<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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)
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 October 31, 1997
----- ----------------
Common stock, no par value 19,251,784
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This is page 1 of 19 pages.
Index to exhibits is on page 17.
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ROSS SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three months ended September 30, 1997 and 1996 3
Condensed Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997 4
Condensed Consolidated Statements of Cash Flows -
Three months ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
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PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
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SIGNATURES 16
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues:
Software product licenses..................................................................... $ 8,465 $ 6,797
Consulting and other services................................................................. 5,228 4,995
Maintenance................................................................................... 6,126 6,278
--------- ---------
Total revenues.............................................................................. 19,819 18,070
--------- ---------
Operating expenses:
Costs of software product licenses............................................................ 459 474
Costs of consulting, maintenance and other services........................................... 7,399 6,399
Sales and marketing........................................................................... 6,030 4,696
Product development........................................................................... 2,854 2,879
General and administrative.................................................................... 1,679 1,901
Provision for uncollectible accounts.......................................................... 648 654
Litigation settlement......................................................................... (381) --
Amortization of other assets.................................................................. 222 160
--------- ---------
Total operating expenses.................................................................... 18,910 17,163
--------- ---------
Operating earnings............................................................................. 909 907
Other expenses, net........................................................................... (306) (189)
--------- ---------
Earnings before income taxes................................................................... 603 718
Income tax expense............................................................................ 255 222
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Net earnings................................................................................... $ 348 $ 496
--------- ---------
--------- ---------
Net earnings per common and common equivalent share............................................ $ 0.02 $ 0.03
--------- ---------
--------- ---------
Shares used in per share computation........................................................... 19,658 18,876
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 2,633 $ 4,010
Accounts receivable, less allowance
for doubtful accounts and returns..................................................... 27,570 31,700
Prepaids and other current assets...................................................... 2,264 2,225
------------- ---------
Total current assets................................................................. 32,467 37,935
Property and equipment.................................................................. 4,246 4,540
Computer software costs................................................................. 22,396 21,666
Other assets............................................................................ 5,191 5,574
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Total assets......................................................................... $ 64,300 $ 69,715
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of debt........................................................... $ 11,978 $ 12,310
Accounts payable....................................................................... 6,490 9,188
Accrued expenses....................................................................... 6,437 8,393
Income taxes payable................................................................... 216 199
Deferred revenues...................................................................... 15,408 16,118
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Total current liabilities............................................................ 40,529 46,208
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Long-term debt, less current installments............................................... 428 394
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Redeemable preferred stock.............................................................. 1,053 1,053
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Shareholders' equity:
Common stock........................................................................... 73,738 73,756
Preferred stock
Accumulated deficit.................................................................... (49,992) (50,340)
Cumulative translation adjustment...................................................... (1,456) (1,356)
------------- ---------
Total shareholders' equity........................................................... 22,290 22,060
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Total liabilities and shareholders' equity........................................... $ 64,300 $ 69,715
------------- ---------
------------- ---------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Cash flows from operating activities:
Net earnings ................................................................................. $ 348 $ 496
Adjustments to reconcile net earnings to net cash provided by
(used for) operating activities:
Depreciation and amortization of property and equipment..................................... 656 464
Amortization of computer software costs..................................................... 1,861 1,587
Amortization of other assets................................................................ 222 160
Provision for uncollectible accounts........................................................ 648 654
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable........................................................................ 3,458 2,161
Prepaids and other current assets.......................................................... (39) (516)
Income taxes payable....................................................................... 17 176
Accounts payable........................................................................... (2,717) (472)
Accrued expenses........................................................................... (1,970) (2,032)
Deferred revenues.......................................................................... (715) (3,446)
Other, net.................................................................................. 3 (3)
--------- ---------
Net cash provided by (used for) operating activities....................................... 1,772 (771)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment........................................................... (194) (469)
Computer software costs capitalized........................................................... (2,689) (1,446)
Other......................................................................................... 101 114
--------- ---------
Net cash used for investing activities..................................................... (2,782) (1,801)
--------- ---------
Cash flows from financing activities:
Net line of credit activity................................................................... (270) (615)
Capital lease payments........................................................................ (41) (90)
Proceeds (costs) from issuance of common stock................................................ (18) 24
Proceeds from issuance of preferred stock..................................................... 0 3,737
--------- ---------
Net cash provided by (used for) financing activities....................................... (329) 3,056
--------- ---------
Effect of exchange rate changes on cash........................................................ (38) 1
--------- ---------
Net increase (decrease) in cash and cash equivalents........................................... (1,377) 485
Cash and cash equivalents at beginning of period............................................... 4,010 1,862
--------- ---------
Cash and cash equivalents at end of period..................................................... $ 2,633 $ 2,347
--------- ---------
--------- ---------
Noncash investing and financing activities:
Capital lease additions....................................................................... $ 13
---------
---------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
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 September 30, 1997, and the results of
its operations and cash flows for the interim periods presented. The Company's
results of operations for the three months ended September 30, 1997 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, 1997.
Certain fiscal 1997 amounts have been reclassified to conform with the
fiscal 1998 financial statement presentation.
B) Accounts receivable
As of the dates shown, accounts receivable consisted of the following (in
thousands):
September 30, June 30,
1997 1997
---- ----
Trade accounts receivable $29,844 $35,195
Less allowance for doubtful accounts and returns (2,274) (3,495)
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$27,570 $31,700
------- -------
------- -------
C) Property and equipment
As of the dates shown, property and equipment consisted of the following
(in thousands):
September 30, June 30,
1997 1997
---- ----
Computer equipment $12,333 $13,186
Furniture and fixtures 3,583 3,833
Leasehold improvements 1,630 1,935
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17,546 18,954
Less accumulated depreciation and amortization (13,300) (14,414)
$ 4,246 $ 4,540
------- -------
------- -------
6
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
D) New accounting pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("Statement 128") and Statement of Financial Accounting Standards No. 129,
"Disclosure of Information About Capital Structure" ("Statement 129").
Statement 128 specifies the computation, presentation and disclosure
requirements for Earnings Per Share ("EPS"), and is designed to improve the
EPS information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and
increasing the comparability of EPS data on an international basis. Per the
requirements of Statement 128, the Company will adopt Statement 128 for the
three month period ending December 31, 1997. The adoption of this Statement
is not expected to have a material effect on the Company's consolidated
financial position. Statement 129 consolidates the existing requirements to
disclose certain information about an entity's capital structure and is not
expected to change the Company's current capital structure disclosures.
Statements 128 and 129 were required to be adopted in the Company's fiscal
year 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
("Statement 130") and Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Statement 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Generally, financial information is required to
be reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Statements 130
and 131 are required to be adopted in the Company's fiscal year 1999. The
Company has not yet determined the impact of Statements 130 and 131 on its
future financial statement disclosures.
7
<PAGE>
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 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.
Results of Operations
Revenues
Total revenues for the quarter ended September 30, 1997 increased 10% to
$19,819,000 from $18,070,000 in the same quarter of fiscal 1997. Software
product license revenues increased 25%, consulting and other services revenues
increased 5%, and maintenance revenues decreased 2% compared to the same quarter
of fiscal 1997.
Software product license revenues were $8,465,000 during the quarter, an
increase of $1,688,000, or 25%, from the same period in fiscal 1997. The
Company experienced an increase in the North American market of approximately
$1,456,000, or 52%. Of this North American increase, approximately
$1,427,000 relates to increases in Canadian revenues due largely to one
significant agreement recorded during the quarter. The Company also
experienced an increase of $212,000, or 5%, in the European, Asian and
Pacific Rim ("International") markets from the same period last year. While
the Asia/Pacific Rim markets experienced a 3% decrease in revenues from the
same period in the prior year, European revenues increased 27% over the same
period in the prior year due to the acquisition of the Company's Spanish
subsidiary during fiscal 1997 and one large agreement that significantly
impacted revenues in Germany. The Company's Client Server/Open Systems
products represented 95% of total software product license revenues for the
first quarters of fiscal 1998 and 1997. Of these Client Server products, the
Company experienced growth in the Renaissance CS Manufacturing, Financials,
and Human Resource products, which increased 6%, 26% and 93%, respectively,
over fiscal 1997 results. Software
8
<PAGE>
product license revenues from sales of the Company's products to process
manufacturing customers increased 53% over the first quarter of fiscal 1997
and represented 79% of the Company's total software product license revenues
for the current quarter. Additionally, software product license revenues from
sales to healthcare customers increased 93% over the first quarter of fiscal
1997 and represented 10% of the Company's total software product license
revenues for the current quarter.
For the first quarter of fiscal 1998, revenues from consulting and other
services increased by 5% to $5,228,000 from $4,995,000 for the same period in
fiscal 1997. Revenues from consulting and other services (which are recognized
as performed) are generally correlated with software product license revenues
(which are recognized upon delivery), so that when software product license
revenues fluctuate, future period services revenues generally show a
corresponding fluctuation. During the first quarter of fiscal 1998, the Company
experienced an increase in North American services revenues of 7%, or
approximately $225,000. International services revenues remained relatively
unchanged with a $260,000 increase in Europe offset by a similar decrease in the
Pacific Rim markets. The European increase is due to the aforementioned
inclusion of the Company's Spanish subsidiary for fiscal 1998. The Company
believes that the overall increase in consulting and other services revenues
during the three month period was attributable to increases in software product
license revenues during fiscal 1997.
Maintenance revenues for the first quarter of fiscal 1998 decreased by 2%
to $6,126,000 from $6,278,000 for the same quarter in the prior year. The small
decrease in maintenance revenues was principally a result of customers with
older products not renewing their maintenance contracts partially offset by new
maintenance contracts related to the increase in software product licenses
during the previous four fiscal quarters. During the first quarter of fiscal
1998, the Company experienced net decreases in North American and International
maintenance revenues relative to the first quarter of fiscal 1997. North
American maintenance revenues declined 2%, or approximately $69,000.
International maintenance revenues declined $83,000, or 5%, due largely to
decreases in the U.K., France, Belgium and the Netherlands totaling $413,000.
These decreases were partially offset by increased activity in Germany, Spain
and the Asian/Pacific Rim markets which accounted for a $330,000 increase.
International revenues as a percentage of total revenues decreased to 38%
in the first quarter of fiscal 1998 from 42% in the same quarter last year.
This decrease is due primarily to the revenues attributable to Canada, which is
included in North American revenues. Whereas total International revenues for
the quarter increased 2% over the same quarter in the prior year, total Canadian
revenues for the quarter increased $1,427,000, or 145%, over the prior year
primarily as a result of one significant license agreement recorded during the
quarter. Overall, total European revenues increased 8% over the same quarter in
the prior year largely as a result of the inclusion of the Spanish subsidiary
and the significant German agreement. Total Asia/Pacific Rim revenues decreased
7% from the prior year due to decreased software product license revenues offset
by growth in Asian services and maintenance revenues.
Operating Expenses
Costs of software product licenses include expenses related to royalties
paid to third parties and product documentation and packaging. Third party
royalty expenses will vary from quarter to quarter based on the mix of
products being sold. Many of the Company's newer
9
<PAGE>
products have third party royalty obligations associated with them that had
not existed previously. Costs of software product licenses for the first
quarter of fiscal 1998 decreased by 3% to $459,000 from $474,000 in the first
quarter of fiscal 1997. As a percentage of software product license revenue,
the costs of software product licenses decreased to 5% in the first quarter
of fiscal 1998 compared to 7% in the same quarter of fiscal 1997. This
decrease was due to an increase in software product license revenues (see
preceding "Revenues" discussion), several significant agreements during the
quarter that contained only a minor amount of third party products, and the
licensing of certain products during the quarter which were third party
products in the first quarter of fiscal 1997 but which were subsequently
purchased from such third parties by the Company.
Costs of consulting, maintenance and other services includes expenses
related to consulting and training personnel, personnel providing customer
support pursuant to maintenance agreements, and other costs of sales. The
Company also uses outside consultants to supplement Company personnel in meeting
peak customer consulting demands. Costs of consulting, maintenance and other
services increased 16% to $7,399,000 in the first quarter of fiscal 1998
compared with $6,399,000 in the first quarter of fiscal 1997. The increase in
these costs directly correlates with the Company's increased software license
activity. As software license activity has increased over the prior year, more
internal and outside consultants were required by the Company to service these
new customers. The increase in costs over the same quarter in the prior year is
largely the result of 60 additional services personnel employed by the Company
as of September 30, 1997. This increased headcount resulted in additional
personnel-related expenses of approximately $765,000, additional facilities and
supplies expenses of approximately $75,000, and additional business travel
expenses of approximately $100,000. Additionally, the costs associated with the
retention of outside consultants increased approximately $60,000. The Company's
gross profit margin from consulting, maintenance and other services for the
first quarter of fiscal 1998 was 35%, decreased from a 43% margin in the same
quarter of fiscal 1997. The decrease in the gross profit margin was principally
a result of the inefficiencies related to the Company's newer consultants and
the additional outside consultants retained to meet the increased customer
activity.
Sales and marketing expenses for the quarter ended September 30, 1997
increased by 28%, to $6,030,000 from $4,696,000 in the same quarter of the
prior year. The majority of the increase was due to increases in personnel and
related compensation from fiscal 1997 to 1998. For the quarter ended September
30, 1997, personnel-related expenses including salaries and commissions
increased approximately $650,000 and travel-related expenses increased
approximately $394,000 from the prior year as a result of increases in sales and
marketing personnel. Additionally, there was an increase of approximately
$290,000 in marketing expenses related to the promotion of several of the
Company's new products.
10
<PAGE>
Product development expenses decreased by 1% to $2,854,000 in the first
quarter of fiscal 1998 from $2,879,000 in the same quarter last year. Total
product development expenditures increased 34%, as summarized by the following
table (in thousands):
Three Months Ended
September 30,
-------------------------
1997 1996
--------- ---------
Expenses $ 2,854 $ 2,879
Amortization of previously capitalized
software development costs (1,861) (1,587)
--------- ---------
Expenses, net of amortization 993 1,292
Capitalized software development costs 2,689 1,446
--------- ---------
Total expenditures $ 3,682 $ 2,738
--------- ---------
--------- ---------
Total expenditures as a
percent of total revenues 18.6% 15.2%
--------- ---------
--------- ---------
Capitalized software, net of
amortization, as a percent of
total expenditures 22.5% (5.1)%
--------- ---------
--------- ---------
As a percentage of revenues, the current quarter's product development
expenditures increased over expenditures in the same quarter of the prior year.
Product development expenditures during fiscal 1998 have been primarily focused
on continued enhancements to existing products and developing new products.
During the quarter, software development costs capitalized included amounts
attributable to the development of additional international features for the
Company's Renaissance CS products, developing a new architecture for GEMBASE,
the Company's fourth generation language, and developing year 2000 compliance
for the Company's Renaissance Classic products. The Company expects to have
additional expenditures of approximately $150,000 to complete the year 2000
compliance upgrade on its Renaissance Classic products.
General and administrative expenses for the quarter decreased by $222,000,
or 12%, to $1,679,000 from $1,901,000 in the same period of fiscal 1997. The
primary cause of the change was a decrease of approximately $103,000 in business
travel and related expenses due to the completion of the relocation of the
Company's administrative offices from California to Georgia during fiscal 1997.
Other significant changes include a decrease in accounting fees and business
taxes and fees totaling approximately $121,000.
In the three month period ended September 30, 1997, the Company recorded a
provision for doubtful accounts of $648,000, as compared to $654,000 recorded in
the first quarter of fiscal 1997. The fiscal 1998 provision consisted entirely
of specific customer accounts receivable for which the Company either promised a
credit or identified as being potentially uncollectible.
11
<PAGE>
The litigation settlement amount for the first quarter of fiscal 1998
represents an adjustment to the charge that was recorded during the fourth
quarter of fiscal 1997. During fiscal 1997, the Company settled a dispute with
a customer with the understanding that the settlement and related legal fees
would be covered under the Company's business insurance. The Company
subsequently learned that the insurer took exception to the Company's settlement
with its customer and withheld payment on the claim, pending arbitration. In
June 1997, the Company recorded a charge of $615,000, pending settlement with
its insurer, to cover the potential settlement and legal fees. In September
1997, the Company received $381,000 in settlement from its insurer.
Amortization of other assets increased in the first quarter of fiscal 1998
to $222,000 from $160,000 in the same period last year. Amortization relates to
the purchase of the Company in 1988 and its subsequent acquisitions of other
products and companies. During fiscal 1997, the Company acquired its Spanish
distributor. The related goodwill of $1,541,000 is being amortized over seven
years.
Other Expenses, net
Other expenses for the quarter were $306,000, as compared to $189,000 in
the same quarter of fiscal 1997. For both periods, other expenses consisted
principally of interest expense. The increase was due to higher average debt
balances in fiscal 1998 due to the increase in the Company's available line of
credit during fiscal 1997 from $10,000,000 to $15,000,000 further impacted by an
increase in the interest rate on the line of credit during fiscal 1997.
Income Tax Expense
During the first quarter of fiscal 1998, the Company recognized income
tax expense of $255,000 as compared to $222,000 in the same period of the
prior year. Income tax expense in both periods included withholding taxes
accrued in certain foreign jurisdictions where the Company had either no
available net operating losses or had to pay treaty-based taxes. The
increase in fiscal 1998 is due largely to significant foreign sales resulting
in such withholding taxes.
Liquidity and Capital Resources
While the Company required $2,782,000 for investing activities (primarily
capitalized software costs), the Company financed its continuing operations for
the three months ended September 30, 1997 through cash generated from operations
and available credit facilities. The increased age of the Company's accounts
receivable as compared to the prior year is primarily attributable to the longer
contract terms that are necessitated by the larger sales contracts that have
been entered into during the year.
The Company has a revolving credit facility with an asset-based lender with
a maximum credit line of $15,000,000, a maturity date of October 31, 2000, and
an interest rate equaling the Prime Rate plus 2%. At September 30, 1997, the
Company had $2,633,000 of cash and cash equivalents and $11,551,000 outstanding
against the $15,000,000 revolving credit facility. Borrowings under the credit
facility are collateralized by substantially all assets of the Company.
12
<PAGE>
On December 29, 1995, the Company entered into a Subscription Agreement
(the "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 $2,000,000. 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
$4,000,000 during the period from and including July 1, 1996 through and
including December 30, 1998. The Company 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.
Pursuant to the Agreement, the Company exercised its first Option on
July 8, 1996. Concurrently, the investor also agreed to invest an additional
$2,000,000 under terms similar to those in the Agreement. In exchange for the
additional investment, the Company granted the investor a warrant for an
additional 640,000 shares of the Company's Common Stock. This warrant is
exercisable during the period from and including July 1, 1997 through and
including December 29, 2000, and will be exercisable at a maximum price of $8.00
per share. The gross proceeds from the July 1996 transactions were $4,000,000.
The Company exercised its final Option to require the investor to invest
$2,000,000 on January 6, 1997 when the investor purchased 200 shares of the
Company's newly created Series E Redeemable Preferred Stock.
During fiscal 1996, the investor converted all of their Series A Preferred
Stock. During fiscal 1997, the investor converted all of their Series B and
Series C Preferred Stock and 93 shares of their Series E Redeemable Preferred
Stock. As of September 30, 1997, the investor holds 107 shares of the Company's
Series E Redeemable Preferred Stock. Unless converted earlier, this stock is
mandatorily redeemable by the Company on January 6, 2000 or earlier if certain
conditions of the Agreement are met.
The Company's ability to meet its cash requirements for operations and
recurring capital expenditures will depend upon funds expected to be generated
from operations and amounts available under its line of credit facility. The
Company is also presently investigating alternative sources of capital available
to strengthen its balance sheet and improve its liquidity. The Company believes
it is likely that any amounts raised in connection with these investigations
would require the issuance of additional shares of its Common Stock.
New accounting pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("Statement 128") and Statement of Financial Accounting Standards No. 129,
"Disclosure of Information About Capital Structure" ("Statement 129").
Statement 128 specifies the computation, presentation and disclosure
requirements for Earnings Per Share ("EPS"), and is designed to improve the
EPS information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and
increasing the comparability of EPS data on an international basis. Per the
requirements of Statement 128, the Company will adopt Statement 128 for the
three month period ending December 31, 1997. The adoption of this Statement
is not expected to have a material effect on the Company's consolidated
financial position. Statement 129 consolidates the existing requirements to
disclose certain information about an entity's capital structure and is not
expected to change the Company's current capital structure disclosures.
Statements 128 and 129 were required to be adopted in the Company's fiscal
year 1998.
13
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
("Statement 130") and Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Statement 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Generally, financial information is required to
be reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Statements 130
and 131 are required to be adopted in the Company's fiscal year 1999. The
Company has not yet determined the impact of Statements 130 and 131 on its
future financial statement disclosures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 11 - Computation of Per Share Earnings
(b) Reports on Form 8-K
On August 19, 1997 the Company filed a report on Form 8-K which
reported under Item 5, that the Company issued a press release announcing the
preliminary results for the fourth quarter and fiscal year ended June 30, 1997.
Items 1, 2, 3, 4 and 5 have been omitted as they are not applicable.
15
<PAGE>
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: November 14, 1997 /s/ Stan F. Stoudenmire
------------------------
Stan F. Stoudenmire
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
16
<PAGE>
ROSS SYSTEMS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Description Page
- ------- ------------------------------------------ ----
<S> <C> <C>
3.1 Article of Incorporation, as amended (1)..................................... ---
3.2 Certificate of Determination of Rights, Preferences and Privileges of
Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock of Ross Systems, Inc. (2)................................... ---
3.3 Bylaws, as amended (3)...................................................... ---
3.4 Certificate of Determination of Rights, Preferences and Privileges of
Series E Preferred Stock of Ross Systems, Inc. (4).......................... ---
10.1 Subscription Agreement dated December 29, 1995 between
Registrant and Fletcher International Limited (5)........................... ---
10.2 Subscription Agreement dated June 28, 1996 between Registrant and
Fletcher International Limited (6).......................................... ---
10.3 Amendment No. 1 dated July 8, 1996 to the December 29, 1995
Subscription Agreement and the June 28, 1996 Subscription
Agreement between Registrant and Fletcher International Limited (6)......... ---
10.4 Amendment No. 2 dated June 10, 1997 to the December 29, 1995
Subscription Agreement and the June 28, 1996 Subscription
Agreement between Registrant and Fletcher International Limited (7)......... ---
11.1 Statement regarding Computation of Per Share Earnings....................... 19
27 Financial Data Schedule..................................................... ---
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the period ended December 31, 1995, as
amended by the exhibits filed by the Registrant's Current Report on Form
8-K dated February 13, 1996; and as further amended by the exhibit filed
with the Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1997 filed September 29, 1997.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1996 filed
May 6, 1996.
17
<PAGE>
(3) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993 filed
September 27, 1993.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the period ended December 31, 1996 filed
February 13, 1997.
(5) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the period ended December 31, 1995 filed
February 14, 1996.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1996 filed
November 8, 1996.
(7) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended June 30, 1997 filed September 29,
1997.
18
<PAGE>
EXHIBIT 11.1
ROSS SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS PER SHARE
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Primary Earnings:
Net earnings.................................................................................. $ 348 $ 496
--------- ---------
--------- ---------
Weighted average shares outstanding during the period......................................... 19,245 17,850
Common and common stock equivalent shares using the treasury stock method..................... 413 1,026
--------- ---------
Total shares outstanding for purposes of calculating primary earnings per share............... 19,658 18,876
--------- ---------
--------- ---------
Primary earnings per common and common stock equivalent share................................. $ 0.02 $ 0.03
--------- ---------
--------- ---------
Fully Diluted Earnings:
Net earnings.................................................................................. $ 348 $ 496
--------- ---------
--------- ---------
Weighted average shares outstanding during the period......................................... 19,245 17,850
Common and common stock equivalent shares using the treasury stock method..................... 368 1,026
--------- ---------
Total shares outstanding for purposes of calculating fully diluted earnings per share......... 19,613 18,876
--------- ---------
--------- ---------
Fully diluted earnings per common and common stock equivalent share........................... $ 0.02 $ 0.03
--------- ---------
--------- ---------
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
September 30, 1997 Financial Statements found on pages 3 and 4 of the company's
Form 10-Q for the year-to-date, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,633
<SECURITIES> 0
<RECEIVABLES> 29,844
<ALLOWANCES> 2,274
<INVENTORY> 0
<CURRENT-ASSETS> 32,467
<PP&E> 17,546
<DEPRECIATION> 13,300
<TOTAL-ASSETS> 64,300
<CURRENT-LIABILITIES> 40,529
<BONDS> 0
1,053
0
<COMMON> 73,738
<OTHER-SE> (51,448)
<TOTAL-LIABILITY-AND-EQUITY> 64,300
<SALES> 19,819
<TOTAL-REVENUES> 19,819
<CGS> 459
<TOTAL-COSTS> 7,858
<OTHER-EXPENSES> 10,404
<LOSS-PROVISION> 648
<INTEREST-EXPENSE> 306
<INCOME-PRETAX> 603
<INCOME-TAX> 255
<INCOME-CONTINUING> 348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
