<PAGE> 1
As filed with the Securities and Exchange Commission on May 16, 1996.
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
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)
CALIFORNIA 94-2170198
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
555 TWIN DOLPHIN DRIVE, REDWOOD CITY, CALIFORNIA 94065
- - ------------------------------------------------ -----
(Address of principal executive offices) (Zip code)
(415) 593-2500
--------------
(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:
<TABLE>
<CAPTION>
Outstanding
Class May 1, 1996
----- -----------
<S> <C>
Common stock, no par value 16,932,321
Series D Preferred Stock, $10,000.00 Stated Value 125
</TABLE>
This is page 1 of 11 pages.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
-------------------- --------------------
1996 1995 1996 1995
------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues:
Software product licenses $ 6,536 $ 3,320 $15,905 $ 15,334
Consulting and other services 5,151 5,406 14,428 16,925
Maintenance 6,206 6,171 18,272 18,997
------- -------- ------- --------
Total revenues 17,893 14,897 48,605 51,256
------- -------- ------- --------
Operating expenses:
Costs of consulting,
maintenance and other services 6,264 6,943 18,904 20,924
Software product license sales and marketing 4,857 6,370 16,017 20,009
Product development 3,505 3,292 9,641 9,382
General and administrative 1,828 2,426 5,352 6,007
Provision for doubtful accounts and returns 191 1,597 352 1,756
Litigation settlements and expenses - 4,975 - 4,975
Amortization of other assets 97 114 291 635
Restructuring charges - - - (345)
------- -------- ------- --------
Total operating expenses 16,742 25,717 50,557 63,343
------- -------- ------- --------
Operating earnings (loss) 1,151 (10,820) (1,952) (12,087)
Other income (expense), net (313) (169) (984) 66
------- -------- ------- --------
Earnings (loss) before income taxes 838 (10,989) (2,936) (12,021)
Income tax expense 121 - 140 73
------- -------- ------- --------
Net earnings (loss) $ 717 $(10,989) $(3,076) $(12,094)
======= ======== ======= ========
Net earnings (loss) per common share
and common equivalent share $ 0.05 $ (0.80) $ (0.21) $ (1.05)
======= ======== ======= ========
Common and common equivalent
shares used in per share computation 15,876 13,718 14,463 11,492
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 3
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,253 $ 3,628
Accounts receivable, less allowance
for doubtful accounts and returns (Note B) 19,684 22,812
Notes receivable - 220
Prepaids and other current assets 1,838 2,157
Income taxes recoverable 720 1,071
------- -------
Total current assets 25,495 29,888
Property and equipment (Note C) 4,141 5,073
Computer software costs 19,393 17,528
Other assets 3,501 2,572
------- -------
Total assets $52,530 $55,061
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of debt $ 9,046 $ 4,998
Accounts payable 5,847 7,452
Accrued expenses 9,404 16,694
Deferred revenues 12,320 15,841
------- -------
Total current liabilities 36,617 44,985
------- -------
Long-term debt, less current installments 81 228
Shareholders' equity:
Preferred stock 5,122 -
Common stock 59,930 55,854
Accumulated deficit (48,596) (45,520)
Cumulative translation adjustment (624) (486)
------- -------
Total shareholders' equity 15,832 9,848
------- -------
Total liabilities and shareholders' equity $52,530 $55,061
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 4
ROSS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
March 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,076) $(12,094)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization of property and equipment 1,485 1,705
Amortization of computer software costs 4,298 3,040
Amortization of other assets 291 635
Change in allowance for doubtful accounts and returns (519) 317
Restructuring charges - (345)
Gain on sale of assets - (755)
Provision for litigation claim - 4,975
Changes in operating assets and liabilities:
Accounts receivable 2,545 1,489
Prepaids and other current assets 220 (335)
Income taxes recoverable 344 551
Accounts payable (1,409) 151
Accrued expenses (5,418) (4,178)
Income taxes payable - (171)
Deferred revenues (3,372) 228
Other, net 7 13
------- --------
Net cash used for operating activities (4,604) (4,774)
------- --------
Cash flows from investing activities:
Purchases of property and equipment (704) (519)
Computer software costs capitalized (6,163) (5,523)
Acquisitions and divestitures 220 1,895
Other 222 (47)
------- --------
Net cash used for investing activities (6,425) (4,194)
------- --------
Cash flows from financing activities:
Line of credit, capital lease and other debt payments (962) (4,198)
Line of credit borrowings 4,934 1,201
Proceeds from private equity financings, net 6,396 -
Proceeds from issuance of common stock 317 11,844
------- --------
Net cash provided by financing activities 10,685 8,847
------- --------
Effect of exchange rate changes on cash (31) 5
------- --------
Net cash used during the period (375) (116)
Cash and cash equivalents at beginning of period 3,628 4,816
------- --------
Cash and cash equivalents at end of period $ 3,253 $ 4,700
======= ========
Noncash investing and financing activities:
Purchase of assets for common stock $ 1,495 $ -
======= ========
Acquisition of business for related accounts receivable $ 759 $ -
======= ========
Settlement of litigation for common stock $ 990 $ -
======= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Ross Systems, Inc. (the "Company") 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 March 31, 1996, and the results
of its operations and cash flows for the interim periods presented. Certain
reclassifications have been made for consistent presentation. The Company's
results of operations for the three and nine months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
These unaudited condensed 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 Shareholders on Form 10-K for the fiscal year ended
June 30, 1995.
B) Accounts receivable
As of the dates shown, accounts receivable consisted of the following
(in thousands):
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
------- -------
<S> <C> <C>
Trade accounts receivable $21,916 $25,592
Less allowance for doubtful accounts and returns 2,232 2,780
------- -------
$19,684 $22,812
======= =======
</TABLE>
C) Property and equipment
As of the dates shown, property and equipment consisted of the
following (in thousands):
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
------- -------
<S> <C> <C>
Computer equipment $11,953 $11,821
Furniture and fixtures 3,718 4,086
Leasehold improvements 1,612 1,334
------- -------
17,283 17,241
Less accumulated depreciation and amortization 13,142 12,168
------- -------
$ 4,141 $ 5,073
======= =======
</TABLE>
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, hardware vendors and other software vendors, 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. Consequently, the Company could meet or exceed its
internal estimates of aggregate contracting activity, but not be able to meet
its internal estimates for revenues. 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.
Equity Financing Transactions
The Company recently completed two private placements of equity
securities. Please refer to "Liquidity and Capital Resources" for a description
of these transactions.
RESULTS OF OPERATIONS
Revenues
Total revenues for the quarter ended March 31, 1996 increased 20% to
$17,893,000 from $14,897,000 in the same quarter of fiscal 1995. Software
product license revenues were 97% higher than the same quarter of the prior
year, consulting and other services revenues were 5% lower than the prior year
and maintenance revenues increased over the prior year by 1%. For the nine month
period ended March 31, 1996, total revenues decreased 5% to $48,605,000 from
$51,256,000 in the same period of fiscal 1995. Software product license revenues
increased from the prior year by approximately 4%, consulting and other services
revenues declined by 15%, and maintenance revenues decreased by 4%.
Software product license revenues were $6,536,000 during the quarter,
an increase of $3,216,000, or 97%, from the same period in fiscal 1995. North
American and Asian software product license revenues increased $3,262,000 and
$554,000, respectively, from the same quarter in fiscal 1995, while European
software product license revenues declined by approximately $600,000, or 36%,
from the same period of fiscal 1995. Software product license revenues for the
third quarter of fiscal 1996 included one large contract that contributed
significantly to the growth in North America. The Company's client/server, open
systems and fourth generation language ("4GL") products represented
approximately 99% of total software product license revenues for the quarter
ended March 31, 1996,
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<PAGE> 7
compared with 81% for the same quarter in fiscal 1995. The Company experienced
growth in software product license revenues from each of its client/server open
system product suites. The Renaissance CS Financial and Manufacturing product
suites represented approximately 76% of the quarter's software product license
revenues. For the nine month period ended March 31, 1996, software product
license revenues increased by $571,000 from the prior year. This increase in
software product license revenues consisted of (i) an increase in North American
software product license revenues of $1,226,000, or 13%, (ii) an increase in
Asian software product license revenues of $676,000, or 154%, and (iii) a
decrease in European software product license revenues of $1,331,000, or 24%.
For the nine month period ended March 31, 1996, the Company's client/server,
open systems and 4GL products represented approximately 95% of total software
product license revenues, compared with 87% for the same period in fiscal 1995.
For the third quarter of fiscal 1996, consulting and other services
revenues decreased 5% to $5,151,000 from $5,406,000 in the same period of fiscal
1995. For the quarter, North American consulting and other services revenues
decreased by $233,000, or 7%, while European consulting and other services
revenues decreased $22,000. For the nine month period ended March 31, 1996,
consulting and other services revenues decreased 15%, or $2,497,000, from the
same period of the prior year. On a pro forma basis, after excluding revenues
associated with the PRO/FIT product line, which the Company sold on September
30, 1994, consulting and other services revenues decreased by 10% during the
nine month period.
Maintenance revenues for the third quarter of fiscal 1996 increased by
1% to $6,206,000 from $6,171,000 in the third quarter of fiscal 1995. For the
nine month period ended March 31, 1996, maintenance revenues decreased $725,000,
or 4%, from fiscal 1995 results. On a pro forma basis, after excluding PRO/FIT
revenues, maintenance revenues decreased by 2% during the nine month period.
International revenues as a percentage of total revenues decreased to
35% in the third quarter of fiscal 1996 from 45% in the same quarter last year.
For the nine month period ended March 31, 1996, international revenues
represented 39% of total revenues, as compared to 37% for the same period in
fiscal 1995.
Operating Expenses
Costs of consulting, maintenance and other services include expenses
related to consulting and training personnel, personnel providing customer
support pursuant to maintenance agreements, product documentation, packaging and
associated manufacturing costs, and other costs of sales. Costs of consulting,
maintenance and other services decreased by 10% to $6,264,000 in the third
quarter of fiscal 1996, as compared to $6,943,000 in 1995. The majority of the
decrease resulted from a reduction in personnel-related expenses of $561,000,
travel expenses of $106,000 and various other cost of revenues decreases,
partially offset by increases in costs related to outside consultants of
approximately $175,000. The Company uses outside consultants to supplement
Company personnel in meeting peak customer consulting demands. For the nine
months ended March 31, 1996, costs of consulting, maintenance and other services
decreased 10% to $18,904,000 from $20,924,000 in the same period of 1995. On a
pro forma basis, after excluding results of the PRO/FIT division, costs of
consulting, maintenance and other services decreased 6%, or $1,165,000, from the
same period of the prior year. Decreases for the nine months ended March 31,
1996 resulted from decreases in personnel-related expenses of approximately
$1,155,000 from the same period of the prior year and facilities related
expenses of approximately $270,000. These decreases were partially offset by
increases in outside consulting expenses during the nine months ended March 31,
1996 and
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<PAGE> 8
approximately $457,000 of prior year cost transfers related to consulting
personnel who were temporarily working in the sales organization. There were no
similar cost transfers between the two organizations during fiscal 1996. The
Company's gross profit margin resulting from consulting, maintenance and other
services revenues for the third quarter of fiscal 1996 was 45%, up from 40% in
the same quarter of fiscal 1995. For the nine months ended March 31, 1996, the
margin was 42% as compared to 42% for the same period of 1995. The improvement
in the gross profit margin for the third quarter was primarily due to the
previously discussed expense reductions partially offset by declines in
consulting and other services revenue. The unchanged gross profit margin for the
nine month period was a result of a decline in consulting and other services
revenues, principally as a result of the sale of the PRO/FIT division in the
first quarter of fiscal 1995, offset by the declines in consulting and other
services expenses discussed above.
Software product license sales and marketing expenses for the quarter
decreased by 24% to $4,857,000 from $6,370,000 in fiscal 1995. For the nine
months ended March 31, 1996, software product license sales and marketing
expenses decreased 20% to $16,017,000 from $20,009,000 in fiscal 1995. For the
three and nine month periods ended March 31, 1996, the Company reduced
personnel-related expenses, marketing programs and travel expenses from prior
year levels. Also included in the nine month results for fiscal 1995 was
approximately $457,000 of cost transfers related to consulting personnel
temporarily working in the sales organization. No such cost transfers were made
during fiscal 1996. The Company's gross profit margin resulting from software
product license revenues for the third quarter of fiscal 1996 was 26%, up from
(92)% in the same quarter of fiscal 1995. For the nine months ended March 31,
1996, the margin was (1)% as compared to (30)% for the same period of fiscal
1995. Increases in software product license revenues during the three and nine
month periods, and the expense reductions discussed above, resulted in the
improved margins for both periods.
Product development expenses increased by 6%, to $3,505,000, in the
third quarter of fiscal 1996 from $3,292,000 in the same quarter of the prior
year. For the nine month period ended March 31, 1996, these expenses increased
3%, or $259,000 from the same period of fiscal 1995. The following table
summarizes product development expenditures (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expenses $ 3,505 $ 3,292 $ 9,641 $ 9,382
Amortization of previously capitalized
software development costs (1,583) (1,046) (4,298) (3,040)
-------- -------- -------- --------
Expenses, net of amortization 1,922 2,246 5,343 6,342
Capitalized software development costs 1,958 1,871 6,163 5,523
-------- -------- -------- --------
Total expenditures $ 3,880 $ 4,117 $ 11,506 $ 11,865
======== ======== ======== ========
Total expenditures as a
percent of total revenues 21.7% 27.6% 23.7% 23.1%
======== ======== ======== ========
Capitalized software, net of amortization,
as a percent of total expenditures 9.7% 20.0% 16.2% 20.9%
======== ======== ======== ========
</TABLE>
Product development expenditures during fiscal 1996 have been primarily
focused on continued enhancements to existing products and developing new
products. During the quarter, software development expenditures included amounts
attributable to developing new versions of GEMBASE, the Company's fourth
generation language, developing new
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<PAGE> 9
releases of the Renaissance CS Human Resource Series and porting Renaissance CS
to operate with additional databases.
General and administrative expenses for the quarter ended March 31,
1996 decreased by 25%, to $1,828,000 from $2,426,000 in the prior year. For the
nine month period, general and administrative expenses decreased by 11%, from
$6,007,000 to $5,352,000. The major causes of the decrease in general and
administrative expenses during the quarter were: decreases in personnel-related
costs, facilities related expenses, legal expenditures and other administrative
expenses; partially offset by increased expenses associated with two customer
settlements. For the nine month period ended March 31, 1996, the Company
experienced the decreases listed above from the same period of the prior year.
For the three month period ended March 31, 1996, the Company recorded a
provision for doubtful accounts and returns of $191,000. The provision consisted
of the following components: (a) $215,000 for (i) 20 specific customer accounts
receivable which the Company identified as being potentially uncollectible as a
result of payment history or possible disputes, and (ii) adjustments to the
Company's general provision for uncollectible accounts; (b) credits of $102,000
issued by the Company to 14 customers (these credits are typically issued to
resolve disputes regarding (i) consultant billing rates and/or hours billed, or
(ii) applicable distributor royalty rates); and, (c) $(126,000) for three
customers related to resolution of other disputes for which the Company had
previously established reserves (disputes of this kind typically relate to (i)
changes in customer requirements resulting from changes in their business or
(ii) products and services which have not fully met customer expectations).
For the comparable period in fiscal 1995, the Company recorded a
provision for uncollectible accounts of $1,597,000. The provision consisted of
the following components: (a) $807,000 for (i) 14 specific customer accounts
receivable which the Company identified as being potentially uncollectible as a
result of payment history or possible disputes, and (ii) adjustments to the
Company's general provision for uncollectible accounts; (b) credits of $209,000
issued by the Company to 28 customers (these credits are typically issued to
resolve disputes regarding (i) consultant billing rates and/or hours billed, or
(ii) applicable distributor royalty rates); and, (c) $581,000 for two customers
related to resolution of other disputes (disputes of this kind typically relate
to (i) changes in customer requirements resulting from changes in their business
or (ii) products and services which have not fully met customer expectations).
Amortization of other assets decreased in the third quarter of fiscal
1996 to $97,000, as compared to $114,000 in the same period last year. For the
nine month period, amortization of other assets was $291,000, compared to
$635,000 in the same period of the prior year. Amortization related to the
purchase of the Company in 1988 and its subsequent acquisitions of other
products and companies. Amortization expense has declined as related balances
have been fully amortized.
Expenses for the nine month period ended March 31, 1995 reflect a
credit of $345,000 from the reversal of a portion of a previously accrued
restructuring charge.
Other Income/(Expense)
Net other expense was $313,000 for the quarter, as compared to $169,000
in the same quarter of fiscal 1995. For the nine month period ended March 31,
1996, other expense was $984,000 as compared to other income of $66,000 in the
same period of the prior year. Fiscal 1996 other expense amounts principally
consisted of interest expense.
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Included in fiscal 1995 other income was a $755,000 gain on the sale of certain
assets related to the Company's PRO/FIT product line, partially offset by
interest expense.
Income Tax Expense
During the third quarter of fiscal 1996, the Company incurred income
tax expense of $121,000 as compared to no income tax expense incurred on the
third quarter of fiscal 1995 net loss. For the nine months ended March 31, 1996,
income tax expense was $140,000 as compared to $73,000 in the same period of the
prior year. Income tax expense for fiscal 1996 primarily related to withholding
taxes accrued in certain foreign jurisdictions where the Company had no
available net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its continuing operations through cash
generated from operations, existing cash balances, available credit facilities
and funds raised in two private equity financings. At March 31, 1996, the
Company had $3,253,000 of cash and cash equivalents and total borrowings of
$8,802,000 against a $10,000,000 revolving credit facility. Borrowings under the
credit facility are secured by substantially all assets of the Company. During
the quarter, the Company received $7 million of cash as a result of the two
private equity financings described below.
On December 29, 1995, the Company entered into a Subscription Agreement
with a foreign institutional investor pursuant to which the investor purchased
500,000 shares of the Company's Series A Preferred Stock for an aggregate
purchase price of $2 million. In connection with this transaction, the investor
granted the Company options (the "Options") to require the investor to purchase
shares of the Company's Preferred Stock with an aggregate value of $4 million
during the period from and including July 1, 1996 through and including December
30, 1998. The Company has created and reserved 500,000 shares of its Series B
Preferred Stock and 500,000 shares of its Series C Preferred Stock for issuance
and sale to the investor upon exercise of the Options. In addition, the Company
granted the investor a warrant (the "Warrant") to purchase 400,000 shares of the
Company's Common Stock at an exercise price of $5.576 per share during the
period from and including July 1, 1997 through and including December 29, 2000.
Under certain circumstances the holders of the Series A, B and C Preferred Stock
may require the Company to redeem their shares at stated value plus dividends
accrued at 2% per annum from their original issue. On January 2, 1996, the
Company received net cash from the investor of approximately $1,870,000, after
payment of placement agent fees and other related offering expenses. The Company
has used the proceeds from this transaction to satisfy vendor obligations and to
increase working capital. On or about January 26, 1996, the Company was advised
by the National Association of Securities Dealers, Inc. (the "NASD") that it
would be required to obtain shareholder approval before exercising the Options
because of the possibility that the number of shares issued upon conversion of
the Series A, B and C Preferred Stock (if converted at a price below the price
at which the Series A Preferred stock was sold) could exceed 20% of the Common
Stock outstanding on the date of issuance of the Series A Preferred stock, thus
triggering the shareholder approval requirement set forth in Part III, Section
6(i)(d) of Schedule D to the By-Laws of the NASD. Accordingly, the Company plans
to seek approval to exercise the Options from its shareholders prior to issuing
any of the Series B or C Preferred Stock, or to amend the terms of the Options
to limit the number of shares of Common Stock issued in connection with the
Options.
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<PAGE> 11
In addition, on February 23, 1996, the Company closed a private
placement of shares of its Series D Preferred Stock (the "Series D") to a small
number of institutional investors (the "Transaction"). The total gross proceeds
from the Transaction were $5,000,000. The Series D is convertible into shares of
the Company's Common Stock at a conversion price equal to the lower of (i)
$2.65, or (ii) 82% of the Market Price prior to the date on which Series D
shares are converted into Common Stock. Under the NASD By-Laws, shareholder
approval is required prior to the issuance of securities in connection with a
private placement which could result in the sale or issuance by the Company "of
common stock (or securities convertible into or exercisable for common stock)
equal to 20% or more of the common stock or 20% or more of the voting power
outstanding before the issuance for less than the greater of book or market
value of the stock" (Part III, Section 6 (i)(1)(d) of Schedule D to the NASD
By-Laws). In cases where "the delay in securing shareholder approval would
seriously jeopardize the financial viability of the enterprise" (Part III,
Section 6 (i)(1)(e)), the NASD By-Laws further provide for an exception to the
shareholder approval requirement upon application to the NASD. The Company
received from the NASD such an exception, which was conditional upon the Audit
Committee of the Company's Board of Directors approving the exception and the
notification of shareholders of the Company's election not to seek their
approval of the Transaction. The Company notified the shareholders of the
election not to seek their approval of the transaction on February 13, 1996 and
by February 28, 1996, the Company had received approximately $4,575,000 from the
Transaction, after payment of placement agent fees and other related offering
expenses. The Company has used the proceeds from this transaction to satisfy
vendor obligations and to increase working capital.
The Company believes that funds expected to be generated from future
operations, amounts available under the credit facility and funds to be received
in the future from the Options, in addition to the funds already received from
the two private equity financings described above, should be sufficient to meet
the Company's cash requirements for operations and capital expenditures for the
foreseeable future. However, in past periods, the Company has not been able to
accurately forsee future operating results. A material shortfall in the
Company's expected future operating results could have a material adverse effect
on its liquidity, financial condition, business and results of operations.
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROSS SYSTEMS, INC.
Date: May 16, 1996 /s/ JAMES A. WATTS, JR.
----------------------------------
James A. Watts, Jr.
Vice President, Finance and
Administration and Chief Financial
Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the March
31, 1996 financial statements for the 9 month period ended March 31, 1996 and is
qualified in its entirety by reference to such March 31, 1996 Form 10-Q filing.
</LEGEND>
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<NAME> ROSS SYSTEMS
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