting
     others with whom the Company has relationships, including Affiliates,
     Solution Partners and other vendors (e.g., utilities, distributors,
     banks and other suppliers);
 
                                      38
<PAGE>
 
  .  purchasers of the Company's products that were sold before the Company's
     1995 application releases, which are not Year 2000 enabled, may bring
     Year 2000-related claims against the Company; and
 
  .  customers and others whose operations are interrupted by Year 2000
     problems involving the Company's products may institute "business
     interruption" litigation against the Company.
 
  Any or all of these risks could materially and adversely affect the
Company's business, financial condition and results of operations.
 
  The Company depends on the constant availability of telecommunications
equipment and other utilities to service its customers. As a result, the
Company currently believes that the most reasonably likely worst case Year
2000 scenario would involve the temporary interruption of electric power,
telephone or other utility supplies to the Company's headquarters or its other
customer support facilities due to a failure of a utility supplier to be Year
2000 compliant. Such a failure could materially and adversely affect the
Company's business, financial condition and results of operations.
 
  The foregoing description of risks to the Company resulting from the Year
2000 issue are based on the Company's best current assessment. The Company
cannot assure that this assessment will prove to be accurate. Additional
problems related to the Year 2000 issue which the Company has not yet
identified or fully understands may arise in the future. These additional
problems may cause the Company's current assessment of the Year 2000 issue to
be incorrect. They may also materially and adversely affect the Company's
business, financial condition and results of operations.
 
THE COMPANY HAS ADOPTED MEASURES THAT HAVE ANTI-TAKEOVER EFFECTS AND COULD
LIMIT THE PRICE OF THE COMPANY'S STOCK
 
  Georgia law and the Company's Articles of Incorporation, Bylaws and
shareholder rights plan contain provisions that may (1) make it more difficult
for a third party to acquire the Company, (2) discourage acquisition bids for
the Company, (3) discourage changes in the Company's management and (4) limit
the price that investors are willing to pay for shares of the Common Stock.
The most significant of these provisions are described below.
 
 Certain provisions of Georgia law have anti-takeover effects.
 
  Georgia law prohibits the Company from entering into certain business
combination transactions with any person for a period of five years from the
date the person became an "interested shareholder," unless certain
requirements are satisfied. Generally, an "interested shareholder" is any
person that owns at least 10% of the outstanding voting stock of the Company,
other than the Company and its subsidiaries. Georgia law also requires that
each of these transactions (1) meets certain fair price criteria and other
tests or (2) meets certain requirements relating to approval of the
transaction by the Company's board of directs and shareholders.
 
 The Company has issued preferred stock and may issue additional preferred
stock in the future.
 
  The Company has issued shares of its 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 the Company's board
of directors determines. The rights of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of the preferred
stock.
 
 The Company's Articles of Incorporation and Bylaws contain additional
 provisions that have anti-takeover effects.
 
  The Company's 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 the Company's board of directors and limitation on the
removal of directors could make it more difficult for a potential acquiror of
the Company to gain control of the Company's board of directors. The Company's
Articles of Incorporation and Bylaws contain additional provisions that have
anti-takeover effects.
 
                                      39
<PAGE>
 
 The Company has adopted a shareholder rights plan.
 
  The Company has adopted a shareholder rights plan under which it has
distributed to its shareholders rights to purchase shares of its Series F
Junior Participating Preferred Stock. If certain triggering events occur, the
holders of the rights will be able to purchase shares of Common Stock at a
price substantially discounted from the then applicable market price of the
Common Stock. The shareholder rights plan could increase a potential
acquirer's costs of effecting a merger of the Company or a tender offer for
its outstanding securities that is not approved by the Company's board of
directors. These increased costs could prevent or discourage such a
transaction, even though the Company's shareholders want to vote in favor of
the merger or participate in the tender offer.
 
SHARES OF THE COMPANY'S OUTSTANDING STOCK ARE CURRENTLY ELIGIBLE FOR FUTURE
SALE AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES HAVE REGISTRATION RIGHTS
 
  Sales of a substantial number of shares of Common Stock, or the prospect of
these sales, could adversely affect the market price of the Common Stock.
These sales or the prospect of these sales could also impair the Company's
ability to raise needed funds in the capital markets at a time and price
favorable to the Company. As of December 1, 1998, the Company had a total of
20,323,742 shares of Common Stock outstanding, most of which are freely
tradable without restriction under the Securities Act of 1933. The remaining
outstanding shares will be eligible for sale in the public market at various
times pursuant to Rule 144 of the Securities and Exchange Commission.
 
  As of December 1, 1998, the Company had options outstanding under its stock
option plans for the purchase of a total of 3,146,225 shares of Common Stock
at a weighted average exercise price of $12.05 per share. The Company had
reserved an additional 895,191 shares of Common Stock that it may issue upon
the exercise of options granted in the future under these plans. It had also
reserved 185,184 shares of Common Stock that it may issue under its employee
stock purchase plan. The Company has in effect a registration statement under
the Securities Act of 1933 covering its issuance of shares upon the exercise
of these outstanding options and the Company's issuance of shares under its
employee stock purchase plan. All of these shares will be freely tradable in
the public market, except for shares held by affiliates of the Company, which
will be eligible for public sale at various times pursuant to Rule 144 of the
Securities and Exchange Commission.
 
  The Company has in effect a registration statement under the Securities Act
of 1933 covering the sale of 526,309 shares of Common Stock that the Company
will issue upon the exercise of warrants. These warrants are exercisable at a
price of $6.50 per share. In addition, affiliates of General Atlantic
Partners, LLC have "demand" and "piggy back" registration rights for (1)
1,000,000 shares of Common Stock the Company will issue upon the exercise of
warrants that are exercisable at a price of $11.53 per share, (2) 1,499,990
shares of Common Stock the Company will issue upon the conversion of its
convertible preferred stock and (3) 1,500,010 shares of Common Stock. The
demand registration rights permit the holders of these securities to require
the Company to register the sale of this Common Stock under the Securities Act
of 1933. The piggy back registration rights permit the holders of these
securities to participate in any registration by the Company of the Common
Stock under the Securities Act of 1933. Another shareholder of the Company
also has piggy back registration rights for 250,000 shares of Common Stock the
Company will issue upon the conversion of its convertible preferred stock. If
these holders require the Company to include their shares in a Company-
initiated registration, it could adversely affect the Company's ability to
raise needed capital in the public market at a time and price favorable to the
Company.
 
  The 1,749,990 shares of Common Stock underlying the Company's convertible
preferred stock and the 1,500,010 shares of Common Stock held directly by
affiliates of General Atlantic Partners, LLC currently are eligible for sale
in the public market subject to the conditions of Rule 144 of the Securities
and Exchange Commission. In addition, the 1,000,000 shares of Common Stock
underlying the warrants held by affiliates of General Atlantic Partners, LLC
will be eligible for sale in the public market at any future time or times
permitted by Rule 144.
 
                                      40
<PAGE>
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
  The Company does not engage in trading market risk sensitive instruments.
The Company also does not purchase, for investment, hedging or for purposes
"other than trading," instruments that are likely to expose it to market risk,
whether interest rate, foreign currency exchange, commodity price or equity
price risk, except as discussed in the following paragraph. The Company has
issued no debt instruments, entered into no forward or futures contracts,
purchased no options and entered into no swaps, except as discussed in the
following paragraph.
 
  The Company's foreign operations, primarily those in western Europe,
generate cash which is denominated in foreign currencies. At September 30,
1997 and 1998, cash denominated in foreign currencies was $1,867,000 and
$2,055,000, respectively. From time to time during fiscal 1998, the Company
entered into forward exchange contracts as a hedge against the foreign
currency exchange risk on cash and net receivables denominated in certain
foreign currencies. The Company had no open forward exchange contracts at
September 30, 1998 or at the end of any fiscal quarter during the year ended
September 30, 1998. Moreover, the Company believes that its exposure to
foreign currency exchange rate risk at September 30, 1998 was not material.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Future Performance--The Company's
International Operations Subject the Company to a Number of Risks."
 
  The Company has minimal interest rate risk. A change in either the lender's
Base Rate or LIBOR would affect the rate at which the Company could borrow
funds under the Bank Credit Facility.
 
 
                                      41
<PAGE>
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
  The following is a list of the Consolidated Financial Statements and
Supplemental Financial Information appearing herein:
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
   <S>                                                                    <C>
   Report of Independent Accountants.....................................  43
   Consolidated Balance Sheets as of September 30, 1997 and 1998.........  44
   Consolidated Statements of Operations for the years ended September
    30, 1996, 1997 and 1998..............................................  45
   Consolidated Statements of Equity for the years ended September 30,
    1996, 1997 and 1998..................................................  46
   Consolidated Statements of Cash Flows for the years ended September
    30, 1996, 1997 and 1998..............................................  47
   Notes to Consolidated Financial Statements............................  48
   Supplemental Financial Information....................................  72
</TABLE>
 
                                      42
<PAGE>
 
                       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 and equity and of cash flows present
fairly, in all material respects, the financial position of MAPICS, Inc. and
Subsidiaries at September 30, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles. 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 generally accepted auditing standards 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 the opinion expressed above.
 
                                          PricewaterhouseCoopers LLP
 
Atlanta, Georgia
October 26, 1998, except as
to note 18 for which the
date is October 29, 1998
 
                                      43
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,
                                                            ------------------
                                                              1997      1998
                                                            --------  --------
<S>                                                         <C>       <C>
                          ASSETS
                          ------
Current assets:
  Cash and cash equivalents................................ $  5,562  $ 33,442
  Accounts receivable, net of allowances of $1,702 in 1997
   and $1,989 in 1998 (Note 3).............................   30,364    35,879
  Prepaid expenses and other current assets................    2,583     4,600
  Deferred income taxes, net (Note 9)......................    1,341     1,462
                                                            --------  --------
    Total current assets...................................   39,850    75,383
  Property and equipment, net (Note 4).....................    3,562     5,038
  Computer software costs, net (Note 5)....................   16,615    19,554
  Other intangible assets, net (Note 6)....................    4,809     4,292
  Deferred income taxes, net (Note 9)......................   12,134     5,775
                                                            --------  --------
    Total assets........................................... $ 76,970  $110,042
                                                            ========  ========
           LIABILITIES AND SHAREHOLDERS' EQUITY
           ------------------------------------
Current liabilities:
  Accounts payable......................................... $  6,955  $  8,499
  Accrued expenses and other current liabilities (Note 7)..   20,174    23,496
  Deferred revenues........................................   25,134    31,106
                                                            --------  --------
    Total current liabilities..............................   52,263    63,101
                                                            --------  --------
Commitments and contingencies (Notes 10, 15 and 18)
Shareholders' equity (Note 11):
  Preferred stock, $1.00 par value; 1,000 shares authorized
   Series D convertible preferred stock, 225 shares issued
    and outstanding (liquidation preference of $16,955)....      225       225
   Series E convertible preferred stock, 100 shares issued
    and outstanding (liquidation preference of $7,536).....      100       100
  Common stock, $0.01 par value; 50,000 shares authorized;
   18,499 shares issued and outstanding at September 30,
   1997; 18,891 shares issued and 18,762 shares outstanding
   at September 30, 1998...................................      185       189
  Additional paid-in capital...............................   56,887    61,670
  Accumulated deficit......................................  (32,690)  (13,962)
  Treasury stock-at cost, 129 shares at September 30,
   1998....................................................      --     (1,281)
                                                            --------  --------
    Total shareholders' equity.............................   24,707    46,941
                                                            --------  --------
    Total liabilities and shareholders' equity............. $ 76,970  $110,042
                                                            ========  ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       44
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                      YEARS ENDED SEPTEMBER
                                                               30,
                                                     -------------------------
                                                      1996    1997      1998
                                                     ------- -------  --------
<S>                                                  <C>     <C>      <C>
Revenues:
  License........................................... $45,341 $56,368  $ 79,189
  Services..........................................  32,261  39,036    50,552
                                                     ------- -------  --------
    Total revenues..................................  77,602  95,404   129,741
                                                     ------- -------  --------
Operating expenses:
  Cost of license revenues..........................   6,913   9,816    13,108
  Cost of services revenues.........................   9,499  11,838    14,873
  Selling and marketing.............................  27,851  31,905    48,111
  Product development...............................   6,398  10,259    15,073
  General and administrative........................   5,965   8,256     8,884
                                                     ------- -------  --------
    Total operating expenses........................  56,626  72,074   100,049
                                                     ------- -------  --------
Income from operations..............................  20,976  23,330    29,692
Other:
  Interest income...................................     --       45       816
  Interest expense..................................     --     (263)      (56)
                                                     ------- -------  --------
Income before income tax expense (benefit)..........  20,976  23,112    30,452
Income tax expense (benefit) (Note 9)...............   8,076  (6,004)   11,724
                                                     ------- -------  --------
Net income.......................................... $12,900 $29,116  $ 18,728
                                                     ======= =======  ========
Pro forma for 1996 and 1997 (Note 2):
  Net income per common share (basic) (Note 2)...... $  0.82 $  1.79  $   1.01
                                                     ======= =======  ========
  Net income per common share (diluted) (Note 2).... $  0.70 $  1.47  $   0.81
                                                     ======= =======  ========
  Weighted average number of common shares
   outstanding (basic) (Note 2).....................  15,717  16,239    18,579
                                                     ======= =======  ========
  Weighted average number of common shares and
   common equivalent shares outstanding (diluted)
   (Note 2).........................................  18,514  19,810    23,100
                                                     ======= =======  ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       45
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF EQUITY
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                          SERIES D AND E
                           CONVERTIBLE                                             RETAINED
                         PREFERRED STOCK    COMMON STOCK   ADDITIONAL    NET       EARNINGS   TREASURY STOCK
                         ---------------- ----------------  PAID-IN   TRANSFERS  (ACCUMULATED --------------   TOTAL
                         SHARES PAR VALUE SHARES PAR VALUE  CAPITAL     COST       DEFICIT)   SHARES  COST     EQUITY
                         ------ --------- ------ --------- ---------- ---------  ------------ ------ -------  --------
<S>                      <C>    <C>       <C>    <C>       <C>        <C>        <C>          <C>    <C>      <C>
Balance as of
 September 30, 1995.....                                              $ (7,206)    $ 18,698                   $ 11,492
 Net transfers to Marcam
  Corporation...........                                               (15,199)                                (15,199)
 Net income.............                                                             12,900                     12,900
                                                                      --------     --------                   --------
Balance as of September
 30, 1996...............                                               (22,405)      31,598                      9,193
 Net transfers to Marcam
  Corporation...........                                                (6,999)                                 (6,999)
 Transfer of cash to
  Marcam Solutions......                                               (39,000)                                (39,000)
 Assumption of Marcam
  Corporation's
  subordinated notes....                                               (25,000)                                (25,000)
 Assumption of Marcam
  Corporation's capital
  stock.................  325     $325    11,547   $115                 93,404      (93,404)                       440
 Net income.............                                                              8,444                      8,444
                          ---     ----    ------   ----               --------     --------                   --------
Balance as of July 29,
 1997...................  325      325    11,547    115               $    --       (53,362)                   (52,922)
                                                                      ========
 Issuance of common
  stock, net of costs...                   6,900     69     $55,892                                             55,961
 Stock options
  exercised.............                      52      1         451                                                452
 Cumulative tax benefit
  associated with
  exercise of stock
  options (Note 17).....                                        544                                                544
 Net income.............                                                             20,672                     20,672
                          ---     ----    ------   ----     -------                --------                   --------
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 issued to
  directors.............                       2    --           29                                                 29
 Tax benefit associated
  with exercise of stock
  options and stock
  awards
  (Note 17).............                                        903                                                903
 Deferred stock
  compensation..........                                        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
                          ===     ====    ======   ====     =======                ========    ===   =======  ========
</TABLE>
 
 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       46
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                  YEARS ENDED SEPTEMBER 30,
                                                  ----------------------------
                                                    1996      1997      1998
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Cash flows from operating activities:
 Net income...................................... $ 12,900  $ 29,116  $ 18,728
 Adjustments to reconcile net income to net cash
  provided by
  operating activities:
  Depreciation...................................      954     1,394     1,852
  Amortization...................................    3,788     5,708     7,537
  Provision for bad debts........................      399       956       570
  Deferred income taxes..........................      688   (13,815)    7,141
  Deferred stock compensation....................      --        --        231
  Stock issued to directors......................      --        --         29
  Changes in operating assets and liabilities:
   Accounts receivable...........................     (501)  (10,732)   (6,085)
   Prepaid expenses and other current assets.....     (118)   (1,818)   (2,017)
   Accounts payable..............................    1,071     1,647     1,544
   Accrued expenses and other current
    liabilities..................................      784     8,717     3,322
   Deferred revenues.............................    3,357     6,571     5,972
                                                  --------  --------  --------
    Net cash provided by operating activities....   23,322    27,744    38,824
                                                  --------  --------  --------
Cash flows from investing activities:
 Purchases of property and equipment.............   (1,613)   (1,964)   (3,328)
 Additions to computer software costs............   (6,358)   (5,450)   (6,984)
 Purchases of computer software..................      --     (1,000)   (2,975)
                                                  --------  --------  --------
    Net cash used for investing activities.......   (7,971)   (8,414)  (13,287)
                                                  --------  --------  --------
Cash flows from financing activities:
 Proceeds from stock options exercised...........      --        452     3,291
 Proceeds from employee stock purchases..........      --        --        333
 Acquisitions of treasury stock..................      --        --     (1,281)
 Cash transferred to Marcam Solutions in
  connection with the Distribution...............      --    (39,000)      --
 Principal repayment on subordinated notes
  assumed from Marcam Corporation................      --    (25,000)      --
 Principal borrowings on notes payable...........      --     64,000       --
 Principal repayments on notes payable...........      --    (64,000)      --
 Proceeds from issuance of common stock..........      --     62,100       --
 Costs associated with issuance of common stock..      --     (6,139)      --
 Net transfers to Marcam Corporation (Note 14)...  (15,199)   (6,559)      --
                                                  --------  --------  --------
    Net cash (used for) provided by financing
     activities..................................  (15,199)  (14,146)    2,343
                                                  --------  --------  --------
 Net increase in cash and cash equivalents.......      152     5,184    27,880
 Cash and cash equivalents at beginning of
  period.........................................      226       378     5,562
                                                  --------  --------  --------
 Cash and cash equivalents at end of period...... $    378  $  5,562  $ 33,442
                                                  ========  ========  ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       47
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. BUSINESS AND BASIS OF PRESENTATION
 
 Reporting Entity
 
  MAPICS, Inc. ("MAPICS" or the "Company"), formerly known as Marcam
Corporation, was incorporated in Massachusetts in 1980 and reincorporated in
Georgia in 1998. The Company was organized as a consulting company to help
manufacturers improve manufacturing efficiency through implementation and
customization of International Business Machines Corporation's ("IBM")
manufacturing software. Over time, the Company developed a number of software
applications, further described below, to address the needs of continuous flow
process manufacturing companies.
 
  In February 1993, the Company acquired from IBM the exclusive worldwide
marketing rights to the MAPICS product line, which addresses the software
needs of discrete and batch-process manufacturers, for 25 years. Marcam
Corporation also acquired from IBM the option to purchase the MAPICS product
line and certain related intellectual property rights. In September 1995, the
Company exercised its option and acquired from IBM all of the outstanding
stock of the company that owned the MAPICS product line. Through the acquired
MAPICS product line and its existing PRISM, ProteanTM and AvantisTM software
product lines, the Company offered comprehensive business planning and control
solutions to the production, logistics, asset management and financial
requirements of manufacturing companies worldwide.
 
  In April 1997, the Company's board of directors authorized management of the
Company to proceed with the separation of Marcam Corporation into two publicly
traded corporations. The separation was designed to enable each company to
better focus on its core markets, to better serve its existing customers and
to better finance its business.
 
  On July 25, 1997, the Company transferred substantially all of the business,
assets and liabilities relating to its PRISM, Protean and Avantis product
lines, which address the needs of continuous flow process manufacturers, and
$39.0 million in cash to a newly formed wholly owned subsidiary, Marcam
Solutions, Inc. ("Marcam Solutions"). The Company borrowed $64.0 million from
a bank (the "Debt Financing") to fund the $39.0 million cash transfer to
Marcam Solutions and to repay Marcam Corporation's $25.0 million 9.82%
Subordinated Notes due 2001 (the "Subordinated Notes"). The accompanying
financial statements of the Company reflect the assumption and repayment of
the Subordinated Notes, excluding the prepayment penalty and accrued interest
which were recorded by Marcam Solutions.
 
  On July 29, 1997, the Company spun off to its shareholders, in a tax-free
distribution (the "Distribution"), all of the shares of common stock of Marcam
Solutions. In connection with the Distribution, Marcam Corporation changed its
name to MAPICS, Inc. and thereafter continues the operations related to the
MAPICS product line, which addresses the needs of discrete and batch-process
manufacturers.
 
  Although the common stock of Marcam Solutions was distributed to the
Company's shareholders, the Distribution was recorded for accounting purposes
as a disposition by Marcam Solutions of the MAPICS business, due to the
relative significance of the PRISM, Protean and Avantis product lines at the
time of the Distribution.
 
  During August 1997, the Company obtained a senior secured term loan and
revolving credit facility (the "Bank Credit Facility") to repay a portion of
the borrowings from the Debt Financing and for general corporate purposes.
 
  Also in August 1997, the Company completed an underwritten public offering
of 6.9 million shares of its Common Stock (the "1997 Offering") raising net
proceeds of approximately $56.0 million, after deducting offering costs of
approximately $6.1 million. The net proceeds of the 1997 Offering along with
borrowings of $6.4 million under the term loan portion of the Bank Credit
Facility and working capital of $1.6 million were used to repay the $64.0
million of indebtedness from the Debt Financing.
 
                                      48
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Prior to the Distribution, the Company and Marcam Solutions entered into
various agreements providing for the separation of the product lines and
governing various ongoing relationships between the two companies, including a
distribution agreement, a general services agreement and a tax sharing
agreement.
 
 Basis of Presentation
 
  The statements of operations, equity and cash flows for the years ended
September 30, 1996 and 1997 have been prepared using Marcam Corporation's
historical basis in the assets and liabilities and historical results of
operations of the business related to the MAPICS product line. These financial
statements are combined and generally reflect the financial position, results
of operations and cash flows of the MAPICS business as if it were a separate
entity for these periods. Certain costs and expenses presented in the
financial statements for the years ended September 30, 1996 and 1997 have been
allocated based on management's estimates of the cost of services provided to
the MAPICS business by Marcam Corporation. Management believes these
allocations are reasonable. However, the financial information included herein
may not necessarily reflect the financial position, results of operations and
cash flows of the Company in the future or what they would have been had the
MAPICS business been a separate entity during the years ended September 30,
1996 and 1997.
 
  The financial statements as of dates and for periods after the Distribution,
including the balance sheets as of September 30, 1997 and 1998 and the
statements of operations, equity and cash flows for the year ended September
30, 1998, are consolidated and consist solely of the separate financial
statements of MAPICS, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
 
 Nature of the Business
 
  The Company is a business software company whose primary customers are
discrete and batch process manufacturers. The Company delivers Enterprise
Resource Planning ("ERP") software that allows its customers to automate the
manufacturing process and coordinate multiple functions and departments within
their organizations, as well as extend their interactions with their supply
chain partners. The MAPICS XA product line currently consists of 49 integrated
applications in the areas of Engineering Management, Demand Management,
Operations Management, Resource Planning, Financial Management and Business
Management. The primary channel for selling and implementing the MAPICS
products is a network of more than 80 independent local companies
("Affiliates") that sell to customers located in more than 70 countries around
the world. In addition to providing customers with high quality and cost-
effective local implementation, consulting and other professional services,
the Affiliate channel provides the Company with an attractive variable cost
structure for sales and marketing. The Company also provides services to
customers in the form of product support. The Company's primary geographic
markets include North America; the Europe, Middle East and Africa region
("EMEA"); and the Latin America and Asia Pacific regions.
 
  The Company operates on a fiscal year ending September 30th. As used herein,
the terms "fiscal 1994," "fiscal 1995," "fiscal 1996," "fiscal 1997" and
"fiscal 1998" refer to the Company's fiscal years ended September 30, 1994,
1995, 1996, 1997 and 1998, respectively.
 
                                      49
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
2. SIGNIFICANT ACCOUNTING POLICIES
 
 Use of Estimates by Management
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions. These estimates and assumptions affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. The most significant estimates
included in these financial statements are the valuation of accounts
receivable, computer software costs, other intangible assets and deferred
income taxes and the allocation of corporate expenses from Marcam Corporation
to the MAPICS business for periods prior to the Distribution. Actual results
may differ from estimates.
 
 Cash and Cash Equivalents
 
  The Company considers 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, 1997 and 1998, substantially all cash and cash equivalents
were on deposit with three and four financial institutions, respectively. The
carrying amount of cash equivalents is a reasonable estimate of its fair
value. As of September 30, 1997 and 1998, cash and cash equivalents included
$1,867,000 and $2,055,000, respectively, denominated in foreign currencies.
 
  In addition to cash and cash equivalents, financial instruments which
potentially expose the Company to concentrations of credit risk consist
primarily of accounts receivable. The Company provides credit, in the normal
course of business, to various types and sizes of manufacturers located
throughout the world. As a result, management believes that concentration of
credit risk with respect to trade accounts receivable is not significant.
 
 Property and Equipment
 
  Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method based upon the following estimated useful lives:
 
<TABLE>
     <S>                         <C>
     Furniture and fixtures..... 4 years
     Computer equipment......... 4 years
     Leasehold improvements..... Shorter of lease term or useful life of asset
</TABLE>
 
 Computer Software Costs
 
  The Company charges 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 costs are
capitalized and thereafter reported on the balance sheet in computer software
costs at the lower of unamortized cost or net realizable value. Computer
software costs represent the costs of certain software products sold or to be
sold by the Company, including purchased software costs, software development
costs and costs incurred to translate software into various foreign languages.
Amortization of computer software costs commences upon general release of the
product to customers and is computed product-by-product based on the greater
of the amount determined using (a) the ratio that current period gross
revenues bear to the total of current and anticipated future gross revenues or
(b) the straight-line method over the estimated economic life of the product,
generally five years for purchased software
 
                                      50
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
costs and software development costs and two years for software translation
costs. The Company evaluates the realizability of computer software costs
based on expected revenues from the related product over the remaining product
life. Where future revenues are not expected to cover the related unamortized
computer software costs, the Company either accelerates amortization or
expenses the remaining unamortized amounts.
 
  Amortization of computer software costs is included in cost of license
revenues in the statement of operations. 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.
Amortization of computer software costs was $3,148,000, $5,192,000 and
$7,020,000 in fiscal 1996, fiscal 1997 and fiscal 1998, respectively. In
fiscal 1997, the Company shortened the estimated useful life of its fiscal
1997 and future computer software translation costs from five years to two
years. This change in estimate decreased net income in fiscal 1997 by
$446,000, or $0.03 per common share (basic) and $0.02 per common share
(diluted).
 
 Other Intangible Assets
 
  Other intangible assets represent certain intangible assets which resulted
from the acquisition of the MAPICS business in 1993. These intangible assets
are being amortized to cost of license revenues using the straight-line method
over the estimated lives of the intangible assets. The installed customer base
and affiliate network is being amortized over fifteen years; and trade names,
trademarks and goodwill are being amortized over ten years. At each balance
sheet date, a determination is made by management to ascertain whether the
intangible assets have been impaired based on several criteria, including but
not limited to sales trends, undiscounted operating cash flows and other
operating factors.
 
 Divisional Equity
 
  Divisional equity includes the accumulated retained earnings of the MAPICS
business, net transfers from the MAPICS business to Marcam Corporation and
current period income for the periods presented in the statements of equity
through the Distribution. For financial reporting purposes, the Company's
financial statements reflect the assumption of Marcam Corporation's capital
structure as of the Distribution.
 
 Foreign Currency Translation
 
  The majority of the Company's revenues from foreign operations are
denominated in local currencies. The functional currency for each of the
Company's foreign operations is generally its local currency. Assets and
liabilities of foreign operations are translated into United States dollars at
period-end rates of exchange. Revenues and expenses are translated into United
States dollars at the average rates for the periods. The resultant translation
gains and losses are immaterial for all periods presented. Foreign currency
transaction gains and losses and the effects of exchange rate changes on cash
are immaterial for all periods presented.
 
 Revenue Recognition
 
  The Company generates revenues primarily from licensing its software, which
is conducted through a global network of independent Affiliates. The
Affiliates provide the principal channel through which the Company's products
are distributed to its customers. However, the ultimate customer typically
executes a license agreement directly with the Company rather than the
Affiliate.
 
  The Company recognizes revenue from software licensing in accordance with
the guidance provided by Statement of Position ("SOP") 91-1, "Software Revenue
Recognition." The Company generally recognizes revenue from the licensing of
its software upon: (i) the signing of a license agreement between the Company
and the ultimate customer; (ii) delivery of the software to the customer or to
a location designated by the
 
                                      51
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
customer; (iii) determination that collection of the related receivable is
probable; and (iv) expiration of any contractual rights of acceptance or
return. Under the terms of the Company's license agreements, the customer is
responsible for installation and training. At the time the Company recognizes
revenue from the licensing of software, no significant vendor obligations
remain and the costs of insignificant obligations, if any, are accrued.
Revenue from the licensing of software is included in license revenues, and
the related commissions paid to Affiliates are included in selling and
marketing expenses.
 
  The Company recognizes services revenues from its periodic license fees
ratably over the terms of the periodic license agreements. The periodic
license fee, which is typically payable annually in advance, entitles the
customer to continue using the software and to receive certain support
services, as available.
 
  The Company has no commitment to reimburse the Affiliates for any losses
incurred.
 
 Advertising Costs
 
  The Company expenses advertising costs as incurred. Advertising expenses in
fiscal 1998 were $1,346,000. Advertising expenses are immaterial for all other
periods presented.
 
 Allocated Costs
 
  Expenses in the Company's financial statements for periods prior to the
Distribution have been allocated based on a variety of methods depending on
the nature of the expense. Such allocation methods include proportional MAPICS
product revenues to total Marcam Corporation revenues, headcount equivalents
and management estimates. These amounts approximate management's estimates of
Marcam Corporation's corporate costs to support the MAPICS-related operations.
An allocation of corporate marketing expenses, corporate product development
expenses and corporate administrative functions (including data services,
employee benefits, legal, insurance, accounting and other corporate overhead)
has been included in the selling and marketing, product development and
general and administrative operating expenses in the statements of operations.
 
 Stock-Based Compensation
 
  The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its stock option plans and its employee stock purchase plan and
has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Accordingly, the Company does not recognize compensation
expense for stock options issued to its directors, officers or employees.
 
  The Company recognizes compensation expense on a pro-rata basis over the
performance period for Common Stock to be issued pursuant to performance units
issued under its 1998 Long-Term Incentive Plan based on the current fair value
of the estimated shares to be issued in the future with consideration given to
the likelihood that the performance objectives will be met. The cumulative
amount of this deferred stock compensation is reflected as a component of
additional paid-in capital.
 
 Income Taxes
 
  The Company accounts for income taxes using the asset and liability method
as prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates applied to taxable income. The effect on deferred tax assets and
liabilities of a change in tax
 
                                      52
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
rates is recognized in income in the period that includes the enactment date.
A valuation allowance is provided for deferred tax assets when management
believes it is more likely than not that the assets, or a portion thereof,
will not be realized.
 
  Prior to the Distribution, the operations represented by the MAPICS business
were included in the consolidated United States federal and certain state and
foreign income tax returns filed by Marcam Corporation. For financial
reporting purposes, income tax expense in the financial statements has been
calculated on a separate-return basis for all periods presented through the
Distribution. Income taxes paid by the MAPICS business to Marcam Corporation
have been included in the determination of divisional equity for the periods
presented through the Distribution. After the Distribution, the Company is
responsible for any tax obligations arising from its operations and files
separate income tax returns.
 
  Pursuant to a tax sharing agreement between the Company and Marcam
Solutions, the Company became entitled to utilize certain favorable income tax
attributes (principally net operating loss carryforwards and tax credits) of
Marcam Corporation immediately following the Distribution.
 
 Computation and Presentation of Net Income per Common Share
 
  Net income per common share presented in the statements of operations for
fiscal 1996 and fiscal 1997 was calculated using the capital structure of
Marcam Corporation for periods prior to the Distribution, including the
weighted average number of common and common share equivalents, giving effect
to the Distribution on a pro forma basis for all periods presented through the
Distribution.
 
  On October 1, 1997, the Company adopted SFAS No. 128, "Earnings Per Share"
and has restated earnings per share ("EPS") data for all prior periods where
applicable. SFAS No. 128 requires the Company to present "basic" and "diluted"
EPS for all periods presented in the statements of operations. Basic EPS
excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue Common Stock were exercised or
converted into Common Stock or resulted in the issuance of Common Stock that
then shared in the earnings of the entity.
 
  The weighted average number of common shares outstanding used to calculate
basic EPS includes the weighted average number of common shares outstanding
plus the number of shares of Common Stock from the 1997 Offering, the proceeds
from which were deemed to be used to pay the capital contribution of $39.0
million to Marcam Solutions, based on the offering price of $9.00 per share.
The weighted average number of common shares and common equivalent shares
outstanding used to calculate diluted EPS includes the weighted average number
of common shares outstanding plus the number of shares of Common Stock from
the 1997 Offering, as described above, plus the weighted average number of
common equivalent shares from the assumed exercise of dilutive stock options,
warrants and convertible preferred stock.
 
                                      53
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The calculations of basic and diluted EPS are presented in the following
table for the periods indicated (in thousands, except per share data):
 
<TABLE>
<CAPTION>
                                                          FISCAL YEARS ENDED
                                                             SEPTEMBER 30,
                                                        -----------------------
                                                         1996    1997    1998
                                                        ------- ------- -------
   <S>                                                  <C>     <C>     <C>
   BASIC EPS:
   Weighted average common shares outstanding..........  11,384  12,654  18,579
   Pro forma shares issued in the 1997 Offering........   4,333   3,585     --
                                                        ------- ------- -------
                                                         15,717  16,239  18,579
                                                        ======= ======= =======
   Net income.......................................... $12,900 $29,116 $18,728
                                                        ======= ======= =======
   Basic EPS........................................... $  0.82 $  1.79 $  1.01
                                                        ======= ======= =======
   DILUTED EPS:
   Weighted average common shares outstanding..........  11,384  12,654  18,579
   Pro forma shares issued in the 1997 Offering........   4,333   3,585     --
   Common share equivalents:
     Convertible preferred stock.......................   2,501   3,250   3,250
     Common stock options..............................     166     176     702
     Common stock warrants.............................     130     145     569
                                                        ------- ------- -------
                                                         18,514  19,810  23,100
                                                        ======= ======= =======
   Net income.......................................... $12,900 $29,116 $18,728
                                                        ======= ======= =======
   Diluted EPS......................................... $  0.70 $  1.47 $  0.81
                                                        ======= ======= =======
</TABLE>
 
 Recently Issued Accounting Pronouncements
 
  In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires businesses to
disclose comprehensive income and its components in their general-purpose
financial statements, with reclassification of comparative (earlier period)
financial statements. The Company adopted SFAS No. 130 on October 1, 1998. For
the fiscal years ended September 30, 1996, 1997 and 1998, there was no
component of comprehensive income other than those included in net income as
presented in the Company's statements of operations. As a result, the adoption
of SFAS No. 130 is not expected to have a material impact on the presentation
of comprehensive income in the Company's general-purpose financial statements.
 
  In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The Company
adopted SFAS No. 131 on October 1, 1998, and expects to make the required
disclosures for the first time in its financial statements for the fiscal year
ending September 30, 1999.
 
  In October 1997, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants issued SOP 97-2
"Software Revenue Recognition," which provides guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions
and supersedes SOP 91-1. The Company adopted the provisions of SOP 97-2 on
October 1, 1998. The Company believes that the adoption of SOP 97-2 will not
have a material impact on its financial position, results of operations or
financial statement disclosures.
 
                                      54
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  In March 1998, the AcSEC issued SOP 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use," which is effective for
fiscal years beginning after December 15, 1998. The Statement distinguishes
accounting for the costs of computer software developed or obtained for
internal use from guidance under SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." The Company will
adopt SOP 98-1 on October 1, 1999. The adoption of SOP 98-1 is not expected to
have a material impact on the Company's software capitalization policies,
financial position, results of operations or financial statement disclosures.
 
 Reclassifications
 
  Certain amounts in the fiscal 1996 financial statements have been
reclassified to conform to the presentation in the fiscal 1997 and 1998
financial statements.
 
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
  The Company provides reserves for customer receivable balances when it is
probable that such balances will be uncollectible. The allowance for doubtful
accounts was $1,626,000, $1,240,000, $1,702,000 and $1,989,000 as of September
30, 1995, 1996, 1997 and 1998, respectively. The provision charged to bad debt
expense, which is included in general and administrative expenses, was
$399,000, $956,000 and $570,000 in fiscal 1996, 1997 and 1998, respectively.
Write-offs against the allowance for doubtful accounts were $785,000, $494,000
and $383,000 in fiscal 1996, 1997 and 1998, respectively. The financial
statements reflect a reclassification of $100,000 from accrued liabilities to
the allowance for doubtful accounts during fiscal 1998.
 
4. PROPERTY AND EQUIPMENT
 
  Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                                SEPTEMBER 30,
                                                                ---------------
                                                                 1997    1998
                                                                ------  -------
   <S>                                                          <C>     <C>
   Furniture and fixtures...................................... $  235  $   747
   Computer equipment..........................................  6,900    9,559
   Leasehold improvements......................................     49      206
                                                                ------  -------
                                                                 7,184   10,512
   Accumulated depreciation and amortization................... (3,622)  (5,474)
                                                                ------  -------
                                                                $3,562  $ 5,038
                                                                ======  =======
</TABLE>
 
  The financial statements reflect a disposal of fully depreciated property
and equipment in the amount of $196,000 during fiscal 1997.
 
                                      55
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
5. COMPUTER SOFTWARE COSTS
 
  Computer software costs consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                                SEPTEMBER 30,
                                                               ----------------
                                                                1997     1998
                                                               -------  -------
   <S>                                                         <C>      <C>
   Computer software development costs........................ $15,313  $18,330
   Accumulated amortization...................................  (6,411)  (9,474)
                                                               -------  -------
                                                                 8,902    8,856
                                                               -------  -------
   Computer software translation costs........................  11,396   15,363
   Accumulated amortization...................................  (4,683)  (8,440)
                                                               -------  -------
                                                                 6,713    6,923
                                                               -------  -------
   Purchased software costs...................................   1,000    3,975
   Accumulated amortization...................................     --      (200)
                                                               -------  -------
                                                                 1,000    3,775
                                                               -------  -------
                                                               $16,615  $19,554
                                                               =======  =======
</TABLE>
 
  The financial statements reflect a reclassification of $348,000 from
computer software costs to other assets during fiscal 1997.
 
6. OTHER INTANGIBLE ASSETS
 
  Other intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                                SEPTEMBER 30,
                                                               ----------------
                                                                1997     1998
                                                               -------  -------
   <S>                                                         <C>      <C>
   Installed customer base and affiliate network.............. $ 6,034  $ 6,034
   Tradenames and trademarks..................................   1,712    1,712
   Goodwill...................................................     286      286
                                                               -------  -------
                                                                 8,032    8,032
   Accumulated amortization...................................  (3,223)  (3,740)
                                                               -------  -------
                                                               $ 4,809  $ 4,292
                                                               =======  =======
</TABLE>
 
  In February 1993, the Company acquired from IBM the exclusive worldwide
marketing rights to the MAPICS product line for 25 years. The Company also
acquired from IBM the option to purchase the MAPICS product line and certain
related intellectual property rights. As part of the acquisition of the
marketing rights, the Company recorded $10,699,000 of purchased intangible
assets of which $8,032,000 was allocated to the Company in the preparation of
the combined financial statements.
 
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 
  Accrued expenses and other current liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
                                                                 SEPTEMBER 30,
                                                                ---------------
                                                                 1997    1998
                                                                ------- -------
   <S>                                                          <C>     <C>
   Accrued commissions and royalties........................... $12,836 $12,678
   Accrued income taxes payable................................   2,880   5,245
   Accrued payroll and related expenses........................   3,995   4,425
   Other.......................................................     463   1,148
                                                                ------- -------
                                                                $20,174 $23,496
                                                                ======= =======
</TABLE>
 
                                      56
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Accrued payroll and related expenses include $536,000 and $792,000 for
compensated absences as of September 30, 1997 and 1998, respectively.
 
8. BORROWING ARRANGEMENT
 
 Debt Financing
 
  On July 25, 1997, the Company borrowed $64.0 million from a bank to fund the
$39.0 million cash transfer to Marcam Solutions and to repay Marcam
Corporation's $25.0 million 9.82% Subordinated Notes due 2001. The
indebtedness incurred in the Debt Financing had an interest rate of 9.0% and
was payable on August 4, 1997. For financial reporting purposes, the Company's
financial statements reflect the assumption and repayment of the Subordinated
Notes, excluding the prepayment penalty and accrued interest which were
recorded by Marcam Solutions.
 
 Term Loan and Revolving Credit Facility
 
  In August 1997, the Company executed the Bank Credit Facility to repay a
portion of the borrowings from the Debt Financing and for general corporate
purposes. Substantially all of the Company's assets are pledged as collateral
for any obligations under the Bank Credit Facility. The Bank Credit Facility,
as amended, contains covenants which, among other things, require that the
Company maintain certain financial ratios and impose certain limitations or
prohibitions on the Company with respect to the occurrence of indebtedness,
liens and capital leases; the payment of dividends on and the redemption or
repurchase of capital stock of the Company; investments and acquisitions; the
merger or consolidation of the Company with any person or entity; and the
disposition of any of the Company's properties or assets.
 
  In August 1997, the Company borrowed $6.4 million under the term loan
portion of the Bank Credit Facility to repay the amounts borrowed in the Debt
Financing which were not repaid with the net proceeds from the 1997 Offering.
As of September 30, 1997, the principal amount of this term loan was repaid
with interest of $254,000, after which no additional amount is available for
future borrowings under the term loan portion of the Bank Credit Facility.
 
  Additional borrowings of up to $15.0 million, subject to certain
limitations, are available to the Company under the revolving portion of the
Bank Credit Facility. Availability of revolving credit loans and the rate of
interest thereon vary depending upon the Company's ability to maintain certain
financial ratios. As of September 30, 1997 and 1998, the Company met all of
those financial ratios, although no amount was outstanding under the revolving
credit facility at September 30, 1998 or at any time since its inception. Any
outstanding loans under the revolving credit facility mature on June 30, 2000.
The Company pays a quarterly commitment fee, which is included in interest
expense, for unused portions of the revolving credit facility.
 
 
                                      57
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
9. INCOME TAXES
 
  The components of income tax expense (benefit) are as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                          FISCAL YEARS ENDED
                                                             SEPTEMBER 30,
                                                        ------------------------
                                                         1996    1997     1998
                                                        ------ --------  -------
   <S>                                                  <C>    <C>       <C>
   Federal:
     Current........................................... $5,547 $  5,009  $ 3,102
     Deferred..........................................    610  (13,402)   6,163
                                                        ------ --------  -------
                                                         6,157   (8,393)   9,265
                                                        ------ --------  -------
   State:
     Current...........................................  1,415    1,062    1,582
     Deferred..........................................     78     (413)      75
                                                        ------ --------  -------
                                                         1,493      649    1,657
                                                        ------ --------  -------
   Foreign:
     Current...........................................    426    1,740      802
     Deferred..........................................    --       --       --
                                                        ------ --------  -------
                                                           426    1,740      802
                                                        ------ --------  -------
                                                        $8,076 $ (6,004) $11,724
                                                        ====== ========  =======
</TABLE>
 
  The components of income from domestic and foreign operations before income
tax expense (benefit) are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                           FISCAL YEARS ENDED
                                                              SEPTEMBER 30,
                                                         -----------------------
                                                          1996    1997    1998
                                                         ------- ------- -------
   <S>                                                   <C>     <C>     <C>
   Domestic............................................. $20,766 $22,636 $29,993
   Foreign..............................................     210     476     459
                                                         ------- ------- -------
                                                         $20,976 $23,112 $30,452
                                                         ======= ======= =======
</TABLE>
 
  The actual income tax expense (benefit) differs from the expected income tax
expense calculated by applying the federal statutory rate of 35.0% to income
before income tax expense (benefit) as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                     FISCAL YEARS ENDED
                                                        SEPTEMBER 30,
                                                   --------------------------
                                                    1996     1997      1998
                                                   ------  --------   -------
   <S>                                             <C>     <C>        <C>
   Expected income tax expense at the domestic
    federal statutory rate........................ $7,342  $  8,089   $10,658
   Benefit associated with the recognition of
    certain Marcam Corporation tax attributes.....    --    (14,872)      --
   State income taxes, net of federal income tax
    benefit.......................................    998       422     1,077
   Foreign income taxes...........................    --        --        403
   Research and experimentation credits...........   (413)      --        --
   Other..........................................    149       357      (414)
                                                   ------  --------   -------
                                                   $8,076  $ (6,004)  $11,724
                                                   ======  ========   =======
   Effective income tax expense (benefit) rates...   38.5%    (26.0)%    38.5%
</TABLE>
 
                                      58
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Prior to the Distribution, the operations represented by the MAPICS business
were included in the consolidated United States federal and certain state and
foreign income tax returns filed by Marcam Corporation. For financial
reporting purposes, income tax expense has been calculated on a separate
return basis for all periods through the Distribution.
 
  Pursuant to a tax sharing agreement between the Company and Marcam
Solutions, the Company became entitled to utilize certain favorable income tax
attributes (principally net operating loss carryforwards and tax credits) of
Marcam Corporation immediately following the Distribution. As a result, the
Company recognized an income tax benefit of $14.9 million during the fourth
quarter of fiscal 1997. Prior to the Distribution, Marcam Corporation did not
reflect a benefit corresponding to these favorable income tax attributes in
its financial statements because Marcam Corporation's management believed it
was more likely than not such benefits would not be realized due to Marcam
Corporation's history of operating losses. Excluding the income tax benefit of
$14.9 million, the effective tax rate in fiscal 1997 was 38.5%.
 
  Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                SEPTEMBER 30,
                                                               ----------------
                                                                1997     1998
                                                               -------  -------
   <S>                                                         <C>      <C>
   Deferred tax assets:
     Net operating loss carryforwards......................... $10,345  $ 3,922
     Tax credits..............................................   2,801    2,498
     Intangible assets........................................   1,341    1,026
     Reserves and accruals....................................   1,298    1,266
     Allowance for doubtful accounts..........................     655      766
     Deferred revenues........................................     386      386
     Other....................................................     --       105
                                                               -------  -------
       Total deferred tax assets..............................  16,826    9,969
                                                               -------  -------
   Deferred tax liabilities:
     Computer software costs..................................  (1,852)  (1,956)
     Property and equipment...................................    (886)    (205)
     Other....................................................    (613)    (571)
                                                               -------  -------
       Total deferred tax liabilities.........................  (3,351)  (2,732)
                                                               -------  -------
       Net deferred tax assets................................ $13,475  $ 7,237
                                                               =======  =======
</TABLE>
 
  In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some or all of the deferred tax assets
will not be realized. As a result of its evaluation, deferred tax assets have
been recorded at the amount management believes more likely than not will be
realized.
 
  At September 30, 1997 and 1998, the Company had approximately $28.8 million
and $10.7 million, respectively, of net operating loss carryforwards, and
approximately $2.8 million and $2.5 million, respectively, of research and
experimentation and other credit carryforwards. Such carryforwards and tax
credits expire between 1999 and 2013. The utilization of inherited net
operating loss carryforwards and tax credits is limited on an annual basis due
to a change in ownership of Marcam Corporation during fiscal 1996. The Company
does not believe that this limitation will have a significant impact on its
ability to utilize the net operating loss carryforwards or tax credits prior
to their expiration.
 
                                      59
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
10. COMMITMENTS AND CONTINGENCIES
 
 Lease Commitments
 
  The Company leases certain office space and equipment under operating
leases. Certain leases contain renewal options and generally provide that the
Company shall pay for insurance, taxes and maintenance. Total rental expense
under all operating lease agreements was $1,133,000, $1,308,000 and $2,059,000
in fiscal 1996, fiscal 1997 and fiscal 1998, respectively. Future minimum
lease payments under noncancelable operating leases having initial or
remaining lease terms longer than one year as of September 30, 1998 were as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                         AMOUNT
   FISCAL YEARS ENDING SEPTEMBER 30:                                     ------
   <S>                                                                   <C>
   1999................................................................. $1,714
   2000.................................................................  1,260
   2001.................................................................    637
   2002.................................................................    218
   2003.................................................................     39
   Thereafter...........................................................    --
                                                                         ------
     Total.............................................................. $3,868
                                                                         ======
</TABLE>
 
 Litigation
 
  The Company is subject to legal proceedings and claims that arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the financial
position or results of operations of the Company.
 
  The Company is indemnified for future claims arising from Marcam Solutions'
Prism, Protean and Avantis product lines and related activities in accordance
with the agreements entered into with Marcam Solutions as described in Note
15.
 
11. SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION PLANS
 
  For financial reporting purposes, the Company's financial statements reflect
the assumption of Marcam Corporation's capital structure as of the
Distribution. The holders of the Company's capital stock following the
Distribution have the same rights, preferences and privileges with respect to
such capital stock as had the holders of Marcam Corporation's capital stock as
of the date of the Distribution.
 
  Following the authorization of an additional 20,000,000 common shares in
fiscal 1997, the Company's authorized capital stock consists of 50,000,000
shares of common stock, par value $0.01 per share (the "Common Stock") and
1,000,000 shares of preferred stock, par value $1.00 per share (the "Preferred
Stock").
 
  The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain future earnings to fund future development
and growth and the operations of its business and therefore does not
anticipate paying any cash dividends in the foreseeable future. Additionally,
covenants in the Bank Credit Facility, as amended, 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
 
                                      60
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
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. As of September 30, 1997 and 1998, there were
outstanding 225,000 shares of Series D Convertible Preferred Stock and 100,000
shares of Series E Convertible Preferred Stock. For certain 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 (together the "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 certain reorganizations or reclassifications of
the Company's capital stock. 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 the Common Stock
exceeds $30.14 per share (as adjusted in connection with the Distribution),
the Company may elect that all then outstanding shares of Series D Convertible
Preferred Stock be mandatorily converted 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 the Common Stock exceeds $30.14
per share (as adjusted in connection with the Distribution), the Company may
elect that all then outstanding shares of Series E Convertible Preferred Stock
be mandatorily converted into shares of Common Stock.
 
  Upon any event of liquidation or dissolution of the Company, holders of
Convertible Preferred Stock are entitled to receive, before any distribution
is made upon stock ranking junior to the Convertible Preferred Stock, the
greater of (i) $75.36 per share (as adjusted in connection with the
Distribution) plus an amount per share equal to any dividends declared but
unpaid thereon or (ii) such amounts per share as would have been payable had
each share been converted to Common Stock.
 
 Warrants
 
  In May 1994, in connection with the issuance and sale of the Subordinated
Notes, the Company issued warrants to purchase an aggregate of 383,333 shares
of Common Stock, as adjusted from time to time (the "Sub Debt Warrants"). The
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, the Sub Debt Warrants were adjusted such that the exercise price
was decreased to $6.50 per share and the number of underlying shares was
increased 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, the Company issued and sold warrants to purchase
an aggregate of 1,000,000 shares of Common Stock, as adjusted from time to
time ("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, the GA Warrants were adjusted such 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
 
  The Company has a Shareholder Rights Plan, as amended (the "Rights Plan"),
and declared a dividend of (i) one preferred stock purchase right (a "Right")
for each outstanding share of Common Stock, and (ii) for each outstanding
share of Convertible Preferred Stock, a number of Rights equal to the number
of shares of Common Stock issuable upon conversion of such Convertible
Preferred Stock, to shareholders of record. Each Right entitles holders to
purchase one one-thousandth of a share (a "Unit") of Series F Junior
Participating
 
                                      61
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
Preferred Stock, par value $1.00, at an exercise price of $60 per Unit,
subject to adjustment. The Rights become exercisable for Common Stock only
under certain circumstances and in the event of particular events relating to
a change in control of the Company. The Company under certain circumstances
pursuant to the Rights Plan may redeem the Rights. The Rights expire on
December 16, 2006, unless earlier redeemed or exchanged. The Rights have
certain anti-takeover effects, in that they would cause substantial dilution
to a person or group that attempts to acquire a significant interest in the
Company on terms not approved by the board of directors.
 
 Stock-Based Compensation Plans
 
  At September 30, 1998, the Company had five stock option plans and an
employee stock purchase plan, described below.
 
  As of the Distribution, options to purchase an aggregate of 2,601,561 shares
of Common Stock were held by current and former employees and directors of the
Company under the stock option plans. In connection with the Distribution, the
per share exercise price of each of the stock options was adjusted to give
effect to the Distribution based on the relative fair market values of the
underlying Common Stock of the Company and the common stock of Marcam
Solutions after the Distribution so as to preserve the spread value of the
existing stock options. For this purpose, the fair market value of a share of
each such common stock was the average of the closing sales prices per share
of each common stock on the Nasdaq National Market for each of the five
consecutive trading days beginning on the first day following the date of the
Distribution. Each stock option continues to be subject to the same terms and
conditions that applied prior to the Distribution, except that vesting is
based on service with the Company, Marcam Solutions or both.
 
  The 1987 Plan. Prior to its expiration on December 31, 1996, the Marcam
Corporation 1987 Stock Plan (the "1987 Plan"), as amended, allowed the Company
to grant incentive stock options ("ISO's") to its employees and non-qualified
stock options and stock awards to its officers, employees and consultants to
purchase up to 1,750,000 shares of Common Stock. 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 certain 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. As of September 30, 1997 and 1998, 1,018,336 and 825,387
stock options, respectively, were outstanding under the 1987 Stock Plan, of
which 784,383 and 724,413 stock options, respectively, were exercisable.
 
  Under the 1987 Plan, 110,000 and 10,000 restricted stock awards were issued
to various individuals during fiscal 1994 and fiscal 1995, respectively. These
restricted stock awards generally become 50% vested in 4 years and 100% vested
in 5 years. However, during fiscal 1997, the board of directors lifted the
restrictions on 45,000 of the restricted stock awards. During fiscal 1996 and
1997, 45,000 and 10,000, respectively, of the restricted stock awards were
canceled. During fiscal 1998, 15,000 of the restricted stock awards became
vested. As of September 30, 1997 and 1998, 20,000 and 5,000 restricted stock
awards, respectively, were outstanding under the 1987 Stock Plan.
 
  The Directors Plan. The MAPICS, Inc. 1998 Non-Employee Director Stock Option
Plan (the "Directors Plan"), formerly known as the Marcam Corporation 1991
Non-Employee Director Stock Option Plan, as amended, allows the Company 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 employees
nor officers of the Company, including an additional 100,000 shares authorized
in fiscal 1998. 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
 
                                      62
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
market value of the Common Stock at the date of grant. Subject to certain
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
such vesting date. The stock options granted under the Directors Plan expire
ten years from the date of grant. As of September 30, 1997 and 1998, 158,000
and 190,750 stock options, respectively, were outstanding under the Directors
Plan of which 27,800 and 60,350 stock options, respectively, were exercisable.
 
  The 1994 Plan. Prior to its discontinuation in February 1998, the Marcam
Corporation 1994 Stock Plan (the "1994 Plan"), as amended, allowed the Company
to grant ISO's to employees and non-qualified stock options and stock awards
to its officers, employees and consultants to purchase up to 3,250,000 shares
of Common Stock, including an additional 1,250,000 shares authorized during
fiscal 1997. 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. Non-
qualified stock options were required to be granted with an exercise price not
less than the minimum legal consideration required under applicable state law.
Subject to certain provisions, stock options granted under the 1994 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 1994 Plan expire on dates specified by the board of directors not to
exceed a period of ten years from the date of grant. As of September 30, 1997
and 1998, 2,260,800 and 1,895,545 stock options, respectively, were
outstanding under the 1994 Plan of which 466,701 and 845,958 stock options,
respectively, were exercisable.
 
  During fiscal 1995 and 1996, respectively, 30,000 and 6,000 restricted stock
awards were issued under the 1994 Plan to various individuals. These
restricted stock awards generally become 50% vested in 4 years and 100% vested
in 5 years. However, during fiscal 1997, the board of directors lifted the
restrictions on 16,000 of the restricted stock awards. As of September 30,
1997 and 1998, 20,000 restricted stock awards were outstanding under the 1994
Plan.
 
  The Directors Incentive Plan. The 1998 Non-Employee Directors Stock
Incentive Plan (the "Directors Incentive Plan"), approved in February 1998,
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
employees nor officers of the Company. During fiscal 1998, 1,562 shares of
Common Stock were issued under the Directors Incentive Plan.
 
  As of September 30, 1998, 58,438 shares remain available for grant under the
Directors Incentive Plan. The Directors Incentive Plan expires in February
2008.
 
  The 1998 Long-Term Incentive Plan. The MAPICS, Inc. 1998 Long-Term Incentive
Plan (the "1998 LTIP"), approved in February 1998, allows the Company to issue
up to 1,000,000 shares of Common Stock through various stock-based awards to
its directors, officers, employees and consultants. The stock-based awards can
be in the form of: (a) ISO's or non-qualified stock options; (b) stock
appreciation rights; (c) performance units; (d) restricted stock; (e) dividend
equivalents; and (f) other stock based awards.
 
  During fiscal 1998, the Company provided long-term incentive compensation to
certain 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 which will be determined by the cumulative
growth in the Company's EPS during the performance period.
 
  As of September 30, 1998, 194,400 stock options were outstanding under the
1998 LTIP of which none was exercisable.
 
 
                                      63
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The 1998 ESPP. Under the MAPICS, Inc. 1998 Employee Stock Purchase Plan (the
"1998 ESPP"), formerly known as The 1990 Employee Stock Purchase Plan (the
"1990 ESPP"), as amended, the Company is authorized to issue up to 700,000
shares of Common Stock to its full-time employees, nearly all of whom are
eligible to participate, including an additional 100,000 shares authorized
during fiscal 1998. The 1998 ESPP is a qualified plan under Section 423 of the
Internal Revenue Code of 1986, as amended. Under the terms of the 1998 ESPP,
employees, excluding those owning 5% or more of the Common Stock, can choose
every six months to have up to 10% of their base and bonus earnings withheld
to purchase Common Stock, subject to certain 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. Options granted under the 1998 ESPP are referred
as "look-back options."
 
  Under the 1998 ESPP, the Company sold 86,440 shares, 81,246 shares and
30,973 shares to employees during fiscal 1996, fiscal 1997 and fiscal 1998,
respectively. The combined statements of equity and cash flows for periods
prior to the Distribution do not reflect employee stock purchases under the
employee stock purchase plan.
 
  At September 30, 1997 and 1998, 116,157 and 185,184 shares, respectively,
were available for issuance under the 1998 ESPP. The 1998 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 were granted outside of the existing stock option plans.
As of September 30, 1997 and 1998, 25,260 and 24,060 of these stock options,
respectively, were outstanding and exercisable.
 
  Except for the "look-back options" issued under the 1998 ESPP, all stock
options granted under the Company's stock-based compensation plans, as well as
those stock options granted outside the Company's 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.
 
  The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans and employee stock purchase plan and has
adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no
compensation expense has been recognized in the statements of operations for
stock options granted to directors, officers or employees of the Company under
its stock-based compensation plans. Had compensation cost for such stock
options been determined based on the fair value at the grant dates of such
stock options consistent with the method prescribed in SFAS No. 123, the
Company's net income, net income per common share (basic) and net income per
common share (diluted) would have been reduced as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
                                                        FISCAL YEARS ENDED
                                                           SEPTEMBER 30,
                                                      -------------------------
                                                       1996     1997     1998
                                                      -------  -------  -------
   <S>                                                <C>      <C>      <C>
   Net income, as reported........................... $12,900  $29,116  $18,728
   Pro forma effect of SFAS 123......................    (186)    (886)  (1,063)
                                                      -------  -------  -------
   Pro forma net income.............................. $12,714  $28,230  $17,665
                                                      =======  =======  =======
   Basic EPS, as reported............................ $  0.82  $  1.79  $  1.01
   Pro forma effect of SFAS 123......................   (0.01)   (0.05)   (0.06)
                                                      -------  -------  -------
   Pro forma basic EPS............................... $  0.81  $  1.74  $  0.95
                                                      =======  =======  =======
   Diluted EPS, as reported.......................... $  0.70  $  1.47  $  0.81
   Pro forma effect of SFAS 123......................   (0.01)   (0.04)   (0.05)
                                                      -------  -------  -------
   Pro forma diluted EPS............................. $  0.69  $  1.43  $  0.76
                                                      =======  =======  =======
</TABLE>
 
                                      64
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  For the purpose of calculating pro forma expense for fiscal 1996 and fiscal
1997 under the method proscribed by SFAS No. 123, only those stock options
granted to the Company's directors, officers, employees and consultants (not
including those of Marcam Solutions) were considered. The pro forma effect of
SFAS No. 123 on net income for the periods presented is not representative of
the effect on reported net income for future years.
 
  The fair value of each option granted under the stock option plans is
estimated as $7.87, $5.56 and $6.41 for fiscal 1996, fiscal 1997 and fiscal
1998, respectively, on the date of grant using the Black-Scholes option-
pricing model with the following weighted average assumptions: dividend yield
of 0%; expected volatility of 50% for the fiscal 1998 and 55% for all other
periods; risk-free interest rates of 5.77%, 5.99% and 5.52% for fiscal 1996,
fiscal 1997 and fiscal 1998, respectively, and an expected life of five years
for all periods.
 
  The fair value of each look-back option granted under the 1998 ESPP is
estimated as $3.70, $4.37 and $3.73 for fiscal 1996, fiscal 1997 and fiscal
1998, respectively, with the following weighted average assumptions: dividend
yield of 0%; expected volatility of 50% for fiscal 1998 and 55% for all other
periods; risk-free interest rates of 5.36%, 5.54% and 5.52% for fiscal 1996,
fiscal 1997 and fiscal 1998, respectively, and an expected life of six months
for all periods.
 
  The table presented below reflects the activity and historical prices of the
Company's stock options for the periods from September 30, 1995 through July
29, 1997, the date of the Distribution. As of July 29, 1997, in connection
with the Distribution, the exercise prices of the then outstanding stock
options were adjusted as previously described. For periods after the
Distribution, the table presents the weighted average exercise prices as
adjusted for the Distribution.
 
<TABLE>
<CAPTION>
                                                                WEIGHTED AVERAGE
                                               NUMBER OF SHARES     EXERCISE
                                                UNDER OPTIONS       PRICE($)
                                               ---------------- ----------------
   <S>                                         <C>              <C>
   Balance as of September 30, 1995...........    1,937,935          14.58
     Granted..................................      739,704          14.32
     Exercised................................     (112,789)          5.17
     Canceled/expired.........................     (455,371)         13.23
                                                  ---------
   Balance as of September 30, 1996...........    2,109,479          15.28
     Granted..................................      783,870          12.50
     Exercised................................      (43,803)          8.80
     Canceled/expired.........................     (247,985)         13.37
                                                  ---------
   Balance as of July 29, 1997................    2,601,561          14.74(1)
     Granted..................................      984,424          10.07
     Exercised................................      (52,034)          8.59
     Canceled/expired.........................      (71,555)          9.67
                                                  ---------
   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
                                                  =========
</TABLE>
--------
(1) The weighted average exercise price of the stock options outstanding as of
    July 29, 1997 was $11.04, as adjusted for the Distribution.
 
                                      65
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table summarizes information about the stock options
outstanding at September 30, 1998:
 
<TABLE>
<CAPTION>
                                                                 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
     ------------------------   --------- ----------- -------- --------- --------
    <S>                         <C>       <C>         <C>      <C>       <C>
          $ 6.57 -  8.96          555,978     6.9      $ 8.20    381,444  $ 8.15
            9.20 - 11.45        1,659,191     8.0       10.15    640,684   10.25
           12.20 - 14.83          283,547     5.6       13.48    190,627   13.72
           15.02 - 17.75          485,526     3.9       16.86    440,026   16.81
           18.00 - 20.69          118,900     9.7       18.59         --      --
           21.96 - 22.50           27,000     9.5       22.44      2,000   21.96
                                ---------                      ---------
                                3,130,142                      1,654,781
                                =========                      =========
</TABLE>
 
 Treasury Stock
 
  In fiscal 1998, the Company purchased 128,600 shares of Common Stock for
$1,281,000 pursuant to a stock repurchase plan authorized by the Company's
board of directors in December 1997. The stock repurchase plan was rescinded
by the Company's board of directors in December 1998.
 
12. EMPLOYEE BENEFIT PLANS
 
 Retirement Plan
 
  The Company has a defined contribution 401(k) retirement plan covering
substantially all of its employees in the United States. Under this plan,
eligible employees may contribute a portion of their salary until retirement
and the Company matches a portion of the employees' contributions. Total
expenses incurred by the Company under this plan were $110,000, $185,000 and
$443,000 in fiscal 1996, fiscal 1997 and fiscal 1998, respectively.
 
 Group Medical Plan
 
  The Company has a group medical self-insurance plan covering certain of its
employees. The Company employs a third-party administrator to manage this
plan. Under terms of this plan, both the Company and eligible employees are
required to make contributions to this plan. The administrator reviews all
claims filed and authorizes the payment of benefits. The Company has stop-loss
insurance coverage on all individual claims exceeding $125,000. In February
1998, the stop-loss limit was reduced to $100,000. The Company expenses
medical claims as they are incurred and recognizes a liability for claims
incurred but not reported. As of September 30, 1997 and 1998, the Company had
accrued $500,000 and $550,000, respectively, as a liability for expenses
incurred under this plan.
 
 
                                      66
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
13. GEOGRAPHIC INFORMATION
 
  The Company has one business segment which consists of developing,
marketing, licensing and supporting business software which is marketed and
delivered to manufacturing enterprises worldwide. The Company's principal
administrative, marketing, product development and support operations are
located in the United States. Areas of operation outside of the United States,
include EMEA, the Latin America and Asia Pacific regions and Canada. No single
customer accounts for more than 10% of the Company's revenues. Transfers
between geographic areas are eliminated in the financial statements. Financial
information related to domestic and foreign operations is as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                 UNITED
                                 STATES   EMEA   ALL OTHER ELIMINATION  TOTAL
                                 ------- ------- --------- ----------- --------
   <S>                           <C>     <C>     <C>       <C>         <C>
   FISCAL 1996:
     Revenues from unaffiliated
      customers................  $56,546 $14,311  $ 6,745    $   --    $ 77,602
     Transfers between
      geographic areas.........    1,816     --       --      (1,816)       --
                                 ------- -------  -------    -------   --------
     Total revenues............   58,362  14,311    6,745     (1,816)    77,602
                                 ------- -------  -------    -------   --------
     Income from operations....   17,705   2,268    1,296       (293)    20,976
     Identifiable assets.......   37,876   4,789    2,740        --      45,405
   FISCAL 1997:
     Revenues from unaffiliated
      customers................  $73,109 $18,632  $ 3,663    $   --    $ 95,404
     Transfers between
      geographic areas.........    1,540     --       --      (1,540)       --
                                 ------- -------  -------    -------   --------
     Total revenues............   74,649  18,632    3,663     (1,540)    95,404
                                 ------- -------  -------    -------   --------
     Income from operations....   20,688   2,152      909       (419)    23,330
     Identifiable assets.......   66,721   7,933    2,316        --      76,970
   FISCAL 1998:
     Revenues from unaffiliated
      customers................  $86,896 $27,203  $15,642    $   --    $129,741
     Transfers between
      geographic areas.........      --      --       --         --         --
                                 ------- -------  -------    -------   --------
     Total revenues............   91,595  27,203   10,943        --     129,741
                                 ------- -------  -------    -------   --------
     Income from operations....   20,123   8,352    1,217        --      29,692
     Identifiable assets.......   95,624  10,926    3,492        --     110,042
</TABLE>
 
  The information presented above may not be indicative of results if the
geographic areas were independent organizations. Income from operations by
geographic area is total revenues less operating expenses, excluding interest
income, interest expense and income tax expense (benefit). United States
identifiable assets include $378,000, $3,601,000 and $30,071,000 of cash and
cash equivalents at September 30, 1996, 1997 and 1998, respectively. These
assets are available for general corporate purposes.
 
14. RELATIONSHIP WITH MARCAM CORPORATION
 
  Allocations from Marcam Corporation of corporate marketing expenses,
corporate product development expenses and corporate administrative functions
(including data services, employee benefits, legal, insurance, accounting and
other corporate overhead) have been included in the selling and marketing,
product development and general and administrative expense categories in the
Company's statements of operations for all periods presented through the
Distribution.
 
                                      67
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The amounts allocated to the Company in each of the periods presented are as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                PERIOD FROM
                                                              OCTOBER 1, 1996
                                               FISCAL 1996 THROUGH JULY 29, 1997
                                               ----------- ---------------------
   <S>                                         <C>         <C>
   Selling and marketing......................   $  213           $  219
   Product development........................      239              --
   General and administrative.................    2,412            2,030
                                                 ------           ------
                                                 $2,864           $2,249
                                                 ======           ======
</TABLE>
 
  Net transfers to Marcam Corporation, included in divisional equity for
periods presented through the Distribution, include net cash transfers to
Marcam Corporation, amounts due to Marcam Corporation for services and other
charges and income taxes paid by the MAPICS business to Marcam Corporation. No
interest related to these transactions or to any debt held by Marcam
Corporation has been charged to the Company. The activity in the net transfers
to Marcam Corporation account, included in divisional equity, is summarized
below (in thousands):
 
<TABLE>
<CAPTION>
                                                             PERIOD FROM
                                                           OCTOBER 1, 1996
                                            FISCAL 1996 THROUGH JULY 29, 1997
                                            ----------- ---------------------
   <S>                                      <C>         <C>
   Marcam services and other corporate
    charges................................  $  2,864         $  2,249
   Domestic and foreign income taxes.......     8,076            7,075
   Cash transfers, net.....................   (26,139)         (15,883)
                                             --------         --------
   Net transfers to Marcam Corporation.....  $(15,199)        $ (6,559)
                                             ========         ========
</TABLE>
 
15. RELATIONSHIP AND AGREEMENTS WITH MARCAM SOLUTIONS
 
 Relationship with Marcam Solutions
 
  The Company has entered into three agreements with Marcam Solutions which
govern certain aspects of the parties' relationship on an ongoing basis that
may be material to the conduct of the Company's business, including provision
of certain administrative services and indemnification obligations related to
the Distribution. These agreements would have a material adverse effect on the
Company's business, financial condition and results of operations if such
agreements result in significant liabilities to the Company. Further, because
prior to the Distribution the business conducted by Marcam Solutions was
conducted through Marcam Corporation, the Company may be liable for the
liabilities of Marcam Solutions if Marcam Solutions for any reason is unable
to satisfy such liabilities.
 
 Distribution Agreement
 
  Prior to the completion of the Distribution, the Company and Marcam
Solutions entered into a Distribution Agreement. Pursuant to the Distribution
Agreement, subject to limited exceptions, the two companies are required to
indemnify each other and each other's directors, officers, employees, agents
and representatives for liabilities under federal or state securities laws
that are a result of the 1997 Offering and the Distribution. The Distribution
Agreement also provides that each party thereto will indemnify the other party
thereto and its directors, officers, employees, agents and representatives for
liabilities that may be incurred by the indemnified party relating to,
resulting from or arising out of (i) the business, operations or assets
conducted or owned or formerly conducted or owned by the indemnifying party
and its subsidiaries, or (ii) the failure by the indemnifying party to comply
with any other agreements executed in connection with the Distribution or the
1997 Offering. The ancillary agreements executed in connection with the
Distribution included a General Services Agreement and a Tax Sharing
Agreement, discussed below.
 
                                      68
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 General Services Agreement
 
  The General Services Agreement provides that Marcam Solutions and the
Company will provide to each other from time to time, upon request, certain
routine and ordinary corporate services, including financial, accounting,
administrative, tax, and legal services, if required. For these services, the
party providing such services will be reimbursed for its costs, including the
pro rata costs of its employees performing such services and allocable
overhead, on a per diem basis. Management believes that the expected charges
in accordance with this agreement are fair and reasonable.
 
  Following the Distribution, as the Company and Marcam Solutions effected the
separation of the financial, accounting, administrative, tax and legal
functions, each company reimbursed the other for certain costs incurred and
paid to third parties on behalf of the other company.
 
 Tax Sharing Agreement
 
  Prior to completion of the Distribution, the Company and Marcam Solutions
entered into a Tax Sharing Agreement that defines the parties' rights and
obligations with respect to certain tax liabilities and refunds of taxes
relating to Marcam Corporation's business for periods ending on or prior to
the date of the Distribution. In general, pursuant to the Tax Sharing
Agreement, Marcam Solutions shall be responsible for certain state, local and
foreign taxes for periods ending on or before the Distribution (and shall be
entitled to refunds with respect to such taxes), and the Company shall be
responsible for all other taxes for such periods (and shall be entitled to
refunds with respect to such taxes). In addition, under the Tax Sharing
Agreement, the Company shall be liable for any taxes arising out of the
Distribution. In the quarter ended September 30, 1997, the Company provided
for income taxes arising out of the Distribution, principally foreign income
taxes, expected to approximate $1.1 million, of which the Company paid
$325,000 in fiscal 1998. The Tax Sharing Agreement further provides for
cooperation with respect to certain tax matters, the exchange of information
and the retention of records.
 
16. RELATED PARTY TRANSACTIONS
 
  In fiscal 1996, IBM was considered a related party of the Company due to its
significant ownership interest in the Company. As of September 30, 1996, IBM
had substantially reduced its ownership interest in the Company. Accordingly,
for all periods after fiscal 1996, IBM is not considered a related party.
 
  The Company has a number of marketing and product development relationships
with IBM in the normal course of business. Additionally, IBM has purchased
licenses for MAPICS products for internal use, as well as for marketing
purposes, and the Company has purchased certain services, equipment and
software licenses from IBM.
 
  In fiscal 1996, the Company recorded $1,013,000 in revenues derived from
transactions with IBM, including $604,000 for royalties on sales of MAPICS
products and $409,000 for products and services sold directly to IBM.
 
17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 Payments for Income Taxes and Interest
 
  Net transfers to Marcam Corporation include income taxes paid by the MAPICS
business to Marcam Corporation for the periods prior to the Distribution.
Income taxes included in net transfers to Marcam Corporation in fiscal 1996
and for the period from October 1, 1997 through the Distribution were
approximately $8,076,000 and $7,075,000, respectively. Cash paid for income
taxes in fiscal 1998 was $1,866,000.
 
  No interest related to these transactions or to any debt held by Marcam
Corporation has been charged to the Company. Cash paid for interest was
$254,000 and $51,000 in fiscal 1997 and 1998, respectively.
 
                                      69
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Non-cash Investing and Financing Activities
 
  Non-cash investing and financing activities in fiscal 1996, fiscal 1997 and
fiscal 1998 are summarized below (in thousands):
 
<TABLE>
<CAPTION>
                                                            FISCAL YEARS ENDED
                                                              SEPTEMBER 30,
                                                           ---------------------
                                                           1996    1997   1998
                                                           -------------- ------
   <S>                                                     <C>   <C>      <C>
   Assumption of Marcam Corporation's capital stock (1)..  $ --  $    440 $ --
   Assumption of Marcam Corporation's Subordinated Notes
    (2)..................................................    --    25,000   --
   Tax benefit associated with the exercise of stock
    options and stock awards (3).........................    --       544   903
   Deferred stock compensation related to performance
    units (4)............................................    --       --    231
</TABLE>
--------
(1) For financial reporting purposes, the Company's financial statements
    reflect the assumption of Marcam Corporation's capital structure as of the
    Distribution, at which time the Company had capital stock with an
    aggregate par value of $440,000, including Common Stock with an aggregate
    par value of $115,000 and Preferred Stock with an aggregate par value of
    $325,000.
 
(2) For financial reporting purposes, the Company's financial statements
    reflect the assumption of Marcam Corporation's Subordinated Notes, which
    were repaid by the Company in connection with the Distribution.
 
(3) The Company is entitled to an income tax deduction related to Common Stock
    purchased through the exercise of non-qualified stock options, through the
    exercise of ISO's and look-back options which are sold within one year of
    exercise and through the vesting of restricted stock awards. The income
    tax benefit of the deduction is not reflected in the statements of
    operations but is reflected as an increase in additional paid-in capital.
    The cumulative tax benefit associated with the exercise of stock options
    recognized by the Company in fiscal 1997 reflects the aggregate historical
    tax benefit not recognized by Marcam Corporation during the periods from
    October 1, 1993 through the Distribution. In subsequent periods, the tax
    benefit associated with the exercise of stock options relate only to the
    Company's stock options exercised in the then current reporting period.
 
(4) The Company accrues compensation expense on a pro-rata basis over the
    performance period for Common Stock to be issued pursuant to performance
    units issued under its 1998 Long-Term Incentive Plan based on the current
    fair value of the estimated shares to be issued in the future with
    consideration given to the likelihood that the performance objectives will
    be met. The cumulative amount of this deferred stock compensation is
    reflected as a component of additional paid-in capital.
 
18. SUBSEQUENT EVENT
 
  On October 29, 1998, the Company entered into an agreement to lease
approximately 120,000 square feet of new office space (the "New Lease") in
Alpharetta, Georgia, a suburb of Atlanta. The new office space is required to
meet the needs of the Company's growing employee population. The New Lease
will become effective on March 1, 1999, at which time the Company will vacate
its current facilities in Atlanta. The Company has reached an agreement to
assign the four leases for its current facilities in Atlanta (the "Old
Leases") to a third party which will assume all of the Company's obligations
under the Old Leases effective March 1, 1999.
 
 
                                      70
<PAGE>
 
                         MAPICS, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Giving consideration to the future minimum lease payments that will be made
under the New Lease and the termination of the Old Leases on March 1, 1999,
the pro forma future minimum lease payments under noncancelable operating
leases having initial or remaining lease terms longer than one year as of
September 30, 1998 would be as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                        AMOUNT
   FISCAL YEARS ENDING SEPTEMBER 30:                                    -------
   <S>                                                                  <C>
   1999................................................................ $ 2,878
   2000................................................................   2,427
   2001................................................................   2,296
   2002................................................................   2,316
   2003................................................................   2,363
   Thereafter..........................................................   9,579
                                                                        -------
     Total............................................................. $21,859
                                                                        =======
</TABLE>
 
                                      71
<PAGE>
 
SUPPLEMENTAL FINANCIAL INFORMATION
 
 Selected Quarterly Financial Data (Unaudited)
 
  The following quarterly information is unaudited and, in the opinion of
management, includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the operating results for each
quarter (in thousands):
 
<TABLE>
<CAPTION>
                                        FIRST  SECOND   THIRD  FOURTH
                                       QUARTER QUARTER QUARTER QUARTER  TOTAL
                                       ------- ------- ------- ------- --------
   <S>                                 <C>     <C>     <C>     <C>     <C>
   FISCAL 1997:
     Total revenues..................  $23,379 $20,786 $21,997 $29,242 $ 95,404
     Income before income tax expense
      (benefit)......................    5,793   4,779   4,861   7,679   23,112
     Net income (2)..................    3,563   2,938   2,990  19,625   29,116
   FISCAL 1998:
     Total revenues..................  $29,594 $29,008 $32,016 $39,123 $129,741
     Income before income tax expense
      (benefit)......................    7,540   5,871   6,566  10,475   30,452
     Net income......................    4,637   3,611   4,044   6,436   18,728
</TABLE>
 
(1) The Company has experienced fluctuations in its quarterly operating
    results and anticipates that such fluctuations will continue and may
    intensify. Furthermore, the Company's quarterly operating results are
    subject to certain seasonal fluctuations. The Company believes that its
    first quarter (ending December 31) revenues are positively affected by
    calendar year-end capital expenditures by certain customers and calendar
    year-end incentives provided by IBM to resellers of its hardware, which
    may include many of the Company's Affiliates. In the Company's fourth
    quarter (ending September 30), revenues are positively affected by the
    incentives provided pursuant to the Company's sales compensation plans.
    These seasonal factors are likely to continue to affect quarter-to-quarter
    comparisons.
 
(2) Pursuant to a tax sharing agreement between the Company and Marcam
    Solutions (See Note 15), the Company became entitled to utilize certain
    favorable income tax attributes (principally net operating loss
    carryforwards and tax credits) of Marcam Corporation immediately following
    the Distribution. As a result, the Company recognized an income tax
    benefit of $14.9 million during the fourth quarter of fiscal 1997. Prior
    to the Distribution, Marcam Corporation did not reflect a benefit
    corresponding to these favorable income tax attributes in its financial
    statements because Marcam Corporation's management believed it was more
    likely than not such benefits would not be realized due to Marcam
    Corporation's history of operating losses. Net income for the fourth
    quarter of fiscal 1997 reflects this income tax benefit of $14.9 million.
 
                                      72
<PAGE>
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
  Not applicable.
 
                                   PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
  Information relating to the directors of the Company will be set forth under
the captions "Proposal 2--Election of Directors--Nominees" and "--Information
Regarding Nominees and Continuing Directors" in the Company's Proxy Statement
for its 1999 Annual Meeting of Shareholders to be held on February 10, 1999
(the "1999 Proxy Statement". Such information is incorporated herein by
reference. Information relating to the executive officers of the Company is
set forth in Part I, Item 4(A) of this report under the caption "Executive
Officers of the Registrant." Information regarding compliance with Section
16(a) of the Securities Exchange Act of 1934 by directors and executive
officers of the Company and beneficial owners of more than 10% of the
Company's Common Stock will be set forth under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the 1999 Proxy Statement. Such
information is incorporated herein by reference. The 1999 Proxy Statement will
be filed with the Securities and Exchange Commission within 120 days after
September 30, 1998.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
  Information relating to executive compensation will be set forth under the
captions "Proposal 2--Election of Directors--Director Compensation,"
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation" in the 1999 Proxy Statement. Such information is incorporated
herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
  Information regarding ownership of the Company's Common Stock by certain
persons will be set forth under the caption "Stock Ownership" in the 1999
Proxy Statement. Such information is incorporated herein by reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
  Information regarding certain relationships and transactions between the
Company and certain non-employee directors of the Company will be set forth
under the captions "Proposal 2--Election of Directors--Director Compensation"
and "Compensation Committee Interlocks and Insider Participation" in the 1999
Proxy Statement. Such information is incorporated herein by reference.
 
                                      73
<PAGE>
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
(A) 1. CONSOLIDATED FINANCIAL STATEMENTS
 
  The following consolidated financial statements of MAPICS, Inc. and
Subsidiaries are set forth in Item 8 hereof:
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
   <S>                                                                    <C>
   Report of Independent Accountants.....................................  43
   Consolidated Balance Sheets as of September 30, 1997 and 1998.........  44
   Consolidated Statements of Operations for the years ended September
    30, 1996, 1997 and 1998..............................................  45
   Consolidated Statements of Equity for the years ended September 30,
    1996, 1997 and 1998..................................................  46
   Consolidated Statements of Cash Flows for the years ended September
    30, 1996, 1997 and 1998..............................................  47
   Notes to Consolidated Financial Statements............................  48
   Supplemental Financial Information....................................  72
</TABLE>
 
2. FINANCIAL STATEMENT SCHEDULES
 
  All schedules to the consolidated financial statements are omitted as they
are not required under the related instructions or are inapplicable, or
because the required information is included in the consolidated financial
statements or related notes thereto.
 
3. EXHIBITS
 
  The following exhibits either (i) are filed herewith or (ii) have previously
been filed with the Securities and Exchange Commission and are incorporated
herein by reference to such prior filings. Previously filed registration
statements and reports which are incorporated herein by reference are
identified in the column captioned "SEC Document Reference." The Company will
furnish any exhibit upon request to Martin D. Avallone, Vice President,
General Counsel and Secretary of the Company, 5775-D Glenridge Drive, Atlanta,
Georgia 30328-5360. There is a charge of $.50 per page to cover expenses of
copying and mailing.
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                    DESCRIPTION                         SEC DOCUMENT REFERENCE
 -------                  -----------                         ----------------------
 <S>       <C>                                       <C>
   2.1     Agreement and Plan of Merger dated as of  000-18674
           March 30, 1998 between MAPICS, Inc, a     Exhibit 2.1 to Form 10-Q dated May 14,
           Massachusetts corporation, and MAPICS,    1998
           Inc., a Georgia corporation
   3.1     Articles of Incorporation of the          000-18674
           Registrant                                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
   3.2     By-laws of the Registrant                 000-18674
                                                     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     000-18674
           Common Stock                              Exhibit 3 to Registration Statement on
                                                     Form 8-A dated March 31, 1998, as
                                                     amended by Form 8-A/A dated August 21,
                                                     1998
</TABLE>
 
                                      74
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                    DESCRIPTION                         SEC DOCUMENT REFERENCE
 -------                  -----------                         ----------------------
 <S>       <C>                                       <C>
  4.2      Amended and Restated Rights Agreement     000-18674
           dated as of March 30, 1998 among MAPICS,  Exhibit 4 to Registration Statement on
           Inc., a Georgia corporation, MAPICS,      Form 8-A dated March 31, 1998, as
           Inc., a Massachusetts corporation, and    amended by Form 8-A/A dated August 21,
           BankBoston, N.A., as its rights agent,    1998
           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*     1990 Employee Stock Purchase Plan, as     000-18674
           amended and restated                      Exhibit 10.21 to Annual Report on, Form
                                                     10-K for the fiscal year ended September
                                                     30, 1991
 10.2*     Deferred Compensation Plan for Non--      000-18674
           Employee Directors, as amended and        Exhibit 10.22 to Annual Report on Form
           restated                                  10-K for the fiscal year ended September
                                                     30, 1991
 10.3      Note and Warrant Purchase Agreement       000-18674
           entered into by Marcam Corporation and    Exhibit 10.1 to Quarterly Report on Form
           each of The Northwestern Mutual Life      10-Q dated May 12, 1994 as amended by
           Insurance Company, John Hancock Mutual    Form 10-Q/A dated October 6, 1994
           Life Insurance Company and John Hancock
           Life Insurance Company of America dated
           as of May 12, 1994
 10.4      Amendment Agreement dated as of August    000-18674
           19, 1994 by and among the Registrant,     Exhibit 10.1 to Quarterly Report on Form
           The Northwestern Mutual Life Insurance    10-Q dated August 22, 1994
           Company, John Hancock Mutual Life
           Insurance Company and John Hancock Life
           Insurance Company of America
 10.5      Amendment Agreement dated as of July 29,  000-18674
           1995 by and among the Registrant, The     Exhibit 10.36 to Annual Report of Form
           Northwestern Mutual Life Insurance        10-K for the fiscal year ended September
           Company, John Hancock Mutual Life         30, 1994 as amended
           Insurance Company and John Hancock Life
           Insurance Company of America
 10.6      Loan and Security Agreement dated as of   000-18674
           August 29, 1995 by and between Greyrock   Exhibit 10.37 to Annual Report of Form
           Business Credit, a division of Greyrock   10-K for the fiscal year ended September
           Capital Group, Inc., and the Registrant   30, 1994 as amended
 10.7      Amendment Agreement dated as of           33-90670
           September 29, 1995 by and among the       Exhibit 10.4
           Registrant, The Northwestern Mutual Life
           Insurance Company, John Hancock Mutual
           Life Insurance Company and John Hancock
           Life Insurance Company of America and
           Barnett & Co.
 10.8      Amendment Agreement dated as of November  000-18674
           14, 1995 by and among the Registrant,     Exhibit 10.31 to Annual Report on Form
           The Northwestern Mutual Life Insurance    10-K for the fiscal year ended September
           Company, John Hancock Mutual Life         30, 1995 as amended
           Insurance Company and John Hancock
           Insurance Company of America and Barnett
           & Co.
</TABLE>
 
                                       75
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                    DESCRIPTION                         SEC DOCUMENT REFERENCE
 -------                  -----------                         ----------------------
 <S>       <C>                                       <C>
 10.9      Amendment Agreement dated as of December  000-18674
           15, 1995 by and among the Registrant,     Exhibit 10.38 to Annual Report on Form
           The Northwestern Mutual Life Insurance    10-K for the fiscal year ended September
           Company, John Hancock Mutual Life         30, 1995 as amended
           Insurance Company, John Hancock Life
           Insurance Company of America and Barnett
           & Co.
 10.10     Letter dated March 29, 1996 to            000-18674
           Northwestern Mutual Life Insurance        Exhibit 10.1 to Quarterly Report on Form
           Company, John Hancock Life Insurance      10-Q dated May 14, 1996
           Company of America and Barnett & Co.
           from Marcam Corporation
 10.11     Amendment dated as of March 30, 1996 to   000-18674
           Loan and Security Agreement dated as of   Exhibit 10.2 to Quarterly Report on Form
           August 29, 1995 by and between Greyrock   10-Q dated May 14, 1996
           Business Credit, a division of Greyrock
           Capital Group, and the Registrant
 10.12     Amendment and Waiver Agreement dated as   000-18674
           of July 16, 1996 by and among the         Exhibit 10.1 to Quarterly Report on Form
           Registrant, The Northwestern Mutual Life  10-Q dated August 14, 1996
           Insurance Company, John Hancock Mutual
           Life Insurance Company, John Hancock
           Life Insurance Company of America and
           Barnett & Co.
 10.13     Amendment dated July 23, 1996 to Loan     000-18674
           and Security Agreement by and between     Exhibit 10.2 to Quarterly Report on Form
           Greyrock Business Credit, a division of   10-Q dated August 14, 1996
           Greyrock Capital Group, and the
           Registrant
 10.14     Amendment dated December 16, 1996 to      000-18674
           Loan and Security Agreement by and        Exhibit 10.35 to Annual Report on Form
           between Greyrock Business Credit, a       10-K for the fiscal year ended September
           division of Greyrock Capital Group, and   30, 1996
           the Registrant
 10.15     Amendment dated December 16, 1996 to      000-18674
           Loan and Security Agreement by and        Exhibit 10.36 to Annual Report on Form
           between Greyrock Business Credit, a       10-K for the fiscal year ended September
           division of Greyrock Capital Group and    30, 1996
           the Registrant
 10.16     Amendment Agreement dated as of December  000-18674
           23, 1996 by and among the Registrant,     Exhibit 10.37 to Annual Report on Form
           The Northwestern Mutual Life Insurance    10-K for the fiscal year ended September
           Company, John Hancock Mutual Life         30, 1996
           Insurance Company, John Hancock Life
           Insurance Company of America and Barnett
           & Co.
 10.17     Convertible Preferred Stock Purchase      000-18674
           Agreement dated September 20, 1995 by     Exhibit 10.2 to Current Report on Form
           and among Marcam Corporation, General     8-K dated September 29, 1995
           Atlantic Partners 21, L.P. GAP
           Coinvestment Partners, L.P. and The
           Northwestern Mutual Life Insurance
           Company
</TABLE>
 
                                       76
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                    DESCRIPTION                         SEC DOCUMENT REFERENCE
 -------                  -----------                         ----------------------
 <S>       <C>                                       <C>
 10.18     Convertible Preferred Stock and Warrant   000-18674
           Purchase Agreement dated July 19, 1996    Exhibit 10.1 to Current Report on Form
           among Marcam Corporation, General         8-K dated July 23, 1996
           Atlantic Partners 32, L.P. and GAP
           Coinvestments Partners, L.P., including
           the form of Marcam Corporation Common
           Stock Purchase Warrants
 10.19     Amended and Restated Registration Rights  000-18674
           Agreement dated July 23, 1996 by and      Exhibit 10.2 to Current Report on Form
           among Marcam Corporation, General         8-K dated July 23, 1996
           Atlantic Partners 21, L.P., General
           Atlantic Partners 32, L.P., GAP
           Coinvestment Partners, L.P. and The
           Northwestern Mutual Life Insurance
           Company
 10.20     Distribution Agreement between Marcam     000-22841
           Solutions, Inc. and Marcam Corporation    Exhibit 2 to Amendment No. 1 to
                                                     Registration Statement on Form 10 of
                                                     Marcam Solutions, Inc. dated July 22,
                                                     1997
 10.21     Tax Sharing Agreement between Marcam      000-22841
           Solutions, Inc. and Marcam Corporation    Exhibit 10.2 to Amendment No. 1 to
                                                     Registration Statement on Form 10 of
                                                     Marcam Solutions, Inc. dated July 22,
                                                     1997
 10.22     General Services Agreement between        000-22841
           Marcam Solutions, Inc. and Marcam         Exhibit 10.1 to Amendment No. 1 to
           Corporation                               Registration Statement on Form 10 of
                                                     Marcam Solutions, Inc. dated July 22,
                                                     1997
 10.23     Revolving Credit and Term Loan Agreement  000-18674
           dated as of August 4, 1997, as Amended    Exhibit 10.1 to Form 10-Q dated August
           and Restated through March 31, 1998,      13, 1998
           among MAPICS, Inc., BankBoston, N.A. and
           the other lending institutions set forth
           on Schedule I thereto, and BankBoston,
           N.A. as agent
 10.23     Security Agreement dated August 4, 1997   000-18674
           between MAPICS, Inc. and BankBoston N.A.  Exhibit 10.2 to Current Report on Form
           as agent                                  8-K dated August 12, 1997
 10.23     Revolving Credit Note in the principal    000-18674
           amount of $15,000,000 dated August 4,     Exhibit 10.3 to Current Report on Form
           1997                                      8-K dated August 12, 1997
 10.23     Term Note in the principal amount of      000-18674
           $15,000,000 dated August 4, 1997          Exhibit 10.4 to Current Report on Form
                                                     8-K dated August 12, 1997
 10.24*    1994 Stock Plan, as amended and restated  333-02158
                                                     Exhibit 4.4
 10.25*    1987 Stock Plan, as amended and restated  000-18674
                                                     Exhibit 10.33 to Annual Report on Form
                                                     10-K for the fiscal year ended September
                                                     30, 1996
</TABLE>
 
                                       77
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                    DESCRIPTION                         SEC DOCUMENT REFERENCE
 -------                  -----------                         ----------------------
 <S>       <C>                                       <C>
 10.26*    1991 Non-Employee Director Stock Option   000-18674
           Plan, as amended and restated             Exhibit 10.34 to Annual Report on Form
                                                     10-K for the fiscal year ended September
                                                     30, 1996
 10.27*    Memoranda regarding Compensation Plans    000-18674
           for fiscal 1997 from MAPICS to each of    Exhibit 10.40 to Annual Report on Form
           Messrs. Cook, Aery and Gilmour            10-K for the fiscal year ended September
                                                     30, 1997
 10.28*    1998 Non-Employee Director Stock Option   333-48989
           Plan                                      Exhibit 99.1 to Form S-8 dated March 31,
                                                     1998
 10.29*    1998 Non-Employee Director Stock          333-48989
           Incentive Plan                            Exhibit 99.2 to Form S-8 dated March 31,
                                                     1998
 10.30*    1998 Long-Term Incentive Plan             333-48989
                                                     Exhibit 99.3 to Form S-8 dated March 31,
                                                     1998
 10.31*    1998 Employee Stock Purchase Plan         333-48989
                                                     Exhibit 99.4 to Form S-8 dated March 31,
                                                     1998
 10.32*    Amendment No. 1 to 1998 Long-Term         000-18674
           Incentive Plan dated May 5, 1998          Exhibit 10.45 to Form 10-Q dated May 14,
                                                     1998
 10.33     Change of Control Employment Agreement    000-18674
           by and between MAPICS, Inc. and Richard   Exhibit 10.46 to Form 10-Q dated May 14,
           C. Cook dated as of March 24, 1998        1998
 10.34     Change of Control Employment Agreement    000-18674
           by and between MAPICS, Inc. and Thomas    Exhibit 10.47 to Form 10-Q dated May 14,
           F. Aery dated as of March 31, 1998        1998
 10.35     Change of Control Employment Agreement    000-18674
           by and between MAPICS, Inc. and William   Exhibit 10.48 to Form 10-Q dated May 14,
           J. Gilmour dated as of March 31, 1998     1998
 10.36+    Change of Control Employment Agreement
           by and between MAPICS, Inc. and Martin
           Avallone dated as of March 27, 1998
 10.37+    Sublease Agreement by and between
           General Electric Capital Corporation and
           MAPICS, Inc. dated as of October 29,
           1998
 10.38+    Assignment and Assumption of Lease and
           Consent of Landlord by and among MAPICS,
           Inc., General Electric Capital
           Corporation and EOP-Lakeside Office,
           L.L.C. dated as of November 5, 1998,
           pertaining to the rental of certain
           premises in the 5775-D Glenridge Drive
           Building in Atlanta, Georgia, containing
           47,902 square feet
</TABLE>
 
                                       78
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.                    DESCRIPTION                         SEC DOCUMENT REFERENCE
 -------                  -----------                         ----------------------
 <S>       <C>                                       <C>
 10.39+    Assignment and Assumption of Lease and
           Consent of Landlord by and among MAPICS,
           Inc., General Electric Capital
           Corporation and EOP-Lakeside Office,
           L.L.C. dated as of November 5, 1998,
           pertaining to the rental of certain
           premises described as Suites 100, 150
           and 425 in the 5775-D Glenridge Drive
           Building in Atlanta, Georgia
 10.40+    Assignment and Assumption of Lease and
           Consent of Landlord by and among MAPICS,
           Inc., General Electric Capital
           Corporation and EOP-Lakeside Office,
           L.L.C. dated as of November 5, 1998,
           pertaining to the rental of certain
           premises described as Suites 400 and 475
           in the 5775-D Glenridge Drive Building
           in Atlanta, Georgia
 10.41+    Assignment and Assumption of Lease and
           Consent of Landlord by and among MAPICS,
           Inc., General Electric Capital
           Corporation and EOP-Lakeside Office,
           L.L.C. dated as of November 5, 1998,
           pertaining to the rental of certain
           premises described as Suite 105 in the
           5775-D Glenridge Drive Building in
           Atlanta, Georgia
 21+       Subsidiaries of the Registrant
 23.1+     Consent of PricewaterhouseCoopers LLP
 23.2+     Consent of PricewaterhouseCoopers LLP
 27.1+     Financial Data Schedule for the year
           ended September 30, 1998 (for SEC use
           only)
 27.2+     Restated Financial Data Schedule for the
           year ended September 30, 1997 (for SEC
           use only)
</TABLE>
--------
*  Compensatory management plan.
 
+  Filed herewith.
 
(B) REPORTS ON FORM 8-K
 
  The Company filed no Current Reports on Form 8-K during the fourth fiscal
quarter ended September 30, 1998.
 
(C) SEE ITEM 14(A)(3) ABOVE.
 
(D) SEE ITEM 14(A)(2) ABOVE.
 
                                      79
<PAGE>
 
                                  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 16,
1998.
 
                                          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 16, 1998.
 
<TABLE>
<CAPTION>
             SIGNATURE                             TITLE
             ---------                             -----
   <S>                             <C>
       /s/ Richard C. Cook         President, Chief Executive Officer and
   ______________________________   Director
          Richard C. Cook
   /s/ George A. Chamberlain 3d    Director
   ______________________________
      George A. Chamberlain 3d
       /s/ William E. Ford         Director
   ______________________________
          William E. Ford
      /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
</TABLE>
 
                                      80
<PAGE>
 
 
 
 
 
                           [MAPICS Logo Appears Here]