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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2002,
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-19092
ROSS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2170198
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification Number
Two Concourse Parkway,
Suite 800, Atlanta, Georgia 30328
(Address of principal executive offices) (Zip code)
(770) 351-9600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Outstanding
Class December 31, 2002
----- -----------------
Common stock, $0.001 par value 2,654,450
Preferred stock, no par value 500,000
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1
ROSS SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements ...................................................3
Condensed Consolidated Balance Sheets - December 31, 2002 and
June 30, 2002 .................................................3
Condensed Consolidated Statements of Operations - Three months
and six months ended December 31, 2002 and 2001 ...............4
Condensed Consolidated Statements of Cash Flows - Six months
ended December 31, 2002 and 2001 ..............................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............20
Item 4. Controls and Procedures ...............................................21
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ...................22
Item 6. Exhibits and Reports on Form 8-K ......................................22
SIGNATURE ..............................................................................24
This Quarterly Report on Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 2, contains
forward-looking statements that involve risks and uncertainties, as well as
assumptions that, if they never materialize or prove incorrect, could cause the
results of Ross Systems to differ materially from those expressed or implied by
such forward-looking statements. All statements other than statements of
historical fact are statements that could be deemed forward-looking statements,
including any projections of earnings, revenue, synergies, accretion, margins or
other financial items; any statements of the plans, strategies and objectives of
management for future operations, including the execution of integration and
restructuring plans; any statement concerning proposed new products, services,
developments or industry rankings; any statements regarding future economic
conditions or performance; any statements of belief; and any statements of
assumptions underlying any of the foregoing. The risks, uncertainties and
assumptions referred to above include the performance of contracts by customers
and partners; employee management issues; the challenge of managing asset
levels; the difficulty of aligning expense levels with revenue changes; and
other risks that are described herein and that are otherwise described from time
to time in Ross Systems' Securities and Exchange Commission reports. Ross
Systems assumes no obligation and does not intend to update these
forward-looking statements.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share related data)
December 31, June 30,
2002 2002
----------- ---------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,019 $ 5,438
Accounts receivable, less allowance 12,692 12,319
for doubtful accounts
Prepaid and other current assets 1,501 1,282
Note receivable from related party 850 850
-------- --------
Total current assets 21,062 19,889
Property and equipment, net 1,488 1,450
Computer software costs, net 13,929 14,036
Other assets 2,230 2,243
-------- --------
Total assets $ 38,709 $ 37,618
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of debt $ 4,281 $ 3,967
Accounts payable 2,353 2,682
Accrued expenses 4,987 4,476
Income taxes payable 104 15
Deferred revenues 11,089 12,535
-------- --------
Total current liabilities 22,814 23,675
-------- --------
Shareholders' equity:
Common stock, $.001 par value; 15,000,000 and 35,000,000 26 26
shares authorized, 2,650,364 and 2,625,378 shares issued and
outstanding at December 31, 2002 and June 30, 2002, respectively
Preferred Stock, no par value; 5,000,000 authorized, 500,000 shares 2,000 2,000
outstanding
Additional paid-in capital 87,324 87,133
Accumulated deficit (71,419) (73,450)
Treasury stock, at cost; 3,816 shares at December 31, 2002 (32) --
Accumulated comprehensive deficit (2,004) (1,766)
-------- --------
Total shareholders' equity 15,895 13,943
-------- --------
Total liabilities and shareholders' equity $ 38,709 $ 37,618
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended Six months ended
December 31, December 31,
(unaudited) (unaudited)
------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Revenues:
Software product licenses $ 3,474 $ 2,920 $ 7,206 $ 6,100
Consulting and other services 3,230 3,285 5,746 6,048
Maintenance 5,165 5,220 10,088 10,442
Reimbursable expenses 304 211 559 376
-------- -------- -------- --------
Total revenues 12,173 11,636 23,599 22,966
-------- -------- -------- --------
Operating expenses:
Costs of software product licenses 521 311 867 706
Costs of consulting, maintenance and other services 4,176 4,409 8,577 8,494
Software product license sales and marketing 2,883 2,211 5,305 4,195
Product development net of capitalized and amortized
computer software costs 1,746 2,758 3,547 5,197
General and administrative 1,045 1,167 2,406 2,545
Provision for uncollectable accounts 242 261 514 546
-------- -------- -------- --------
Total operating expenses 10,613 11,117 21,216 21,683
-------- -------- -------- --------
Operating earnings 1,560 519 2,383 1,283
Other expenses, net (27) (108) (122) (233)
Income tax expense (benefit) 65 (115) 155 73
-------- -------- -------- --------
Net earnings 1,468 526 2,106 977
Preferred stock dividend (38) (38) (75) (75)
-------- -------- -------- --------
Net earnings available to common shareholders $ 1,430 $ 488 $ 2,031 $ 902
======== ======== ======== ========
Net earnings per common share - basic $ 0.54 $ 0.19 $ 0.77 $ 0.35
======== ======== ======== ========
Net earnings per common share - diluted $ 0.45 $ 0.17 $ 0.65 $ 0.31
======== ======== ======== ========
Shares used in per share computation - basic 2,642 2,592 2,635 2,577
======== ======== ======== ========
Shares used in per share computation - diluted 3,260 3,152 3,252 3,124
======== ======== ======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Six months ended
December 31,
-----------------------------
2002 2001
------- -------
Cash flows from operating activities:
Net earnings $ 2,106 $ 977
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 397 489
Amortization of computer software costs 2,315 3,794
Provision for uncollectable accounts 514 546
Changes in operating assets and liabilities:
Accounts receivable (985) (2,368)
Prepaids and other current assets (237) 166
Income taxes payable 175 (146)
Accounts payable (328) (1,955)
Accrued expenses 309 (676)
Deferred revenues (1,451) (1,987)
------- -------
Net cash provided (used in )by operating activities 2,815 (1,160)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (435) (259)
Computer software costs capitalized (2,208) (2,160)
Other 13 146
------- -------
Net cash used in investing activities (2,630) (2,273)
------- -------
Cash flows from financing activities:
Net cash received on line of credit 314 700
Proceeds from issuance of common stock 191 102
Purchase of treasury stock (32) -
------- -------
Net cash provided by financing activities 473 802
------- -------
Effect of exchange rate changes on cash (77) 218
------- -------
Net increase (decrease) in cash and cash equivalents 581 (2,413)
Cash and cash equivalents at beginning of period 5,438 5716
------- -------
Cash and cash equivalents at end of period $ 6,019 $ 3,303
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1) BUSINESS OF THE COMPANY & BASIS OF PRESENTATION
Ross Systems Inc. (NASDAQ:ROSS) founded in 1972, supplies leading
enterprise solutions software designed for process manufacturing companies
primarily in the food and beverage, life sciences, chemicals, metals and natural
products industries. The Company offers the award-winning iRenaissance(TM)
family of software solutions which is an integrated suite of enterprise resource
planning (ERP II), financials, materials management, manufacturing and
distribution, supply chain management (SCM), advanced planning and scheduling,
customer relationship management (CRM), electronic commerce, business
intelligence and analytics applications. In addition to the aforementioned
software suites, the Company also provides professional consulting services for
implementation, related custom application development and education. The
Company offers ongoing maintenance and support services for its products via
internet and telephone help desks.
The Company operates in one business segment and no individual customer
accounts for more than 10% of total revenues. The Company does not have a
concentration of credit risk in any one industry.
The accompanying unaudited condensed consolidated financial statements of
Ross Systems, Inc reflect all adjustments of a normal recurring nature which
are, in the opinion of management, necessary to present a fair statement of its
financial position as of December 31, 2002, and the results of its operations
and cash flows for the interim periods presented. The Company's results of
operations for the three months and six months ended December 31, 2002 are not
necessarily indicative of the results to be expected for the full year.
These unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and, therefore,
certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in the Company's Annual Report to Stockholders on Form 10-K for the
fiscal year ended June 30, 2002 which was filed with the Securities and Exchange
Commission during September 2002.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
It is the Company's policy to reclassify prior year amounts to conform
with the current year presentation when necessary.
2) PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter-company balances and
transactions have been eliminated.
3) CAPITALIZED COMPUTER SOFTWARE COSTS AND OTHER ASSETS
It is the Company's policy to follow paragraph 8 of Statement of Financial
Accounting Standards ("SFAS") 86, "Accounting for the Costs of Computer Software
to be Sold, Leased, or Otherwise Marketed" in the computation of annual
amortization expense of software costs. The Company capitalizes computer
software product development costs incurred in developing a product once
technological feasibility has been established and until the product is
available for general release to customers. Technological feasibility is
established when the Company either (i) completes a detail program design that
encompasses product
6
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
function, feature and technical requirements and is ready for coding and
confirms that the product design is complete, that the necessary skills,
hardware and software technology are available to produce the product, that the
completeness of the detail program design is consistent with the product design
by documenting and tracing the detail program design to the product
specifications, and that the detail program design has been reviewed for
high-risk development issues and any related uncertainties have been resolved
through coding and testing or (ii) completes a product design and working model
of the software product, and the completeness of the working model and its
consistency with the product design have been confirmed by testing. The Company
evaluates realizability of the capitalized amounts based on expected revenues
from the product over the remaining product life. Where future revenue streams
are not expected to cover remaining amounts to be amortized, the Company either
accelerates amortization or expenses remaining capitalized amounts. Amortization
of such costs is computed as the greater of (1) the ratio of current revenues to
expected revenues from the related product sales or (2) a straight-line basis
over the expected economic life of the product (not to exceed five years).
The other assets described in Note 5 are amortized using the straight-line
method over their estimated useful lives. Other assets have generally resulted
from business combinations accounted for as purchases and are recorded at the
lower of unamortized cost or fair value. The Company annually reviews the
carrying amounts of these assets for indications of impairment, based on
expected non-discounted cash flows related to the acquired entities or products.
Impairment of value, if any, is recognized in the period it is determined. The
Company reviews the carrying value of goodwill and other intangibles in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets". There was
no impairment of these assets during the second quarter of fiscal 2003.
4) PROPERTY AND EQUIPMENT
As of the dates shown, property and equipment consisted of the following
(in thousands):
December 31, June 30,
2002 2002
------- -------
Computer equipment $ 6,028 5,691
Furniture and fixtures 1,219 1,143
Leasehold improvements 1,407 1,508
------- -------
8,654 8,342
Less accumulated depreciation and amortization (7,166) (6,892)
------- -------
$ 1,488 $ 1,450
======= =======
7
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5) OTHER ASSETS
Other assets is primarily comprised of Goodwill. At December 31, 2002,
other assets consisted of the following (in thousands):
December 31, June 30,
2002 2002
------------ --------
Goodwill $ 2,181 $ 2,181
Other 49 62
--------- ---------
$ 2,230 $ 2,243
========= =========
The Company does not consider these assets to be impaired at either December 31,
2002 or as of the filing date of this report on form 10-Q. In accordance with
the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets", the
Company will not record any future amortization on these assets.
6) SOFTWARE REVENUE RECOGNITION
In accordance with Securities and Exchange Commission ("SEC")Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements", the Company recognizes revenues from licenses of computer software
"up-front" provided that a non-cancelable license agreement has been signed, the
software and related documentation have been shipped, there are no material
uncertainties regarding customer acceptance, collection of the resulting
receivable is deemed probable, and no significant other vendor obligations
exist. The revenue associated with any license agreements containing
cancellation or refund provisions is deferred until such provisions lapse. Where
the Company has future obligations, if such obligations are insignificant,
related costs are accrued immediately. When the obligations are significant, the
software product license revenues are deferred. Future contractual obligations
can include software customization, requirements to provide additional products
in the future and porting products to new platforms. Contracts which require
significant software customization are accounted for on the
percentage-of-completion basis. Revenues related to significant obligations to
provide future products or to port existing products are deferred until the new
products or ports are completed.
Service revenues generated from professional consulting and training
services are recognized as the services are performed. Maintenance revenues,
including revenues bundled with original software product license revenues, and
future unspecified enhancements to the Company's products, are deferred and
recognized over the related contract period, generally 12 months. The Company's
revenue recognition policies are designed to comply with American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP") 97-2,
"Software Revenue Recognition" .
Prior to January 1, 2002, the Company recorded reimbursement by its
customers for out-of-pocket expenses as a decrease to cost of services. The
Company's results of operations for the second quarter of fiscal year 2002, and
the six months ended December 31, 2002, have been reclassified for comparable
purposes in accordance with the Emerging Issues Task Force ("EITF") release
01-14, "Income Statement Characterization of Reimbursements Received for Out of
Pocket Expenses Incurred". The effect of this reclassification was to increase
both services revenues and cost of services by $211,000 for the second quarter
of fiscal year 2002, and by $376,000 for the six months ended December 31,
2001.
8
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
7) COMPREHENSIVE INCOME
Total non-stockholder changes in equity include all changes in equity
during a period except those resulting from investments by and distributions to
stockholders. The components of comprehensive income (loss) for the three and
six month periods ended December 31, 2002 and 2001 were as follows (in
thousands):
Three months ended Six months ended
December 31, December 31,
------------------ --------------------
2002 2001 2002 2001
------- ---- ------- ------
Net earnings available to common shareholders $ 1,430 $488 $ 2,031 $ 902
Foreign currency translation adjustments (218) 61 (238) 186
------- ---- ------- ------
Total comprehensive income $ 1,212 $549 $ 1,793 $1,088
======= ==== ======= ======
8) NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Basic earnings per common share are computed by dividing net earnings
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per common share is computed in
a manner consistent with that of basic earnings per share while giving effect to
all potentially dilutive common shares that were outstanding during the period.
The following is a reconciliation of the numerators of diluted earnings
per share, (in thousands):
Three months ended Six months ended
December 31, December 31,
------------------- -------------------
2002 2001 2002 2001
------ ----- ------ -----
Net earnings - basic $1,430 $ 488 $2,031 $ 902
Interest on convertible securities 38 38 75 75
------ ----- ------ -----
Net earnings - diluted $1,468 $ 526 $2,106 $ 977
====== ===== ====== =====
The following is a reconciliation of the denominators of diluted earnings
per share, (in thousands):
Three months ended Six months ended
December 31, December 31,
------------------ ------------------
2002 2001 2002 2001
----- ----- ----- -----
Weighted average shares outstanding - basic 2,642 2,592 2,635 2,577
Conversion of preferred stock 500 500 500 500
"In the money" stock options, warrants and
contingent securities 118 60 117 47
----- ----- ----- -----
Weighted average shares outstanding - diluted 3,260 3,152 3,252 3,124
===== ===== ===== =====
In periods when the Company is profitable, the only difference between the
denominator for basic and diluted net earnings per share is the effect of
potentially dilutive common shares. In periods of a loss, the denominator does
not change because it would be antidilutive.
9
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
9) CAPITAL STOCK
In fiscal 1991, the Company authorized 5,000,000 shares of a new class of
no par value preferred stock. The Board of Directors is authorized to issue the
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions of such stock, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the shareholders.
All preferred stock was issued with a mandatory conversion factor.
On June 29, 2001, the Company issued convertible preferred stock to a
qualified investor in a private placement transaction. In summary, the investor
purchased 500,000 preferred shares at $4 per share yielding $2,000,000 for the
Company. This price represented a premium to the market for the Company's common
stock at the time of issuance. The average closing share price of the Company's
common stock for the 30 trading days prior to the private placement was
approximately $2.22. The preferred shares can be converted at $4.00 per share
after June 29, 2002 but before June 29, 2006, on a one for one basis. The shares
earn dividends at the rate of 7.5% per annum.
The Board of Directors has approved the repurchase from employees of
nominal lots of shares acquired through the 1991 Employee Stock Purchase Plan or
one of the Company's stock option plans. These shares are placed into treasury
stock.
10) GEOGRAPHIC SEGMENT INFORMATION
The Company markets its products and related services primarily in North
America, Europe and Asia and primarily measures its business performance based
upon certain geographic results of operations.
For management purposes, the results of the Australasian operations are
included in the North American results since the costs associated with managing
that marketplace are born by the North American entities within the Group.
Selected balance sheet and income statement information pertaining to the
various significant geographic areas of operation are as follows:
As of and for the quarter ended December 31, 2002:
Net Earnings
Available
to Common Depreciation Capital
Total Assets Revenue Shareholders and Amortization Expenditures
------------ ------- ---------------- ---------------- ------------
Northern Europe ..................... $ 2,985 $ 1458 $ 277 $ 18 $ 23
Spain ............................... 5,386 1,771 290 73 100
United Kingdom ...................... 2,951 1,222 83 14 2
North America ....................... 27,387 7,722 780 1,215 105
------- ------- ------- ------- -------
Total ............................... $38,709 $12,173 $ 1430 $ 1,320 $ 230
======= ======= ======= ======= =======
10
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
As of and for the quarter ended December 31, 2001:
Net Earnings
Available
to Common Depreciation Capital
Total Assets Revenue Shareholders and Amortization Expenditures
------------ ------- ---------------- ---------------- ------------
Northern Europe .................... $ 2,769 $ 1,646 $ 208 $ 14 $ 40
Spain .............................. 3,274 1,672 549 64 8
United Kingdom ..................... 2,246 1,089 49 16 8
North America ...................... 39,374 7,229 (318) 2,241 140
------- ------- ------- ------- -------
Total .............................. $47,663 $11,636 $ 488 $ 2,335 $ 196
======= ======= ======= ======= =======
As of and for the six months ended December 31, 2002:
Net Earnings
Available
to Common Depreciation Capital
Revenue Shareholders and Amortization Expenditures
------- ---------------- ---------------- ------------
Northern Europe ........................ $ 2,439 $ 310 $ 32 $ 23
Spain .................................. 3,020 411 149 148
United Kingdom ......................... 2,612 196 25 39
North America .......................... 15,528 1,114 2,506 225
------- ------- ------- -------
Total .................................. $23,599 $ 2,031 $ 2,712 $ 435
======= ======= ======= =======
As of and for the six months ended December 31, 2001:
Net Earnings
Available
to Common Depreciation Capital
Revenue Shareholders and Amortization Expenditures
------- ---------------- ---------------- ------------
Northern Europe ........................... $ 2,793 $ 381 $ 30 $ 50
Spain ..................................... 2,995 997 124 14
United Kingdom ............................ 2,470 159 37 9
North America ............................. 14,708 (635) 4,092 186
------- ------- ------- -------
Total ..................................... $22,966 $ 902 $ 4,283 $ 259
======= ======= ======= =======
11
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements in this report which express "belief", anticipation" or
"expectation" as well as other statements which are not historical fact are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results or
anticipated results, including those set forth under "Risk Factors" in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in or incorporated by reference into this report. The
following discussion should be read in conjunction with the Company's Financial
Statements and Notes thereto included in this report.
Overview
Variability of Quarterly Results
The Company's software product license revenues can fluctuate from quarter
to quarter depending upon, among other things, such factors as overall trends in
the United States and international economies, new product introductions by the
Company, and customer buying patterns. Because the Company typically ships
software products within a short period after orders are received, and therefore
maintains a relatively small backlog, any weakening in customer demand can have
an almost immediate adverse impact on revenues and operating results. Moreover,
a substantial portion of the revenues for each quarter is attributable to a
limited number of sales and tends to be realized in the latter part of the
quarter. Thus, even short delays or deferrals of sales near the end of a quarter
can cause substantial fluctuations in quarterly revenues and operating results.
Finally, certain agreements signed during a quarter may not meet the Company's
revenue recognition criteria resulting in deferral of such revenue to future
periods. Because the Company's operating expenses are based on anticipated
revenue levels and a high percentage of the Company's expenses are relatively
fixed, a small variation in the timing of the recognition of specific revenues
can cause significant variation in operating results from quarter to quarter.
Business Summary
Description of Business
The Company markets a broad range of sophisticated business applications
that solve complex business problems on process manufacturers including
collaborative planning, financial, manufacturing, distribution, supply chain
management, and customer resource management. Specifically, these applications
are designed to address the unique requirements of manufacturers in the food and
beverage, life sciences, chemicals, metals and natural products industries. In
addition, the Company supports an installed base of companies, which utilize the
Company's financial products exclusively. The Company's software product license
fees are based on the modules licensed and the number of users supported by the
hardware on which the modules operate.
More than 1,000 companies around the world use Ross Systems solutions on a
wide range of popular databases, including Oracle and Microsoft, as well as
operating systems including NT and UNIX. Ross Systems and its distributors has
more than 25 offices globally, to serve its customers. Customers are primarily
medium-sized companies (with annual sales of $50 million to $1 billion)
upgrading internal systems to improve profitability through the availability of
timely and accurate information, ensure compliance with regulatory requirements
such as those imposed by the FDA and USDA, and to collaborate effectively with
customer and suppliers.
The Company licenses its products to customers through a direct sales
force in North America and Western Europe as well as independent distributors in
dozens of other markets worldwide.
12
ROSS SYSTEMS, INC. AND SUBSIDIARIES
The Company supplies leading enterprise solutions software designed for
process manufacturing companies primarily in the food and beverage, life
sciences, chemicals, metals and natural products industries. The Company offers
the award-winning iRenaissance(TM) family of software solutions which is an
integrated suite of enterprise resource planning (ERP II), financials, materials
management, manufacturing and distribution, supply chain management (SCM),
advanced planning and scheduling, customer relationship management (CRM),
electronic commerce, business intelligence and analytics applications.
iRenaissance applications are renowned for their deep and rich functional
fit to process industry requirements as well as their short implementation times
and cost-effective returns on investment.
The Company leverages contemporary Internet technologies to enable
significant benefits for its customers. Many Ross customers have benefited from
technology obsolescence protection as they have moved from older computing
platforms to current platforms by upgrading to new releases. Built on a highly
flexible technology platform, iRenaissance applications cost-effectively support
not only mid-size companies but scale effectively to support large, global
organizations in a wide range of languages and with thousands of users
processing hundreds of thousands of transactions daily. Ross customers also
benefit from the low cost of deployment and centralized maintenance afforded by
browser-based PC clients that provide secure access from any PC with Internet
access, to the system infrastructure at central locations where the software
resides and the data is managed. End-user satisfaction is enhanced by highly
configurable and easily personalized applications that provide follow-me
profiles for each user, regardless of physical location. Utilizing contemporary
standards such as XML, SOAP, Microsoft .NET and others, iRenaissance
applications can be effectively connected to any other applications or devices
via the Internet. Robust security features that leverage Internet standards
protect applications and data with both user-based and application function
profiles. The security facilities further enable companies in their effort to
achieve regulatory compliance by providing detailed audit trails for every
action taken by every user.
Because the Company's iRenaissance applications were developed with the
GEMBASE fourth generation language ("4GL"), the Company believes they are easily
modified and expanded. GEMBASE is a programming environment that delivers a
central data dictionary, complete screen painting, editing and debugging
capabilities, and links to most popular RDBMSs. GEMBASE itself is written in the
C programming language to facilitate portability across multiple hardware and
RDBMS platforms. Because the iRenaissance products were developed in GEMBASE,
customers often find it easy to customize their own applications.
Results of Operations
Revenues
Total revenues for the quarter ended December 31, 2002 of $12,173,000
increased 5% from $11,636,000 in the same quarter of fiscal 2002. Software
product license revenues were $3,474,000 during the quarter ended December 31,
2002, an increase of $554,000, or 19%, from the same quarter in fiscal 2002. The
Company experienced an increase over the same quarter of fiscal 2002 in the
North American market of approximately $1,217,000, or 174%. The North American
increase was primarily due to strong market acceptance of the Company's browser
based user interface, and features of its process manufacturing modules as well
as the absence of the after effects of the September 11th tragedy, which had had
a negative impact on the second quarter of the prior year. In addition, the
improving license revenue trend is a result of an increased visibility of the
Company in the North American process software ERP market space arising from
effective marketing activities over the fiscal year ended June 30, 2002. The
Company's sales in the European markets were virtually unchanged, with a net
increase of $53,000, or 4% over the same quarter in fiscal 2002 Product license
sales in the Asian and Pacific rim region decreased by $716,000 to $3,000 during
the quarter ended December 31, 2002, from $719,000 in the same quarter of fiscal
2002. This reflects a change in seasonal patterns. Overall sales with this
distributor have not diminished, but the volume occurring in the second
13
ROSS SYSTEMS, INC. AND SUBSIDIARIES
quarter has decreased. This reasoning also applies for the six-month period
ended December 31, 2002, when compared to the same six months in the prior year.
Consulting and other services revenues for the second quarter of fiscal
2003 decreased 2% to $3,230,000 from $3,285,000 in the same quarter of fiscal
2002. Revenues from consulting and other services (which are typically
recognized as performed) are generally correlated with software product license
revenues (which are typically recognized upon delivery), therefore, service
revenues fluctuate based upon related fluctuations in software product revenue.
For the quarter ended December 31, 2002, North American services revenues
increased 19% at $2,014,000 compared to $1,698,000 over the same quarter in the
prior year. This primarily reflects new services work arising from the growth in
software sales over the last fiscal year. International services revenues
decreased $371,000, or 24% over the same quarter in the prior year. This
decrease is mainly due to the absence of Euro dollar implementation work in the
current quarter compared to the same quarter in the prior year. Similar trends
are true for the six month period ended December 31, 2002, when compared to the
same six months in the prior year.
Maintenance revenues decreased by $55,000 or 1% in the second quarter of
fiscal 2003 versus the same quarter in the prior year. This is attributable
mainly to new maintenance contract additions from prior year software license
sales occurring at a lower rate than retirements in North America. The increase
of $321,000 or 24% in International maintenance revenues is attributable mainly
to the negotiation of new maintenance contracts, including back-maintenance
provisions, for contracts which had previously cancelled but have been
reinstated on the Euro compliant version of the product. Maintenance contracts
sold by third party distributors are included by the Company in software product
license revenues because the Company has no support obligations to any of the
distributors' customers. The increases in Europe were largely offset by a
decline of $376,000 in North American maintenance revenues.
Maintenance revenues for the six-month period ended December 31, 2002
decreased by 3% to $10,088,000 from $10,442,000 in the same period in the prior
year. The slower rate of decrease in the second quarter as compared to the first
quarter of fiscal 2003 is due to a larger number of the new maintenance
contracts in the International region referred to above, occurring in the latter
half of the six-month period.
Reimbursable expenses billed were up by 44% to $304,000 for the second
quarter of fiscal 2003, from $211,000 in the same quarter in the prior year.
This increase was due to more frequent travel activity at shorter intervals by
implementation consultants involved in more customer projects in the current
fiscal year compared to fewer customer projects with longer travel intervals
during the prior fiscal year. In addition, the prior year's quarter was affected
by the aftermath of the September 11, 2001 tragedy, as consultants sought
alternative ways to continue with customer projects without air travel, and
therefore billed the customers for less expenses.
14
ROSS SYSTEMS, INC. AND SUBSIDIARIES
International revenues as a percentage of total revenues decreased to 39%
in the second quarter fiscal 2003 from 40% for the same quarter in fiscal 2002.
International revenues decreased $596,000 or 12% over the same quarter in the
prior year. This decrease was due to lower software license revenues and lower
services revenues in the second quarter of fiscal 2003 as compared to the same
quarter in the prior year. Similar trends apply to the six month period ended
December 31, 2002 when compare to the same period in the prior year.
North American revenues comprised 61% of the second quarter 2002 total
revenues, up from 48% in the same quarter of the prior year. North American
revenues increased 17% over the same quarter of the previous fiscal year. This
increase was due to the steady growth software revenues combined with a
commensurate increase in services revenues.
Operating Expenses
Costs of software product licenses include expenses primarily related to
royalties paid to third parties. Third party royalty expenses will vary from
quarter to quarter based on the number of third party products being sold by the
Company. Major third party products sold by the Company include databases and
other optional software including certain functional modules for CRM and SCM as
well as reporting, and productivity tools. As a percentage of software product
license revenue, the costs of software product licenses increased to 15% in the
second quarter of fiscal 2003 compared to 11% in the same quarter of fiscal
2002. As a result, the costs of software product licenses for the second quarter
of fiscal 2003 increased by 68% to $521,000 from $311,000 in the second quarter
of fiscal 2002. The increase in costs for software product licenses for the
quarter was primarily due to the increase in the proportion of third party
products in total software sales sold in fiscal 2003 compared to the prior year.
This relative increase in third party content in sales reflects the particular
mix of sales in the quarter and is not related to any specific trend in software
sales generally.
Costs of consulting and other services include expenses related to
consulting and training personnel, personnel providing customer support pursuant
to maintenance agreements, and other related costs of sales. The Company also
uses outside consultants to supplement Company personnel in meeting peak
customer consulting demands.
Certain expenses previously reflected as sales and marketing have been
reclassified as costs of consulting, maintenance and other services for the
quarter ended December 31, 2002. This reclassification of expenses arose out of
the necessity to match a change in the presentation of costs in the current
period. Historically, the European subsidiaries have been predominantly sales
offices and, as such, the majority of their operating costs have been reflected
in sales and marketing in the Condensed Consolidated Statements of Operations.
During the first quarter of FY2003, the Company undertook a specific and
detailed review of the cost structures of our European subsidiaries in light of
the change in sales mix and employee base over time. It was determined that many
of the costs, including salary and social costs of the employees, travel and
entertainment expenses and certain allocable common infrastructure costs which
relate to consulting and support activity were being grouped with sales and
marketing costs. The change between sales and marketing versus consulting arose
due to the maturity of the European operations and the manner in which the
operations have evolved over the last several reported accounting periods. While
the allocation of costs requires judgment, and while our employees perform
multiple tasks based upon the then current needs of the organization, management
believes that this reclassification of costs is necessary to provide the most
accurate view of the efforts expended by the European subsidiaries over the
periods reported. Therefore for current quarter, and the comparative quarter in
the prior fiscal year, the expenses named above which relate to consulting and
support services, have been reclassified from sales and marketing, and are now
classified as consulting, maintenance, and other services.
15
ROSS SYSTEMS, INC. AND SUBSIDIARIES
A corresponding reclassification of costs in the prior year figures has
been effected as shown in the table below:
Three months ended Six months ended
December 31, December 31,
------------------------------- ------------------------------
2001 2001 Reclassified 2001 2001 Reclassified
---- ----------------- ---- -----------------
Costs of consulting, maintenance and
other services $ 2,516 $ 4,409 4,573 $ 8,494
Software product license sales and
marketing 3,505 2,211 6,993 4,195
Product development net of capitalized and
amortized computer software costs 3,063 2,758 5,820 5,197
General and administrative 1,250 1,167 2,669 2,545
Less reimbursable services expenses
billed to customers (211) (376)
-------- -------- -------- --------
$ 10,334 $ 10,334 $ 20,055 $ 20,055
======== ======== ======== ========
Costs of consulting and other services decreased by 5% to $4,176,000 in
the second quarter of fiscal 2003, as compared to $4,409,000 in the second
quarter of fiscal 2002. The decrease in these costs for the quarter relates to
the Company's lower content of outside consultants utilized in Europe for
localized software maintenance, when compared to the costs of the same quarter
in the prior year. As a result of the higher cost levels, the Company's
operating margin resulting from consulting, maintenance and other services
revenues for the second quarter of fiscal 2003 was 50%, up from 48% in the same
quarter of fiscal 2002.
For the six-month period ended December 31, 2002, costs of consulting and
other services have increased slightly by 1% to $8,577,000 from $8,493,000 due
to the higher utilization of outside consultants in Europe in the first quarter
of the current fiscal year.
Sales and marketing expenses of $2,883,000 for the quarter ended December
31, 2002 reflected an increase of 30% when compared to $2,211,000 in the second
quarter of fiscal 2002. This increase indicates the higher levels of sales
personnel in Europe, additional marketing staff in North America, additional
costs relating to several trade and user group conferences in the period, and
higher North American sales commissions due to the higher sales levels in the
second quarter of fiscal 2003 compared to the same quarter in the prior year.
This trend also applies to the six-month period ended December 31, 2002 when
compared to the same period in the prior year.
An amount of $305,000 and an amount of $623,000 previously reflected as
product development expenses has been reclassified as costs of consulting,
maintenance and other services for the quarter and the six months ended December
31, 2002, respectively. This reclassification of expenses arose out of the
necessity to match a change in the presentation of costs in the current period.
Certain personnel related expenses incurred in support of customer specific
activity have historically been reflected in product development expenses.
However, due to the increasing materiality of these expenses, they are now more
appropriately classified as consulting, maintenance and other services expenses.
16
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Product development (research and development) expenses of $1,746,000 in
the second quarter of fiscal 2003 were down from $2,758,000 in the same quarter
of the prior year. The following table summarizes product development
expenditures (in thousands):
Three months ended Six months ended
December 31, December 31,
------------------------ ------------------------
2002 2001 2002 2001
------- ------- ------- -------
Gross Expenditures for Product Development ..................... $ 1,647 $ 1,854 $ 3,422 $ 3,558
Less: Expenses capitalized ..................................... (1,030) (1,180) (2,190) (2,154)
Plus: Amortization of previously capitalized amounts ........... 1,129 2,084 2,315 3,793
------- ------- ------- -------
Total Product Development Expenses ............................. $ 1,746 $ 2,758 $ 3,547 $ 5,197
======= ======= ======= =======
As a percentage of total revenues, product development expenses for the
three-month period ended December 31, 2002 decreased over the expense in the
same period of the prior year as a result of the lower amortization of
previously capitalized expenses. Amortization expense decreased by 46% due to a
charge for impairment of unamortized software effected in the quarter ended June
30, 2002. Product development expenditures decreased by 11% to $1,647,000 in the
quarter ended December 31, 2002 from $1,854,000 in the same quarter in the prior
year. The decrease in amortization in the current fiscal year also accounts for
the decrease in the product development expenses for the six-month period ended
December 31, 2002 when compared to the same period in the prior year.
General and administrative expenses for the quarter ended December 31,
2002 decreased by 11%, to $1,045,000 from $1,167,000 in the same quarter of the
prior year. This decrease was due to minor cost savings in several expense
categories. Similar savings in the first quarter of fiscal 2003 accounted for
the overall reduction in general and administrative expenses of 6% for the
six-month period ended December 31, 2002 as compared to the same period in the
prior year.
In the three month period ended December 31, 2002, the Company recorded a
provision for doubtful accounts of $242,000, as compared to $261,000 recorded in
the second quarter of fiscal 2002. The fiscal 2003 and 2002 provisions consisted
primarily of specific customer accounts identified as being potentially
uncollectable. These provisions represent management's best estimate of the
doubtful accounts for each period.
Other Expense, Net
Other expense for the quarter ended December 31, 2002 was $27,000 as
compared to $108,000, in the same quarter of fiscal 2002. These amounts
primarily consisted of interest expense related to borrowings under the
Company's existing line of credit facility, and the reduction reflects the lower
average levels of the Company's indebtedness.
Income Tax Expense
During the second quarter of fiscal 2003, the Company recorded an income
tax expense of $65,000 compared with a benefit of $115,000 recorded during the
same quarter in fiscal 2002. The fiscal 2003 tax expense relates to a provision
in the US holding company for minimum income taxes payable on profits in the
current fiscal year. The benefit in the prior year period was due to refunds of
previously paid taxes.
17
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
In the first six months of fiscal 2003, net cash provided by operating
activities increased $3,975,000 compared to the same period of the prior year.
This included an aggregate net decrease in the non-cash charges for
depreciation, amortization and provisions for bad debt of $1,603,000 and an
aggregate increase in the combined cash used by prepaids and other current
assets, taxes payable, accrued expenses, accounts payable and deferred revenues
of $3,066,000. In addition, sources of cash provided by accounts receivable
increased $1,383,000 in the six months ended December 31, 2002 as compared to
the same period in fiscal 2002. This net cash increase was enhanced by cash
provided by an increase of Company earnings of $1,129,000 in the first six
months of fiscal 2003 as compared to the first six months of fiscal 2002.
In the first six months of fiscal 2003, the Company utilized $2,630,000
for investing activities versus $2,273,000 over the same period of the prior
year, an increase of $357,000. Investment in property and equipment was up
$176,000 to $435,000 in the first six months of fiscal 2003, from $259,000 in
same period in the prior year. Investments in capitalized computer software
costs increased by $48,000. Other items, primarily deposits, provided $133,000
less in cash in the first six months of this fiscal year.
Net cash flows used for financing activities decreased by $329,000 for the
six months ended December 31, 2002, versus the same period of the prior fiscal
year. Cash received by drawing on the Company's credit lines decreased by
$386,000 to $314,000 for the six months ended December 31, 2002, from $700,000
for the same period in the prior year. Proceeds from the issue of shares to
employees under the Employee Stock Purchase Plan, and the exercise of options by
employees, amounted to $191,000 in the six months ended December 31, 2002, an
increase of $89,000 over the same period in the prior year.
At December 31, 2002 the Company had $6,019,000 of cash and cash
equivalents. The Company also has a revolving credit facility with an
asset-based lender with a maximum credit line for up to $5,000,000, an
expiration date of September 23, 2004, and an interest rate equal to the Prime
Rate plus 2% (approximately 6.75% at December 31, 2002). Borrowings under the
credit facility are collateralized by substantially all the assets of the
Company. At December 31, 2002, the Company had $3,508,000 outstanding against
the $5,000,000 revolving credit facility, and based on eligible accounts
receivable at December 31, 2002, the Company's cash and remaining borrowing
capacity under the revolving credit facility totaled approximately $6,020,000,
higher by $2,530,000 compared to $3,490,000 at December 31, 2001.
Risk Factors
License revenues: The Company's software product license revenues can
fluctuate depending upon such factors as overall trends in the United States and
International economies, new product introductions by the Company, as well as
customer buying patterns. Because the Company typically ships software products
within a short period after orders are received, and therefore maintains a
relatively small backlog, any weakening in customer demand can have an almost
immediate adverse impact on revenues and operating results. Moreover, a
substantial portion of the revenues for each quarter is attributable to a
limited number of sales and tends to be realized in the latter part of the
quarter. Thus, even short delays or deferrals of sales near the end of a quarter
can cause substantial fluctuations in quarterly revenues and operating results.
Finally, certain agreements signed during a quarter may not meet the Company's
revenue recognition criteria resulting in deferral of such revenue to future
periods. Because the Company's operating expenses are based on anticipated
revenue levels and a high percentage of the Company's expenses are relatively
fixed, a small variation in the timing of the recognition of specific revenues
can cause significant variation in operating results from quarter to quarter.
Economic slowdown: Our business maybe adversely impacted by the worldwide
economic slowdown and related uncertainties. Weak economic conditions worldwide
have contributed to the current technology industry slow-down. This may impact
our business resulting in reduced demand and increased
18
ROSS SYSTEMS, INC. AND SUBSIDIARIES
price competition, which may result in higher overhead costs, as a percentage of
revenues. Additionally, this uncertainty may make it difficult for our customers
to forecast future business activities. This could create challenges to our
ability to grow our business profitably. If the economic or market conditions
further deteriorate, this could have a material adverse impact on our results of
operations and cash flow.
Competition: We may face increased competition and our financial
performance and future growth depend upon sustaining a leadership position in
our product functionality. Competitive challenges faced by Ross are likely to
arise from a number of factors, including: industry volatility resulting from
rapid development and maturation of technologies; industry consolidation and
increasing price competition in the face of worsening economic conditions.
Although there are fewer competitors in our target markets than previously, our
failure to compete successfully against those remaining could harm our business
operating results and financial condition.
Stock price: Our stock price, like that of other technology companies, is
subject to volatility because of factors such as the announcement of new
products, services or technological innovations by us or our competitors,
quarterly variations in our operating results, and speculation in the press or
investment community. In addition, our stock price is affected by general
economic and market conditions and may be negatively affected by unfavorable
global economic conditions.
Intellectual property: Our business may suffer if we cannot protect our
intellectual property. We generally rely upon copyright, trademark and trade
secret laws and contract rights in the United States and in other countries to
establish and maintain our proprietary rights in our technology and products.
However, there can be no assurance that any of our proprietary rights will not
be challenged, invalidated or circumvented. In addition, the laws of certain
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. Therefore, there can be no assurance that we will be
able to adequately protect our proprietary technology against unauthorized
third-party copying or use, which could adversely affect our competitive
position. Further, there can be no assurance that we will be able to obtain
licenses to any technology that we may require to conduct our business or that,
if obtainable, such technology can be licensed at a reasonable cost.
Litigation: In the ordinary course of business, we may become involved in
litigation and administrative proceedings. Such matters can be time-consuming,
divert management's attention and resources and cause us to incur significant
expenses. Furthermore, there can be no assurance that the results of any of
these actions will not have a material adverse effect on our business, results
of operations or financial condition.
Key Personnel: Our success depends upon retaining and recruiting highly
qualified employees and management personnel. However, we may face severe
challenges in attracting and retaining such employees. Although our turnover is
historically low, if our ability to maintain a stable workforce is significantly
handicapped, our ability to compete may be adversely affected.
19
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The risks described below are not the only ones that we face. Additional
risks and uncertainties not presently known to us may also impair our business
operations. Our business, operating results or financial condition could be
materially adversely affected by, and the trading price of our common stock
could decline due to any of these risks.
Foreign Exchange: The company has a worldwide presence and as such
maintains offices and derives revenues from sources overseas. For the second
quarter of fiscal 2003, international revenues as a percentage of total revenues
were approximately 39%. The Company's international business is subject to
typical risks of an international business, including, but not limited to:
differing economic conditions, changes in political climates, differing tax
structures, other regulations and restrictions, and foreign exchange rate
volatility. Accordingly, the Company's future results could be materially
adversely impacted by changes in these or other factors. The effect of foreign
exchange rate fluctuations on the Company in the first three months of fiscal
2003 was not material.
Interest Rates: The Company's exposure to interest rates relates primarily
to the Company's cash equivalents and certain debt obligations. The Company
invests in financial instruments with original maturities of three months or
less. Any interest earned on these investments is recorded as interest income on
the Company's statement of operations. Because of the short maturity of our
investments, a near-term change in interest rates would not materially effect
our financial position, results of operations, or cash flows. Certain of the
Company's debt obligations include a variable rate of interest. A significant,
near term change in interest rates could materially effect our financial
position, results of operations or cash flows.
The Company did not engage in any derivative/hedging transactions.
20
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Item 4. Controls and Procedures
Within 90 days prior to the filing date of this report, the Company
carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer, the Executive Vice President Operations, and the Chief Financial
Officer of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the
Company's management have concluded that the Company's disclosure controls
and procedures (as defined in Rules 13a-14 and 15d-14 of the Exchange Act)
are effective. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect
these internal controls subsequent to the completion of their evaluation.
21
ROSS SYSTEMS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on November 14, 2002. The
following table shows the voting information for each item voted upon:
- -------------------------------------------------------------------------------------------------------------
FOR AGAINST
- -------------------------------------------------------------------------------------------------------------
NOMINEES FOR ELECTION AS DIRECTORS
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Frank M. Dickerson 2,278,989 --
- -------------------------------------------------------------------------------------------------------------
J. William Goddhew III 2,278,414 --
- -------------------------------------------------------------------------------------------------------------
Bruce J. Ryan 2,278,869 --
- -------------------------------------------------------------------------------------------------------------
J. Patrick Tinley 2,278,033 --
- -------------------------------------------------------------------------------------------------------------
Robert B. Webster 2,277,756 --
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
TO INCREASE THE NUMBER OF OPTIONS AVAILABLE UNDER THE
1998 STOCK OPTION PLAN 470,852 180,057
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
TO AMEND THE CERTIFICATE OF INCORPORATION OF THE
COMPANY TO REDUCE THE AUTHORIZED SHARE CAPITAL OF THE COMPANY 2,269,932 25,493
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
TO AMEND THE 1998 STOCK OPTION PLAN TO CHANGE THE ANNUAL
MAXIMUM QUANTITY OF OPTIONS WHICH CAN BE GRANTED TO AN INDIVIDUAL 2,092,103 203,318
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
TO APPROVE THE AMENDMENTS TO THE 1998 STOCK OPTION
PLAN TO CHANGE THE QUANTIY OF OPTIONS ISSUED TO EXTERNAL DIRECTORS 2,069,379 229,314
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS 2,276,002 19,116
- -------------------------------------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The Exhibits listed on the accompanying Index to Exhibits are filed as
part of, or incorporated by reference into, this Report.
2.1 Asset Sale Agreement between Registrant and Now Solutions LLC
dated March 5, 2001 (2)
3.1 Certificate of Incorporation of the Registrant, as amended (3)
3.2 Bylaws of the Registrant (3)
3.3 Amendment to the Certificate of Incorporation of the Registrant,
dated April 26, 2001, for the
22
ROSS SYSTEMS, INC. AND SUBSIDIARIES
1 for 10 Reverse Stock Split (8)
4.1 Certificate of Designation of Rights, Preferences and Privileges
of Series B Preferred Stock of the Registrant (1)
10.1 Preferred Shares Rights Agreement, dated as of September 4, 1998
between the Registrant and Registrar and Transfer Company (2)
10.2 Loan and Security Agreement dated September 24, 2002 between
Registrant and Silicon Valley Bank (8)
10.2A Series A Convertible Preferred Stock Agreement dated 29 June, 2001
between Registrant and Benjamin W. Griffith III (6)
10.3 Employment Agreement, dated as of January 7, 1999, between Mr.
Patrick Tinley and the Registrant (4)
10.4 Employment Agreement, dated as of September 17, 1999, between Mr.
Robert Webster and the Registrant (5)
99.1 Certification of Chief Executive Officer, Executive Vice President
Operations, and Chief Financial Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
99.2 Amendment to the Certificate of Incorporation of the Registrant,
dated November 14, 2002 for the reduction of Authorized Share
Capital
(1) Incorporated by reference to the exhibit filed with the
Registrant's Current Report on Form 10-Q filed May 6, 1996.
(2) Incorporated by reference to the exhibit filed with the
Registrant's Registration Statement on Form 8-A filed September 4,
1998.
(3) Incorporated by reference to the exhibit filed with the
Registrant's Current Report on Form 8-K filed July 24, 1998.
(4) Incorporated by reference to the exhibit filed with the
Registrant's Current Report on Form 10-Q filed May 17, 1999.
(5) Incorporated by reference to the exhibit filed with the
Registrant's Current Report on Form 10-K filed September 28, 1999.
(6) Incorporated by reference to the exhibit filed with the
Registrant's Current Report on Form 10-K filed September 27, 2001.
(7) Incorporated by reference to the exhibit filed with the
Registrant's Registration Statement on Form 8-A/A filed October 3,
2001.
(8) Incorporated by reference to the exhibit filed with the
Registrant's Current Report on Form 10-K/A filed October 2, 2002
23
ROSS SYSTEMS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROSS SYSTEMS, INC.
Date: February 11, 2003 /s/ Verome M. Johnston
--------------------------------------------
Verome M. Johnston
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
24
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS
I, J. Patrick Tinley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ross Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 11, 2003 /s/ J. Patrick Tinley
----------------------------------------
J. Patrick Tinley
Chairman and Chief Executive Officer
25
ROSS SYSTEMS, INC. AND SUBSIDIARIES
I, Verome M. Johnston, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ross Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 11, 2003 /s/ Verome M. Johnston
------------------------------------------------
Verome M. Johnston
Vice President and Chief Financial Officer
26
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS
I, Robert B. Webster, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ross Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 11, 2003 /s/ Robert B. Webster
--------------------------------------
Robert B. Webster
Executive Vice President Operations
And Secretary
27