<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 DECEMBER 31, 1998
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 (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 JANUARY 29, 1999
----- ----------------
Common stock, $0.001 par value 22,621,567
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This is page 1 of 24 pages.
Index to exhibits is on page 24.
<PAGE>
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ROSS SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
- -------------------------------------------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three and six months ended December 31, 1998 and 1997 3
Condensed Consolidated Balance Sheets -
December 31, 1998 and June 30, 1998 4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
- -------------------------------------------------------------------------------------------------------------------
PART II OTHER INFORMATION
Item 2. Changes in Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
- -------------------------------------------------------------------------------------------------------------------
SIGNATURES 23
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 Six months ended
December 31, December 31,
--------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Software product licenses $ 8,799 $ 7,065 $ 19,061 $ 15,530
Consulting and other services 10,335 6,721 18,634 11,949
Maintenance 7,020 6,239 13,978 12,365
-------- -------- -------- --------
Total revenues 26,154 20,025 51,673 39,844
-------- -------- -------- --------
Operating expenses:
Costs of software product licenses 834 726 2,190 1,185
Costs of consulting,
maintenance and other services 11,051 8,666 20,913 16,065
Sales and marketing 8,019 6,453 14,933 12,483
Product development 2,985 2,689 6,317 5,543
General and administrative 2,124 2,015 4,199 3,694
Provision for uncollectible accounts 244 158 527 806
Litigation settlement -- -- -- (381)
Amortization of other assets 329 215 649 437
-------- -------- -------- --------
Total operating expenses 25,586 20,922 49,728 39,832
-------- -------- -------- --------
Operating earnings (loss) 568 (897) 1,945 12
Other expenses, net (171) (314) (332) (620)
-------- -------- -------- --------
Earnings (loss) before extraordinary item 397 (1,211) 1,613 (608)
Extraordinary expense, net of tax effect 213 213
Income tax expense 27 72 432 327
-------- -------- -------- --------
Net earnings (loss) $ 157 $ (1,283) $ 968 $ (935)
-------- -------- -------- --------
-------- -------- -------- --------
Net earnings (loss) per common share - basic
$ 0.01 $(0.07) $ 0.04 $ (0.05)
-------- -------- -------- --------
-------- -------- -------- --------
Net earnings (loss) per common share - diluted $ 0.01 $ (0.07) $ 0.05 $ (0.05)
-------- -------- -------- --------
-------- -------- -------- --------
Shares used in per share computation - basic 22,190 19,252 21,845 19,246
-------- -------- -------- --------
-------- -------- -------- --------
Shares used in per share computation - diluted 23,640 19,252 23,824 19,246
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(unaudited)
December 31, June 30,
1998 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,497 $ 7,248
Accounts receivable, less allowance
for doubtful accounts and returns 41,264 34,878
Prepaids and other current assets 2,864 1,915
Income taxes recoverable 0 0
-------- --------
Total current assets 50,625 44,041
Property and equipment 4,408 4,409
Computer software costs 24,925 24,339
Other assets 6,154 5,400
-------- --------
Total assets $ 86,112 $ 78,189
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of debt $ 12,646 $ 4,607
Accounts payable 7,969 6,359
Accrued expenses 7,577 8,950
Income taxes payable 307 397
Deferred revenues 17,856 18,184
-------- --------
Total current liabilities 46,355 38,497
-------- --------
Long-term debt, less current installments 3,924 8,918
-------- --------
Shareholders' equity:
Common stock, $.001 par value; 35,000,000 shares authorized, 22 21
22,621,567 shares issued and outstanding. Preferred stock, no
par value; 5,000,000 shares authorized, 0 outstanding
Additional paid-in capital 83,854 79,646
Accumulated deficit (46,777) (47,745)
Cumulative translation adjustment (1,266) (1,148)
-------- --------
Total shareholders' equity 35,833 30,774
-------- --------
Total liabilities and shareholders' equity $ 86,112 $ 78,189
-------- --------
-------- --------
</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>
Six months ended
December 31,
-----------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss), before extraordinary item $ 1,181 $ (935)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Extraordinary loss on early debt extinguishment (213)
Depreciation and amortization of property and equipment 1,556 1,365
Amortization of computer software costs 4,762 3,730
Amortization of other assets 649 437
Provision for uncollectible accounts 527 806
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable (7,080) 2,047
Prepaids and other current assets (980) 381
Income taxes payable / recoverable (89) 340
Accounts payable 1,557 (988)
Accrued expenses (1,847) (2,683)
Deferred revenues (326) (410)
Other, net 2 (45)
------- -------
Net cash provided (used) by operating activities (301) 4,045
------- -------
Cash flows from investing activities:
Purchases of property and equipment (1,123) (443)
Computer software costs capitalized (5,033) (5,222)
Other (85) (70)
------- -------
Net cash used for investing activities (6,241) (5,735)
------- -------
Cash flows from financing activities:
Net line of credit activity 8,213 (322)
Capital lease payments (40) (30)
Retirement of convertible debentures (2,667) --
Proceeds from issuance of common stock, net 193 123
------- -------
Net cash provided (used) by financing activities 5,699 (229)
------- -------
Effect of exchange rate changes on cash 92 (40)
------- -------
Net increase (decrease) in cash and cash equivalents (751) (1,959)
Cash and cash equivalents at beginning of period 7,248 4,010
------- -------
Cash and cash equivalents at end of period $ 6,497 $ 2,051
------- -------
------- -------
Noncash investing and financing activities:
Business acquisitions for common stock & forgiveness of debt $ 2,067 $ 0
------- -------
------- -------
Conversion of convertible debentures $ 2,461
------- -------
------- -------
Capital lease additions $ 0 $ 56
-------- -------
-------- -------
</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 December 31, 1998, and the
results of its operations and cash flows for the interim periods presented. The
Company's results of operations for the six months ended December 31, 1998 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 Stockholders on Form 10-K for the fiscal year ended
June 30, 1998 filed with the Securities and Exchange Commission on September 28,
1998.
Certain fiscal 1998 amounts have been reclassified to conform to the
fiscal 1999 financial statement presentation.
B) PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
C) CAPITALIZED COMPUTER SOFTWARE COSTS AND OTHER ASSETS
It is the Company's policy to follow paragraph 8 of SFAS 86 in the
computation of annual amortization expense of software costs. The straight-line
method has historically yielded the greatest annual expense when compared to the
ratio of current gross revenues to current and anticipated future gross
revenues. Accordingly, the straight-line method is generally used to amortize
previously capitalized software costs.
It is the Company's policy to assess all its long-lived assets and
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.
Impairment losses, if applicable, would be calculated as the difference between
the carrying value of the asset and the sum of anticipated future undiscounted
cash flows. The calculation would be performed on an individual item basis.
6
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
D) ACCOUNTS RECEIVABLE
As of the dates shown, accounts receivable consisted of the following
(in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
<S> <C> <C>
Trade accounts receivable $42,987 $36,852
Less allowance for doubtful accounts and returns (1,723) (1,974)
---------- ---------
$41,264 $34,878
---------- ---------
---------- ---------
</TABLE>
E) PROPERTY AND EQUIPMENT
As of the dates shown, property and equipment consisted of the
following (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
<S> <C> <C>
Computer equipment $9,940 $9,186
Furniture and fixtures 3,135 3,009
Leasehold improvements 1,776 1,635
-------- --------
14,851 13,830
Less accumulated depreciation and amortization (10,443) (9,421)
--------- ------
$ 4,408 $ 4,409
--------- --------
--------- --------
</TABLE>
F) BUSINESS ACQUIRED
On August 26, 1998, the Company acquired a 100% ownership interest in
HiPoint Systems Corporation ("HiPoint"), a privately held computer consulting
firm based in Ontario, Canada, in exchange for shares of the Company's Common
Stock valued at approximately $1,900,000. HiPoint had been a consulting partner
on many of the Company's software implementation and consulting projects over
the past several years. The acquisition has been accounted for as a purchase
and, accordingly, the results of operations of the acquired business have been
included in the Company's results of operations from the date of acquisition.
The pro forma effects on total revenues, net earnings, and net earnings per
share of including this subsidiary in the Company's Consolidated Statement of
Operations from the beginning of fiscal 1999 and 1998 are not significant to the
Company as a whole.
G) CONVERTIBLE DEBT
On February 6, 1998, the Company closed a private placement of up to
$10,000,000 of convertible subordinated debentures to certain institutional
investors (the "Investors") pursuant to Regulation D promulgated under the
Securities Act of 1933, as amended. The investors invested
7
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
$6,000,000 on February 6, 1998 and $4,000,000 on June 11, 1998. As of
December 31, 1998, the remaining balance after conversions and redemptions is
$3,333,000. The material agreements between the Company and each Investor
have been filed as exhibits to the Current Report on Form 8-K filed with the
Securities and Exchange Commission by the Company on February 12, 1998. The
salient points of the convertible subordinated debenture agreement are as
follows:
INTEREST : The interest rate is four percent per annum for the first six months
after the original issuance date of the convertible debenture and six percent
per annum thereafter, subject to increases (up to the legal maximum rate) if the
Company is in default under the convertible debenture. Accrued interest is due
and payable in shares of the Company's Common Stock semi-annually on the last
day of June and December of each year. The value for such shares of Common Stock
is the average of the two lowest closing bid prices for the Company's Common
Stock as reported by the Bloomberg Service for the thirty trading days
immediately before the interest payment date.
CONVERSION PRICE: The conversion price for the convertible debentures is (P + I)
divided by the Conversion Date Market Price where P equals the outstanding
principal amount of the convertible debenture submitted for conversion, I equals
accrued but unpaid interest as of the conversion date and Conversion Date Market
Price equals the lesser of the maximum conversion price (as defined below) or
101% of the average of the two lowest closing bid prices for the Company's
Common Stock as reported by the Bloomberg Service for the thirty trading days
immediately before the conversion date. The maximum conversion price is (i)
until December 31, 1998, $7.00 subject to a downward adjustment if the Company
issues shares in a private placement financing transaction at a per share price
less than $7.00 and (ii) commencing January 1, 1999, 115% of the average closing
bid price of the Common Stock as reported by the Bloomberg Service over the 1998
calendar year. A portion of the convertible debentures issued in June 1998 (the
"Second Closing Debentures") were redeemed by the Company. See paragraph (H)
below and "Part I, Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a description of the company's
redemption of a portion of the second closing debentures.
H) EXTRAORDINARY ITEM
During October 1998, the Company redeemed $2,667,000 aggregate principle amount
of the then outstanding second closing debentures. In accordance with the
redemption option of the convertible subordinated debenture agreement outlined
above, the Company incurred a one time extraordinary charge of approximately
$213,000, or 8% of the aggregate principle amount of the second closing
debentures redeemed.
I) COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income" as of July 1, 1998. SFAS 130 requires
disclosure of total non-stockholder changes in equity in interim periods and
additional disclosures of the components of non-stockholder changes on an annual
basis. Total non-stockholder changes in
8
<PAGE>
equity include all changes in equity during a period except those resulting from
investments by and distributions to stockholders. The Company has restated
information for all prior periods reported below to conform to this standard (in
thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) $157 $(1,283) $968 $(935)
Foreign currency translation adjustments (266) (318) (118) (418)
------- ------- ------ -------
Total comprehensive income (loss) $(109) $(1,601) $850 $(1,353)
------- ------- ------ -------
------- ------- ------ -------
</TABLE>
J) NET EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Basic earnings (loss) per common share are computed by dividing net
earnings or net loss by the weighted average number of common shares outstanding
during the period. Diluted earnings or loss per common and common equivalent
share is computed by dividing net earnings or net loss by the weighted average
number of common and common equivalent shares outstanding during the period.
Common stock equivalents are not considered in the calculation of net loss per
share when their effect would be antidilutive.
The following is a reconciliation of the numerators of diluted earnings (loss)
per share, (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net earnings (loss) $157 $(1,283) $968 $(935)
Payment in kind interest on
convertible debentures 69 - 173 -_
------- ------- ------ -------
Numerator for diluted calculation $226 $(1,283) $1,141 $(935)
------- ------- ------ -------
------- ------- ------ -------
</TABLE>
The only difference between the denominator for basic and diluted earnings per
share for the three and six-month periods ended December 31, 1998 is the effect
of common stock equivalents.
K) OTHER MATTERS
On September 1, 1998, the Board of Directors of the Company
approved a Preferred Shares Rights Agreement dated September 4, 1998, whereby
the Board has declared a dividend distribution of one Preferred Shares Purchase
Right (the "Rights") on each outstanding share of the Company's Common Stock.
Each Right will entitle stockholders to buy 1/1000th of a share of the Company's
Series B Participating Preferred Stock at an exercise price of $21.75. The
Rights will become exercisable following the tenth day after a person or group
announces the acquisition of 15% or more of the Company's Common Stock or
announces commencement of a
9
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
tender offer the consummation of which would result in ownership by the person
or group of 15% or more of the Common Stock. The Company will be entitled to
redeem the Rights at $.01 per Right at any time on or before the tenth day
following acquisition by a person or group of 15% or more of the Company's
Common Stock.
On September 18, 1998 the Board of Directors of the Company approved an
adjustment to the exercise price for certain outstanding stock options held by
all current employees, which have an exercise price of $3.00 and above. In
consideration for this repricing offer, officers of the Company participating in
the option repricing were required to forfeit 10% of the shares subject to each
option being repriced, while non-officer employees participating in the option
repricing are subject to a one year limitation on the exercisability of repriced
options subject to certain exceptions. The revised exercise price was
established by reference to the closing price of the Company's Common Stock on
September 28, 1998, which was approximately $2.59. Approximately 90 employees
participated in the repricing with approximately 1,336,000 options being
repriced. Of the stock options repriced, options to purchase approximately
831,000 shares were held by executive officers of the Company.
L) NEW ACCOUNTING PRONOUNCEMENTS
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. Both statements
have been adopted for the Company's 1999 fiscal year. Disclosures pursuant to
Statement 130 are included under the note regarding comprehensive income,
above. Disclosures pursuant to Statement 131 are annual in nature and,
therefore, not contained herein.
In December 1997, the American Institute of Certified Public
Accountants issued Statement of Position No. 97-2 "SOFTWARE REVENUE RECOGNITION"
("SOP 97-2"). SOP 97-2 provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. The
requirements of SOP 97-2 are effective for transactions entered into in the
Company's fiscal year 1999 and the financial statements contained herein have
been prepared in accordance with the requirements of SOP 97-2.
10
<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 December 31, 1998 increased 31% to
$26,154,000 from $20,025,000 in the same quarter of fiscal 1998. Software
product license revenues increased 25% and consulting and other services
revenues increased 54%, while maintenance revenues increased 13% from the same
quarter of the prior year.
For the six-month period ended December 31, 1998, total revenues
increased 30% to $51,673,000 from $39,844,000 in the same period of fiscal 1998.
Software product license revenues increased 23%, consulting and other services
revenues increased 56%, and maintenance revenues increased 13% from prior year
results.
Software product license revenues were $8,799,000 during the quarter
ended December 31, 1998, an increase of $1,734,000, or 25%, from the same period
in fiscal 1998. The Company experienced an increase over the same quarter of
fiscal 1998 in the North American market of approximately $1,310,000, or 31%.
This North American increase relates to an increase of approximately $817,000 in
U.S. revenues and $493,000 in Canadian revenues due to a greater number of
contracts recorded during the quarter than in the same quarter of the prior
year. The Company also experienced a net increase of $402,000, or 14%, in the
European, Asian and Pacific Rim ("International") markets over the same quarter
in fiscal 1998. The Asia/Pacific Rim markets experienced a $52,000, or 29%
increase in revenues from the same quarter in the
11
<PAGE>
prior year due largely to a greater number of contracts closed. European
revenues increased $349,000 or 13% over the same quarter in the prior year. This
was due largely to increases in France of $346,000 and other European countries
of $290,000 partially offset by decreases in Germany of $287,000. The Company's
Client Server/Open Systems products represented 94% and 92% of total software
product license revenues for both the second quarters of fiscal 1999 and fiscal
1998, respectively. Software license revenues for the Company's Renaissance CS
products increased approximately 27%, or $1,754,000 in the second quarter of
fiscal 1999 as compared to the same quarter of fiscal 1998. The Company believes
that the increase is largely attributable to the Company's increased industry
specific marketing focus on its Client Server/Open Systems products during
fiscal 1998 and fiscal 1999. For the six-month period ended December 31, 1998,
software product license revenues increased $3,531,000, or 23%, from the same
period in the prior year. The Company experienced increases of 29%, or
$2,459,000, and 29%, or $1,203,000, in the North American and European markets,
respectively, partially offset by decreases in the Asia/Pacific Rim markets of
$131,000, or 4%. The Company's Client Server/Open Systems products (Renaissance
CS) represented approximately 94% of total software product license revenues for
the six-month periods ended December 31, 1998 and 1997.
Consulting and other services revenues for the second quarter of fiscal
1999 increased 54% to $10,335,000 from $6,721,000 in the same period of fiscal
1998. 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), so that when software
product license revenues fluctuate, future period services revenues generally
show a corresponding fluctuation. For the quarter ended December 31, 1998, North
American services revenues increased by $2,918,000, or 70% over the same quarter
in the prior year which is attributable largely to the increase in software
product license revenues during the previous quarters. Additionally, the Company
has increased its service capacity with the acquisitions of Bizware Corporation
and HiPoint during the third quarter of fiscal 1998 and the first quarter of
fiscal 1999, respectively. Bizware Corporation and HiPoint deliver services and
consulting and had worked with several of the Company's customers prior to the
acquisitions. The Company has also expanded the number of outside consultants
used to perform implementations, consulting, and other professional services.
The consultants normally cost more and generate lower gross margins than
services performed by Company employees, but are necessary to meet the growing
demand for consulting services related to the Company's products. International
services revenues increased $696,000, or 27% over the same quarter in the prior
year. For the six-month period ended December 31, 1998, services revenues
increased 56%, or $6,685,000, from the same period in the prior year. The
fluctuations for the North American and International regions for the six-month
period results were similar to those for quarterly results mentioned above.
Maintenance revenues for the second quarter increased by $781,000, or
13% in fiscal 1999 versus the same quarter in the prior year. As compared to the
same quarter of the previous fiscal year, maintenance revenues increased
$552,000, or 13% in North America while European increases of $265,000 or 18%
were partially offset by declines of $36,000, or 28% in the Asian markets.
Increases are principally attributable to increased software licensing activity
during fiscal 1998, and decreases are typically due to customers with older
installations not renewing their contracts. Maintenance contracts sold by third
party distributors are included by the Company in software product license
revenues because the Company has no support obligations
12
<PAGE>
to any of the distributors' customers. For the six-month period ended December
31, 1998, maintenance revenues also increased by 13%, or $1,613,000, from the
same period of fiscal 1998. The fluctuations for the North America and
International regions for the six-month period results were similar to those for
the quarterly results mentioned above.
International revenues as a percentage of total revenues for the second
quarter of fiscal 1999 decreased to 32% from 35% for the same quarter in fiscal
1998. However, International revenues increased $1,298,000 or 18% over the same
quarter in the prior year. The Company's French subsidiary accounted for an
increase of $638,000, while the Spanish subsidiary experienced increased
revenues of $509,000 and other European countries and the United Kingdom
subsidiary experienced increases of $296,000 and $33,000, respectively. Asia
experienced increased revenues of $112,000. Both the Benelux and German
subsidiaries had net decreases of $230,000 and $60,000, respectively. These
fluctuations are related to the quantity, scope and timing of contracts closed.
The aggregate second quarter increase in international revenues over the same
quarter of fiscal 1998 is 31% for software licenses, 54% for consulting services
and 18% for maintenance revenue. International revenues as a percentage of total
revenues for the six months ended December 31, 1998 also decreased, to 35% from
37%, for the same quarter of fiscal 1998.
North American revenues comprised 68% of the second quarter 1999 total
revenues up from 65% in the same quarter of the prior year. North American
revenues increased 37% over the same quarter of the previous fiscal year. The
aggregate increase of $4,831,000 is comprised 27% software licenses, 61%
consulting services, and 12% maintenance revenues. Of the North American growth,
approximately 85% is related to United States revenues. The increase is
attributable to several significant new software agreements as well as the
revenue generated from acquired companies and the increased focus on consulting
services.
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 number of
third party products being sold by the Company. Major third party products sold
by the Company include Oracle databases and other optional software including
implementation, reporting, and productivity tools. Costs of software product
licenses for the second quarter of fiscal 1999 increased by 15% to $834,000 from
$726,000 in the second quarter of fiscal 1998. For the six months ended December
31, 1998, the cost of software product licenses increased 85% to $2,190,000 from
$1,185,000 for the same period in fiscal 1998. As a percentage of software
product license revenue, the costs of software product licenses decreased to 9%
in the second quarter of fiscal 1999 compared to 10% in the same quarter of
fiscal 1998. However, for the six-month period ended December 31, 1998, the
costs of software product licenses as a percent of software product license
revenue increased from 8% to 11% . The increase in these items for the three and
six month period was primarily due to the large number of agreements entered
into in the first quarter of fiscal 1999 which contained a significant amount of
third party software resulting in increased third party royalty expenses
incurred by the Company.
Costs of consulting, maintenance and other services include expenses
related to consulting and training personnel, personnel providing customer
support pursuant to
13
<PAGE>
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 by 28% to
$11,051,000 in the second quarter of fiscal 1999, as compared to $8,666,000 in
the second quarter of fiscal 1998. For the six months ended December 31, 1998,
costs of consulting, maintenance and other services increased 30% to $20,913,000
from $16,065,000 in the same period of fiscal 1998. The increase in these costs
for the three and six month periods relates to the Company's increased software
license and services 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 periods
in the prior year is largely the result of the additional fiscal 1999
year-to-date expenses related to the newly acquired companies, Bizware and
HiPoint, which were both purchased subsequent to the second quarter of fiscal
1998 as well as additional services personnel employed by the company as of
December 31, 1998 versus December 31, 1997. For the three and six month period
ended December 31, 1998, the additional expenses attributable to Bizware and
HiPoint were approximately $1,535,000 and $2,484,000, respectively.
Substantially all of the remaining increase is attributable to increased
utilization of third party consultants. The Company's gross profit margin
resulting from consulting, maintenance and other services revenues for the
second quarter of fiscal 1999 was 36%, up from 33% in the same quarter of fiscal
1998. For the six months ended December 31, 1998, the gross profit margin was
36% as compared to 34% for the same period of the prior year. The improvement in
the gross profit margin for the three and six month periods was due largely to
better utilization rates of consultants and the related decrease in non-billable
travel expenses.
Sales and marketing expenses for the quarter ended December 31, 1998
increased by 24%, to $8,019,000 from $6,453,000 in the same quarter of the prior
year. For the six-month period ended December 31, 1998, sales and marketing
expenses increased by 20% from $12,483,000 to $14,933,000 as compared to the
same period of the prior year. For the three and six month periods ended
December 31, 1998 personnel-related expenses, including salaries and commissions
increased approximately $1,229,000 and $1,807,000, respectively, over the same
periods of the prior year, while travel related expenditures necessary to
support the increased sales volume rose by $47,000 and $300,000, respectively,
over the same periods of the prior year. Communications costs related to
increased telemarketing efforts increased $102,000 and $134,000 for the three
and six months periods, respectively, versus the same period of the prior year.
At the same time, other expense categories experienced a net increase of
$188,000 for the three-month period versus the prior year and a net decrease of
$47,000 for the six-month period versus the prior year.
Product development (research and development) expenses increased by
11%, to $2,985,000, in the second quarter of fiscal 1999 from $2,689,000 in the
same quarter of the prior year. For the six-month period ended December 31,
1998, these expenses increased by 14%, to $6,317,000, from $5,543,000 in the
same period last year. The following table summarizes product development
expenditures (in thousands):
14
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expenses $ 2,985 $ 2,689 $ 6,317 $ 5,543
Amortization of previously capitalized
software development costs (2,381) (1,869) (4,762) (3,730)
------- ------- ------- -------
Expenses, net of amortization $ 604 $ 820 $ 1,555 $ 1,813
Capitalized software development costs 2,726 2,533 5,348 5,222
------- ------- ------- -------
Total expenditures $ 3,330 $ 3,353 $ 6,903 $ 7,035
------- ------- ------- -------
------- ------- ------- -------
Total expenditures as a
percent of total revenues 12.7% 16.7% 13.4% 17.7%
------- ------- ------- -------
------- ------- ------- -------
Capitalized software, net of amortization,
as a percent of total expenditures 10.3% 19.8% 8.5% 21.2%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
As a percentage of total revenues, product development expenditures for
the six-month period ended December 31, 1998 decreased over expenditures in the
same period of the prior year. Product development expenditures during fiscal
1999 have been primarily focused on continued enhancements to existing products
and developing new products. During the six months ended December 31, 1998,
software development costs capitalized included amounts attributable to the
development of additional international features (currency and language) for the
Company's Renaissance CS products and the ongoing development of the 4.x series
of Renaissance CS. The Company does not expect to have any additional
expenditures related to the year 2000 compliance upgrade on its Renaissance
Classic products. The Company believes that its Renaissance CS products have
been Year 2000 compliant since their introduction in 1992.
General and administrative expenses for the quarter ended December 31,
1998 increased by 5%, to $2,124,000 from $2,015,000 in the same quarter of the
prior year. For the six-month period ended December 31, 1998, total general and
administrative expenses increased by 14%, to $4,199,000 from $3,694,000 in the
same period of the prior year. The major reasons for the increase in these
expenses from the same periods in the prior year was an increase in employee and
travel related expenses. Employee related expenses increased $355,000 while
travel expenses increased $78,000 and other expenses increased a net $72,000.
In the three month period ended December 31, 1998, the Company recorded
a provision for doubtful accounts of $244,000, as compared to $158,000 recorded
in the second quarter of fiscal 1998. In the six-month periods ended December
31, 1998 and 1997, the Company recorded a provision of $527,000 and $806,000,
respectively. The fiscal 1999 and 1998 provisions consisted entirely of specific
customer accounts receivable for which the Company either promised a credit or
identified as being potentially uncollectible.
The litigation settlement amount for the six-month period ended
December 31, 1997 represents a first quarter 1998 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
15
<PAGE>
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, which offset a portion of the previously established reserve. There
were no litigation settlement expenses for the first six months of fiscal 1999.
Amortization of other assets increased to $329,000 in the second
quarter of fiscal 1999 from $215,000 in the same quarter of the prior year. For
the six-month period, amortization of other assets was $649,000, compared to
$437,000 in the same period of the prior year. This 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. The incremental amortization of goodwill related to the Bizware and
HiPoint acquisitions, net of amortization decreases related to products and
companies that have become fully amortized, was $114,000 and $212,000 for the
three and six month periods, respectively.
OTHER EXPENSE, NET
Other expense for the three months ended December 31, 1998 was
$171,000, as compared to $314,000 in the same period of fiscal 1998. For the
six-month period ended December 31, 1997, other expense was $332,000, as
compared to other expense of $620,000 in the same period of fiscal 1998. These
amounts primarily consisted of interest expense. The decrease was due primarily
to the Company executing a private placement of convertible debentures in the
third quarter of fiscal 1998 which bears a lower interest rate than the
Company's existing line of credit which was used as the primary source of
borrowing during the first quarter of fiscal 1998.
INCOME TAX EXPENSE
During the second quarter of fiscal 1999, the Company recorded income
tax expense of $27,000 compared with an income tax expense of $72,000 recorded
during the same period in fiscal 1998. For the six months ended December 31,
1998, the Company recorded income tax expense of $432,000 as compared to an
income tax expense of $327,000 in the same period of fiscal 1997. Income tax
expense for both periods includes withholding taxes accrued in certain foreign
jurisdictions where the Company had either no available net operating losses or
had to pay treaty-based taxes.
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of fiscal 1999, net cash provided by operating
activities decreased $4,346,000. The Company's improvement in earnings of
$1,903,000, an aggregate net increase in the non-cash charges for depreciation,
amortization and provisions for bad debt of $1,156,000 and an aggregate increase
in the combined cash effect of accounts payable and accrued expenses changes of
$3,381,000 were offset by cash used to fund increased accounts receivable of
$9,127,000. The increased receivables portfolio was a result of timing of
revenues recognized, payment terms of longer than normal but less than a year on
some contracts and some degradation of the receivables turnover in Europe.
Management feels that the risk of uncollectibility has been appropriately
assessed and reflected in the accompanying condensed,
16
<PAGE>
consolidated financial statements. Changes in prepaid expenses, accrued income
taxes and other miscellaneous accounts resulted in a further decrease in cash of
$1,659,000.
In the first six months of fiscal 1999, the Company required $6,241,000
for investing activities versus $5,735,000 over the same period of the prior
year, an increase of $506,000. Investment in property and equipment increased by
$680,000 over the same period of the prior year as a result of the Company's
continued expansion in Europe. The worldwide growth in its consultancy
organization also necessitated increased investment. Capitalized computer
software costs decreased by $189,000 due to timing of development work
performed. Other investment increased $15,000. The Company financed its
continuing operations for the six months ended December 31, 1998 through cash
generated from operations and available credit facilities.
On February 6, 1998, the Company closed a private placement of up to
$10,000,000 of convertible subordinated debentures to certain institutional
investors (the "Investors") pursuant to Regulation D promulgated under the
Securities Act of 1933, as amended. The Investors invested $6,000,000 on
February 6, 1998 and $4,000,000 on June 11, 1998. The material agreements
between the Company and each Investor have been filed as exhibits to the Current
Report on Form 8-K filed with the Securities and Exchange Commission by the
Company on February 12, 1998. $8,461,000 and $3,333,333 of these debentures
remained outstanding at June 30, 1998 and December 31, 1998, respectively. With
the exception of the redemption described below, the difference between the
original $10,000,000 borrowing and amounts outstanding at the above mentioned
dates represents conversion of the debt into shares of the Company's Common
Stock at various conversion prices as determined in accordance with the
convertible debenture agreement. (See note F to the condensed, consolidated
financial statements.) The Company notified the Investors that it would redeem
$4,000,000 of the convertible subordinated debentures on October 1, 1998 (the
"Redemption Date") at a redemption price of $4,320,000 (108 percent of the face
value of the redeemed debentures) plus interest accrued through the redemption
date. On the Redemption Date, the Company actually redeemed $2,667,000 of the
convertible subordinated debentures at a redemption price of $2,880,000. The
company and the Investor holding the convertible subordinated debenture that was
not redeemed negotiated certain changes to the conversion features of the
debenture that, among other things, precludes conversion prior to October 7,
2000.
Cash flows from financing activities increased by $5,928,000 versus the same
six-month period of the prior fiscal year. The cash used in the convertible
debenture redemption of $2,667,000 face amount of the debentures was offset by
increased cash provided by borrowing under the Company's existing credit
facility of $8,535,000, which was also necessary to fund the decrease in the net
cash provided from operating activities. Other financing activities resulted in
an increase in cash of approximately $60,000.
At December 31, 1998 the Company had $6,497,000 of cash and cash
equivalents. The Company also 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 equal to the Prime Rate plus 2%.
Borrowings under the credit facility are collateralized by substantially all
assets of the Company. At December 31, 1998, the Company had $11,588,000
outstanding against the $15,000,000 revolving credit facility, and based on
eligible accounts receivable at December 31, 1998, the Company's cash and
remaining borrowing capacity under the revolving credit facility totaled
approximately $6,530,000.
17
<PAGE>
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.
YEAR 2000 IMPLICATIONS
OVERVIEW
The Year 2000 issue arises because certain electronic data processing
systems use two digits rather than four to define the applicable year which may
preclude proper date recognition after December 31, 1999.
During fiscal 1998 and 1997, the Company empowered key individuals as
responsible for identifying and resolving Year 2000 dysfunction. These efforts
include identification and review of internal operating systems and
applications, customer projects and services, and discussions with suppliers to
the business. At this time, based upon the efforts taken to date and those yet
to be taken, the Company does not expect any disruptions in its business
operations and, therefore, does not anticipate any material negative effect upon
its revenues or earnings as a result of the Year 2000 issue. Remediation costs
for problems identified thus far are not expected to be material to the
Company's consolidated financial position, liquidity or results of operations.
The Company has established a timetable for resolving Year 2000 issues so as not
to interrupt ongoing operations.
THE COMPANY'S STATE OF READINESS
The Year 2000 project plan, including assessment, improvement, testing
and implementation, has been established. The implementation phase is 95%
complete and should be finalized in April 1999 upon receipt of all remaining
supplier Year 2000 readiness inquiries and completed migration of certain
internal systems.
Assessment of the Year 2000 compliance of third parties with whom the
Company has material relationships is in process. The Company's material third
party relationships include the following:
(a ) Software vendors: The Company has upgraded all purchased software
to a Year 2000 compliant version and has completed the testing phase;
(b) Equipment vendors: The response to the Year 2000 readiness
inquiries from equipment vendors, which includes all embedded chip equipment, is
at 65%; and
(c) Service providers: The response to the Year 2000 readiness
inquiries from third party service providers, which includes utilities, phone
service and all facility related services, is at 90%.
The responses received, thus far, from the Company's third party
vendors and suppliers indicate compliance on or before June 1999.
18
<PAGE>
The preliminary assessment of internal information technology and
non-information technology systems has been completed. Internal non-compliant
items have been identified and prioritization of internal non-compliant items is
in process. A system for tracking remediation has been established and
non-compliant items identified are expected to be completed in June 1999. Based
on the findings of the planning and assessment phases completed to date, the
Company does not believe independent verification or validation processes will
be necessary.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The current estimate of the cost of remediation and equipment and
software replacement ranges between $250,000 and $350,000, of which
approximately $225,000 has been incurred to date, and is summarized as follows:
Code modification and testing: $200,000 - $275,000
Personal computer, software and other upgrades $ 50,000 - $75,000
Less than 1% of the product development for 1998 and 1999 has been
allocated for code modification. Such costs are funded through cash flows from
operations and are expensed as incurred. The personal computer and purchased
software upgrades are costs incurred in the ordinary course of business and are,
therefore, typically capitalized costs.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES AND THE COMPANY'S CONTINGENCY PLANS
A most reasonably likely worst case Year 2000 scenario is not known at
this time. This determination will be made after the receipt of the remaining
material third party questionnaires. However, the shipment of software to
customers is expected to continue with no interruption and no material loss of
revenues is anticipated. The Year 2000 project has had minimal impact on the
schedule of other major information technology projects.
The Company has not completed a contingency plan; however, each
facility will incorporate the Year 2000 scenario into their existing disaster
contingency plan by June, 1999. The contingency plan will ensure that the
necessary backup measures for computer processing are identified.
19
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the first quarter of fiscal 1999, the Investors converted an
aggregate principal amount of $878,000 plus accrued interest through the date of
conversion into 236,000 shares of the Company's Common Stock through several
transactions which were priced and executed in accordance with the convertible
debenture agreement.
During the second quarter of fiscal 1999, the Investors converted an
aggregate principal amount of $1,583,000 plus accrued interest through the date
of conversion into 671,000 shares of the Company's Common Stock through several
transactions which were priced and executed in accordance with the convertible
debenture agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on November 18,
1998. The following table shows voting information for each item voted upon:
<TABLE>
<CAPTION>
WITHHELD/ BROKER
FOR AGAINST ABSTAINED NON-VOTES
NOMINEES FOR
ELECTION AS DIRECTORS
<S> <C> <C> <C> <C>
Dennis V. Vohs 19,396,927 419,163
Mario M. Rosati 19,429,632 386,458
Bruce J. Ryan 19,430,016 386,074
J. Patrick Tinley 19,452,163 363,927
J. William Goodhew 19,439,316 376,774
AMMENDMENT TO THE
1998 INCENTIVE
STOCK OPTION PLAN 6,194,669 1,854,990 196,038 11,574,793
- -----------------
AMMENDMENT TO THE
1991 EMPLOYEE STOCK
PURCHASE PLAN 6,926,371 1,136,888 182,438 11,574,793
- -------------
RATIFICATION OF
APPOINTMENT OF
INDEPENDENT AUDITORS 19,546,853 152,355 121,282
- --------------------
</TABLE>
21
<PAGE>
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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
ITEMS 1, 3 AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.
22
<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: February 12, 1999 /S/ ROBERT B. WEBSTER
------------------------------------------
Robert B. Webster
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
23
<PAGE>
ROSS SYSTEMS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NO. -----------
---
<S> <C>
3.1 Certificate of Incorporation of the Registrant, as amended (1)
3.3 Bylaws of the Registrant (1)
4.3 Form of the subordinated debenture due February 6, 2003 issued
by the Registrant to each Investor (3)
4.4 Registration rights agreement between the Registrant and each
Investor (3)
10.5 Preferred Shares Rights Agreement, dated as of September 4,
1998, between the Registrant and BankBoston, N.A. (2)
27 Financial Data Schedule
</TABLE>
- -----------
(1) Incorporated by reference to the exhibit filed with the Registrant's
current Report on Form 8-K filed July 24, 1998.
(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 February 12, 1998.
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,497
<SECURITIES> 0
<RECEIVABLES> 42,987
<ALLOWANCES> (1,723)
<INVENTORY> 0
<CURRENT-ASSETS> 50,625
<PP&E> 14,851
<DEPRECIATION> (10,443)
<TOTAL-ASSETS> 86,112
<CURRENT-LIABILITIES> 46,355
<BONDS> 3,924
0
0
<COMMON> 22
<OTHER-SE> 35,811
<TOTAL-LIABILITY-AND-EQUITY> 86,112
<SALES> 0
<TOTAL-REVENUES> 26,154
<CGS> 0
<TOTAL-COSTS> 25,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 244
<INTEREST-EXPENSE> 171
<INCOME-PRETAX> 397
<INCOME-TAX> 27
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 213
<CHANGES> 0
<NET-INCOME> 157
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
