<PAGE>
- --------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19092
</TABLE>
---------------------
ROSS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-2170198
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
TWO CONCOURSE PARKWAY, SUITE 800, ATLANTA, 30328
GEORGIA (Zip code)
(Address of principal executive offices)
(770) 351-9600
(Registrant's telephone number, including area code)
</TABLE>
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<S> <C>
OUTSTANDING
CLASS APRIL 28, 2000
- ------------------------------------- -------------------------------------
Common stock, $0.001 par value 23,434,532
</TABLE>
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<PAGE>
ROSS SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 3
Condensed Consolidated Statements of Operations--Three and
nine months ended March 31, 2000 and 1999................. 3
Condensed Consolidated Balance Sheets--March 31, 2000 and
June 30, 1999............................................. 4
Condensed Consolidated Statements of Cash Flows--Nine months
ended March 31, 2000 and 1999............................. 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...................................................... 18
PART II OTHER INFORMATION
Item 2. Changes in Securities....................................... 19
Item 6. Exhibits and Reports on Form 8-K............................ 19
SIGNATURES.......................................................................... 21
</TABLE>
2
<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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Software product licenses.............................. $ 4,146 $ 6,357 $14,929 $25,419
Consulting and other services.......................... 7,402 10,908 27,436 29,542
Maintenance............................................ 6,929 7,106 21,217 21,083
------- ------- ------- -------
Total revenues..................................... 18,477 24,371 63,582 76,044
------- ------- ------- -------
Operating expenses:
Costs of software product licenses..................... 759 713 2,692 2,903
Costs of consulting, maintenance and other services.... 9,760 11,907 31,667 32,820
Sales and marketing.................................... 4,858 7,993 15,498 22,926
Product development.................................... 2,524 3,058 7,289 9,375
General and administrative............................. 1,914 2,056 5,780 6,255
Provision for uncollectible accounts................... 770 442 2,006 968
Amortization of other assets........................... 237 328 757 977
Non-recurring costs.................................... 1,145 0 1,145 0
------- ------- ------- -------
Total operating expenses........................... 21,967 26,497 66,834 76,224
------- ------- ------- -------
Operating loss........................................... (3,490) (2,126) (3,252) (180)
Other expenses, net.................................... (359) (329) (1,034) (662)
------- ------- ------- -------
Loss before extraordinary item........................... (3,849) (2,455) (4,286) (842)
Extraordinary expense, net of tax effect............... 213
Income tax expense (benefit)........................... 4 (41) 295 391
------- ------- ------- -------
Net loss................................................. $(3,853) $(2,414) $(4,581) $(1,446)
======= ======= ======= =======
Net loss per common share--basic......................... $ (0.16) $ (0.11) $ (0.20) $ (0.07)
======= ======= ======= =======
Net loss per common share--diluted....................... $ (0.16) $ (0.11) $ (0.20) $ (0.07)
======= ======= ======= =======
Shares used in per share computation--basic.............. 23,416 22,650 23,250 22,111
======= ======= ======= =======
Shares used in per share computation--diluted............ 23,416 22,650 23,250 22,111
======= ======= ======= =======
</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, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,590 $ 6,294
Accounts receivable, less allowance for doubtful accounts
and returns............................................. 27,177 37,593
Prepaids and other current assets......................... 866 2,591
-------- --------
Total current assets.................................. 31,633 46,478
Property and equipment...................................... 3,494 5,172
Computer software costs..................................... 31,783 27,261
Other assets................................................ 3,428 4,274
-------- --------
Total assets.......................................... $ 70,338 $ 83,185
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of debt.............................. $ 11,415 $ 12,536
Accounts payable.......................................... 7,532 10,232
Accrued expenses.......................................... 7,403 8,743
Income taxes payable...................................... 106 145
Deferred revenues......................................... 15,657 18,567
-------- --------
Total current liabilities............................. 42,113 50,223
-------- --------
Long-term debt, less current installments................... 2,977 3,705
-------- --------
Shareholders' equity:
Common stock, $.001 par value; 35,000,000 shares
authorized, 23,415,707 and 22,904,312 Shares issued and
outstanding at March 31, 2000 and June 30, 1999,
respectively. Preferred stock, no par value; 5,000,000
shares authorized, 0 outstanding........................ 23 23
Additional paid-in capital................................ 85,235 84,261
Accumulated deficit....................................... (57,953) (53,372)
Accumulated comprehensive income (deficit)................ (2,057) (1,655)
-------- --------
Total shareholders' equity............................ 25,248 29,257
-------- --------
Total liabilities and shareholders' equity............ $ 70,338 $ 83,185
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
balance sheets.
4
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,581) $(1,233)
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............................................. 1,954 2,304
Amortization of computer software costs................. 4,977 6,888
Amortization of other assets............................ 757 977
Provision for uncollectible accounts.................... 2,006 969
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable................................... 8,275 (7,232)
Prepaids and other current assets..................... 1,691 (991)
Income taxes payable / recoverable.................... (43) (113)
Accounts payable...................................... (2,768) 2,466
Accrued expenses...................................... (1,271) (2,244)
Deferred revenues..................................... (2,994) (444)
Other, net.............................................. 0 2
------- -------
Net cash provided by operating activities............. 8,004 1,136
------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (306) (1,675)
Computer software costs capitalized....................... (9,355) (8,574)
Other..................................................... (25) (182)
------- -------
Net cash used for investing activities.................. (9,686) (10,431)
------- -------
Cash flows from financing activities:
Net line of credit activity............................... (1,594) 7,059
Proceeds from capital leases, net of repayments........... 567 (123)
Retirement of convertible debt............................ 0 (2,667)
Proceeds from issuance of common stock, net............... 52 286
------- -------
Net cash (used) provided by financing activities........ (975) 4,555
------- -------
Effect of exchange rate changes on cash..................... (47) (44)
------- -------
Net decrease in cash and cash equivalents................... (2,704) (4,784)
Cash and cash equivalents at beginning of period............ 6,294 7,248
------- -------
Cash and cash equivalents at end of period.................. $ 3,590 $ 2,464
======= =======
Noncash investing and financing activities:
Business acquisitions for common stock & forgiveness of
debt.................................................... $ 0 $ 2,067
Conversion of convertible debentures...................... $ 848 $ 2,461
</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
the Company reflect all adjustments of a normal recurring nature which are, in
the opinion of management, necessary to present a fair statement of its
financial position as of March 31, 2000, and the results of its operations and
cash flows for the interim periods presented. The Company's results of
operations for the three and nine months ended March 31, 2000 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, 1999 filed with the Securities and Exchange Commission on
September 28, 1999.
Certain fiscal 1999 amounts have been reclassified to conform to the fiscal
2000 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.
D) ACCOUNTS RECEIVABLE
As of the dates shown, accounts receivable consisted of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
--------- --------
<S> <C> <C>
Trade accounts receivable................................ $28,842 $40,477
Less allowance for doubtful accounts and returns......... (1,665) (2,884)
------- -------
$27,177 $37,593
======= =======
</TABLE>
6
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E) PROPERTY AND EQUIPMENT
As of the dates shown, property and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
--------- --------
<S> <C> <C>
Computer equipment....................................... $14,195 $14,209
Furniture and fixtures................................... 3,005 3,025
Leasehold improvements................................... 1,647 1,819
------- -------
18,847 19,053
Less accumulated depreciation and amortization........... (15,353) (13,881)
------- -------
$ 3,494 $ 5,172
======= =======
</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 $6,000,000 on
February 6, 1998 and $4,000,000 on June 11, 1998. As of March 31, 2000, the
remaining balance after conversions and redemptions is $2,233,000. 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 DIVIDED BY 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)
7
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G) CONVERTIBLE DEBT (CONTINUED)
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 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 of this Quarterly Report on
Form 10-Q--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 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings............................. $(3,853) $(2,414) (4,581) $(1,446)
Foreign currency translation
adjustments............................ (187) (11) (402) (129)
------- ------- ------- -------
Total comprehensive income............... $(4,044) $(2,425) $(4,983) $(1,575)
======= ======= ======= =======
</TABLE>
J) NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Basic earnings 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 per common and common equivalent share is computed by
dividing net earnings 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.
8
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J) NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (CONTINUED)
The following is a reconciliation of the numerators of diluted earnings per
share, (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss..................................... (3,853) (2,414) (4,581) (1,446)
Payment in kind interest on convertible
debentures................................. -- -- -- --
------ ------ ------ ------
Numerator for diluted calculation............ (3,853) (2,414) (4,581) (1,446)
====== ====== ====== ======
</TABLE>
Due to a net loss position for all periods presented, there are no
differences between the denominator for basic and diluted earnings per share for
the three and nine month periods ended March 31, 2000 and 1999.
K) OTHER MATTERS
On September 1, 1998, the Board of Directors of the Company approved a
Preferred Shares Rights Agreement dated September 4, 1998, as amended, 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 1/1000(th) 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 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 one-year limitation on ability to
exercise expired on September 28, 1999. 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.
On January 7, 1999, the Company entered into employment agreements with each
of J. Patrick Tinley, the Company's President and Chief Operating Officer and
member of the Board of Directors, and Dennis V. Vohs, the Company's Chairman of
the Board of Directors and Chief Executive Officer (the "Employment
Agreements"). In addition to a salary and benefits, each Employment Agreement
provides the employee with a continuation of salary and benefits for a
twenty-four month period immediately following the employee's termination of
employment by the Company "without cause" (as
9
<PAGE>
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K) OTHER MATTERS (CONTINUED)
that term is defined in the Employment Agreement). In addition, if within the
first nine months following a "change of control" of the Company the employee
terminates his employment with the surviving corporation for "good reason" or
the surviving corporation terminates the employee's employment for any reason
other than "cause" or "disability" (as each of these terms in quotes is defined
in the Employment Agreements), the employee shall then be entitled to a
continuation of then applicable salary for the twenty-four month period
immediately following the termination date and all unvested stock options and
similar rights shall become vested and exercisable. Mr. Tinley's and Mr. Vohs
Employment Agreements have been filed as Exhibit 10.3 and Exhibit 10.4,
respectively, to the Company's Quarterly Report on Form 10-Q for the third
quarter of fiscal 1999, filed May 17, 1999.
On September 17, 1999, the Company entered into an employment agreement with
Robert B. Webster, the Chief Financial Officer and Secretary of the Company. In
addition to a salary and benefits, the employment agreement provides the
employee with a continuation of salary and benefits for a twelve-month period
immediately following the employee's termination of employment by the Company
"without cause" (as that term is defined in Mr. Webster's employment agreement).
In addition, if within the first nine months following a "change of control" of
the Company the employee terminates his employment of the surviving corporation
for "good reason" or the surviving corporation terminates the employee's
employment for any reason other than "cause" or "disability" (as each of these
terms in quotes is defined in the employment agreements), the employee shall
then be entitled to a continuation of then applicable salary for the twelve
month period immediately following the termination date and all unvested stock
options and similar rights shall become vested and exercisable. Mr. Webster's
employment agreement has been filed as Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the fiscal year 1999, filed September 28, 1999.
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.
BUSINESS SUMMARY
DESCRIPTION OF BUSINESS
Ross Systems, Inc. (the "Company") develops, markets and implements a
comprehensive system of enterprise resource planning (ERP), advanced planning
systems (APS) and supply chain management (SCM) software. The Company has over
5,000 installations with more than 3,400 customers in 45 countries. The
Company's growing global customer base is primarily in three areas: Process
manufacturing with unique functionality for food/beverage and other FDA
regulated process industries; Healthcare organizations; and Public
Sector/Not-for-Profit institutions.
Ross Systems' software is marketed under the name
iRenaissance-Registered Trademark-. This integrated, modular system, which
operates in a thin client or browser based internet mode as well as on open
system/ client-server platforms, includes a suite of the following solutions:
financials; process manufacturing; production planning; finite capacity
scheduling; distribution; human resources; payroll; maintenance management;
transportation management; materials management; decision support; and business
process modeling.
In July 1999, the company formed Resynt, a subsidiary focused on e-commerce.
Resynt's internet applications and services include a wide range of e-commerce
business-to-business (B2B) features and technology to connect traditional ERM
(enterprise resource management) systems over the internet to customers and
suppliers thereby tightly linking trading partner supply chains to achieve
sustainable competitive advantage. These applications are designed to allow
companies the ability to leverage the technology of the Internet in order to
automate business processes and effectively manage business resources.
The Resynt product line is currently made up of six modules. All of these
applications leverage the domain expertise, vertical industry solutions, and
customer base the company has in its core business. These products are designed
to compliment and integrate with the company's
iRenaissance-Registered Trademark- ERP suite of products. They are as follows:
1) RESYNT.COMMERCE- This is a comprehensive B2B sell-side e-commerce
application. One of the main feature of this product is a customer
self-service kiosk which gives buyers access to key
11
<PAGE>
information such as order and shipping status, billing and payment data,
product catalog, inventory availability and price information. It allows
buyers the ability to place orders directly over the internet.
Furthermore, the application contains business rules and proprietary
logic that is tuned to the needs of the specific industries that the
company serves. In addition to the product's ability to integrate tightly
with the iRenaissance-Registered Trademark- ERP backbone, it can also
integrate with other ERP systems so that data and transactions move
seamlessly back and forth between web-based applications and back-office
applications.
2) RESYNT.PROCURE- This is a comprehensive B2B buy-side e-commerce
application. Resynt.procure allows companies to cut costs and improve
productivity across their purchasing functions. This product will enable
customers to use pre-built catalogs, requisitioning, approval, and
workflow capabilities to significantly lower the time involved and cost
of indirect purchasing. It will also provide connectivity to certain
popular markets for the web-based procurement of direct materials used in
the manufacturing process.
3) RESYNT.CONNECT- This application provides connection with the ERP
backbone transaction system on the back end. This is the common engine
and conduit used to handle all the requisite data transfer and
integration issues. It is built using de facto Internet standards, with
XML as a core technology. Traditional EDI transactions can be managed and
upgraded to XML-based EDI or into more advanced machine-to-machine
e-commerce transactions. It also allows web applications to transact not
only with the ERP backbone, but also with legacy systems.
4) RESYNT.EMPLOYEE- This application provides significant web-based
services to employees and managers in areas like benefits, human
resources, and travel expense reporting. Tight integration to the back
office applications allow the company's customers to deploy appropriate
functions onto the web on demand while insuring that data and
transactions are handled once in an integrated fashion.
5) RESYNT.COLLABORATE- This product provides optimization of the
fulfillment process. This application allows manufacturing companies to
collaborate over the web across their supply chain. This covers both
upstream and downstream collaboration so that a company can handle demand
planning issues like forecasting and vendor managed inventory while also
dealing with factory scheduling and optimization.
6) RESYNT.TRADE- This product provides connections to specific Internet
Trading Communities. It is designed to provide pre-integrated links to
the key trading communities that are especially important to the vertical
industries that the company serves. This helps reduce planning and
integration work for customers and makes connecting to and dealing with
trading communities a faster and simpler task..
RESYNT.TRADE and RESYNT.COLLABORATE are scheduled for general availability
in the company's fourth quarter, while the other four modules are currently
available for customer delivery.
RESULTS OF OPERATIONS
REVENUES
Total revenues for the quarter ended March 31, 2000 decreased 24% to
$18,477,000 from $24,371,000 in the same quarter of fiscal 1999. Software
product license revenues decreased 35%, consulting and other services revenues
decreased 32%, and maintenance revenues decreased 2% from the same quarter of
the prior year.
For the nine-month period ended March 31, 2000, total revenues decreased 16%
to $63,582,000, from $76,044,000 in the same period of fiscal 1999. Software
product license revenues decreased 41%,
12
<PAGE>
service revenues decreased 7%, and maintenance revenues increased 1% from the
same period of the prior year.
Software product license revenues were $4,146,000 during the quarter ended
March 31, 2000, a decrease of $2,211,000, or 35%, from the same quarter in
fiscal 1999. The Company experienced a decrease over the same quarter of fiscal
1999 in the North American market of approximately $845,000, or 26%. This North
American decrease relates to a decrease of approximately $489,000 in U.S.
revenues and $356,000 in Canadian revenues due to a fewer number of contracts
recorded during the quarter than during the same quarter of the prior year. The
Company experienced a net decrease of $1,366,000, or 45%, in the European, Asian
and Pacific Rim ("International") markets over the same quarter in fiscal 1999.
The Asia/Pacific Rim markets experienced a $170,000, or 213% increase in
revenues from the same quarter in the prior year due largely to a greater number
of contracts recorded during the quarter than in the same quarter of the prior
year. European revenues decreased $1,536,000, or 51%, over the same quarter in
the prior year. This decrease was due largely to decreases in France of
$734,000, other European countries of $258,000, Benelux of $363,000, and Spain
of $331,000, partially offset by increases in UK of $150,000. The Company
believes that the decrease in software product licenses is principally a result
of an industry-wide increase in the cycle time for customer to plan, evaluate,
and negotiate the agreement to procure ERP software as a replacement for legacy
or obsolete software systems. In addition, customers for ERP systems are more
carefully evaluating the full range of best of breed solutions for
internet/e-commerce enablement. The company expects its Resynt product family to
provide a full range of solutions to fill that requirement. Maintenance
contracts sold by third party distributors are included by the Company in the
software product license revenues because the Company has no support obligations
to any of the distributors' customers. For the nine-month period ended
March 31, 2000, software product license revenues decreased $10,490,000 or 41%,
from the same period in the prior year. The Company experienced decreases, as
compared to the same period of the prior year, in all markets as follows, North
American $6,945,000 or 49%, European $2,935,000 or 35%, and Asian Pacific Rim
$610,000 or 21%.
Consulting and other services revenues for the third quarter of fiscal 2000
decreased 32% to $7,402,000 from $10,908,000 in the same quarter of fiscal 1999.
Revenues from consulting and other services (which are typically recognized as
performed) are generally correlated, with a nine to twelve month lag, with
software product license revenues (which are typically recognized upon
delivery), so that when software product license revenues fluctuate, future
period services revenues show a corresponding effect. For the quarter ended
March 31, 2000, North American services revenues decreased by $1,981,000, or
27%, over the same quarter in the prior year which is attributable largely to a
decline of software product licensing activity during the previous quarters.
During the third quarter of fiscal 2000, the Company continued to reduce the
number of outside consultants used to perform implementations, consulting, and
other professional services. The outside consultants normally cost more and
generate lower gross margins than services performed by Company employees.
International services revenues decreased $1,525,000, or 43% over the same
quarter in the prior year. For nine-month period ended March 31, 2000, service
revenues decreased $2,106,000 or 7% as compared to the same period of the prior
fiscal year. For the nine month period ended March 31, 2000, North American
services revenues decreased $730,000 or 4%, while International services
revenues decreased $1,376,000 or 15% as compared to the same period of the prior
fiscal year. Management believes that the decrease in services revenues for the
three and nine months ended March 31, 2000 is a result of customers focusing
their resources toward the year 2000 issue and the slowdown in sales of software
licenses leading up to Y2K crossover as well as extended cycle time for customer
purchasing decisions in the ERP software market. The Company expects an increase
in services demand related to the introduction of its Resynt B to B e-Commerce
modules, which require a larger consulting services content than the Company's
traditional ERP products.
13
<PAGE>
Maintenance revenues for the third quarter decreased by $177,000, or 2% in
fiscal 2000 versus the same quarter in the prior year. As compared to the same
quarter of the previous fiscal year, maintenance revenues decreased $303,000, or
6% in North America. The decreases in North America were partially offset by
increases in the Europe and Asia/Pacific Rim markets of $35,000 or 2% and
$91,000 or 106%, respectively. 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 to the distributors'
customers. For the nine-month period ended March 31, 2000, maintenance revenues
increased $134,000 or 1% to $21,217,000 as compared to the same period of the
prior fiscal year. For the nine month period ended March 31, 2000, North
American maintenance revenues increased $125,000 or 1%, while International
maintenance revenues increased $9,000 or less than 1%, as compared to the same
period of the prior fiscal year.
International revenues as a percentage of total revenues for the third
quarter of fiscal 2000 decreased to 30% from 34% for the same quarter in fiscal
1999. International revenues decreased $2,764,000 or 33% over the same quarter
in the prior year. The Company's UK and German subsidiaries accounted for
increases of $256,000 and $118,000, respectively. Furthermore, the Asia/ Pacific
Rim markets experienced an increase in revenues of $150,000. The remaining
countries all experienced net decreases as follows; Spain $946,000, Benelux
$884,000, France $1,201,000, and other European countries of $257,000. These
fluctuations are related not only to the exchange rate impact of 5% for the
quarter and 6% in the nine months year to date, but also to the quantity, scope
and timing of contracts closed. The aggregate third quarter increase (decrease)
in international revenues over the same quarter of fiscal 1999 is (45%) for
software licenses, (43%) for consulting services and 7% for maintenance revenue.
As a percentage of total revenues for the nine-month period ended March 31,
2000, International revenues decreased to 33% from 34% of total revenues as
compared to the same period of the prior fiscal year.
North American revenues as a percentage of total revenues for the third
quarter of 2000 increased to 70% from 66% in the same quarter of prior fiscal
year. North American revenues decreased 20% over the same quarter of the
previous fiscal year. The aggregate decrease of $3,130,000 is comprised of a 26%
decrease in software licenses, a decrease of 25% for consulting services and a
decrease of 6% for maintenance revenues as compared to the same period of the
prior fiscal year. Decreases are due to reduction of the number of software
agreements entered into during the current quarter. For the nine month period
ended March 31, 2000, the aggregate decrease of $7,550,000 is comprised of a 49%
decrease in software licenses, a 4% decrease in consulting revenues, partially
offset by an increase of 1% for maintenance revenues, as compared to the same
period of the prior fiscal year. Increases in maintenance revenues are a
function of previously sold software licenses. Decreases in consulting revenues
are a function of declining software license sales over the prior quarters.
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 in a particular quarter. Major third
party products sold by the Company include both Microsoft and Oracle databases
and other optional software including implementation, reporting, and
productivity tools. Costs of software product licenses for the third quarter of
fiscal 2000 increased by 6% to $759,000 from $713,000 in the third quarter of
fiscal 1999. For the nine months ended March 31, 2000, the cost of software
product licenses decreased 7% to $2,692,000 from $2,903,000 for the same period
in fiscal 1999. As a percentage of software product license revenue, the costs
of software product licenses increased to 18% in the third quarter of fiscal
2000 compared to 11% in the same quarter of fiscal 1999. Likewise, for the nine
month period ended March 31, 2000 the costs of product licenses as a percent of
software license
14
<PAGE>
revenues increased to 18% from 11% as compared to the same period of the prior
fiscal year. The increase in these items for the three and nine month periods
was primarily due to the number of agreements entered into in fiscal 2000 which,
when compared to the prior year, contained a greater 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 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
decreased by 18% to $9,760,000 in the third quarter of fiscal 2000, as compared
to $11,907,000 in the third quarter of fiscal 1999. For the nine month period
ended March 31, 2000, costs of consulting, maintenance, and other services
decreased 4% to $31,667,000 from $32,820,000 in the same period of fiscal 1999.
The Company's gross profit margin resulting from consulting, maintenance and
other services revenues for the third quarter of fiscal 2000 was 32%, down from
34% in the same quarter of fiscal 1999. The decline in the gross profit margin
for the quarter was primarily a result of a decline in revenues versus a
relatively fixed cost base. For the nine-month periods ended March 31, 2000 and
1999, the gross profit margin remained unchanged at 35%.
Sales and marketing expenses for the quarter ended March 31, 2000 decreased
by 39%, to $4,858,000 from $7,993,000 in the same quarter of the prior year. For
the nine-month period ended March 31, 2000, sales and marketing expenses
decreased 32% to $15,498,000 from $22,926,000 as compared to the same period of
the prior fiscal year. These decreases were primarily a result of decreased
headcount combined with an increased control of discretionary spending. For the
three and nine months ended March 31, 2000, travel related expenditures
decreased by $595,000 and $2,033,000, respectively, over the same period of the
prior year. Additionally, personnel-related expenses, including salaries and
commissions decreased approximately $2,029,000 and $3,886,000, respectively, for
the three and nine months period ended March 31, 1999 as compared to the same
period of the prior year. Furthermore, communications costs related to
telemarketing efforts and facilities related expenses decreased $150,000 and
$479,000 for the three-month and nine-month periods ended March 31, 2000 versus
the same period of the prior year. Likewise, for the three and nine months ended
March 31, 2000, supplies and outside services related expenses decreased
approximately $131,000 and $513,000, respectively, over the same period of the
prior fiscal year. Furthermore, other expense categories experienced net
decreases of $230,000 and $517,000 for the three and nine month periods,
respectively, versus the prior same periods of the prior fiscal year.
Net product development (research and development) expenses decreased by
17%, to $2,524,000 in the third quarter of fiscal 2000 from $3,058,000 in the
same quarter of the prior year. For the nine-month period ended March 31, 2000,
these expenses decreased 22% to $7,289,000 from $9,375,000 in the same period of
the prior fiscal year. The following table summarizes product development
expenditures (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross Expenditures for Product Development................ $4,404 $4,473 $11,640 $11,061
Less: Expenses capitalized................................ (3,391) (3,541) (9,355) (8,574)
Plus: Amortization of previously capitalized amounts...... 1,511 2,126 5,004 6,888
------ ------ ------- -------
Total Product Development Expenses........................ $2,524 $3,058 $ 7,289 $ 9,375
====== ====== ======= =======
</TABLE>
As a percentage of total revenues, product development expenditures for the
three-month period ended March 31, 2000 increased to 14% from 13%, as compared
to the same period of the prior fiscal
15
<PAGE>
year. For the nine month period ended March 31, 2000, as a percentage of total
revenues, product development expenditures remained constant @ 11% as compared
to the same period of the prior fiscal year. Product development expenditures
during fiscal 2000 have been primarily focused on continued enhancements to
existing products and developing new products. During the three and nine months
ended March 31, 2000, software development costs capitalized included amounts
attributable to the development of the Company's Resynt Suite of e-Commerce
products, and the new browser based version of the Company's core product known
as iRenaissance.
General and administrative expenses for the quarter ended March 31, 2000
decreased by 7%, to $1,914,000 from $2,056,000 in the same quarter of the prior
year. For the nine month period ended March 31, 2000, general and administrative
expenses decreased 8% to $5,780,000 from $6,255,000 in the same period of the
prior fiscal year. The major reasons for the decrease in these expenses from the
same period in the prior year was due to renegotiated telecommunications
contracts and the savings that resulted, therefrom.
During the three month period ended March 31, 2000, the Company recorded a
provision for doubtful accounts of $770,000, as compared to $442,000 recorded in
the third quarter of fiscal 1999. For the nine-month period ended March 31,
2000, the company recorded a provision for doubtful accounts of $2,006,000 as
compared to $968,000 for the same period of the prior fiscal year. The fiscal
2000 and 1999 provisions consisted primarily of specific customer accounts
identified as being potentially uncollectible.
Amortization of other assets decreased to $237,000 in the third quarter of
fiscal 2000 from $328,000 in the same quarter of the prior year. For the
nine-month period ended March 31, 2000, amortization of other assets decreased
to $757,000 from $977,000 during the same period of the prior fiscal year. This
amortization relates to the purchase of the Company in 1988 and its subsequent
acquisitions of other products and companies. The decrease is attributable to
previously purchased products and companies becoming fully amortized.
In connection with streamlining the European operations to a more efficient
structure and refocusing the entire Company toward it's Resynt suite of
e-commerce application, management terminated certain employees prior to
March 31, 2000. The terminated employees will perform no future services for the
company. As such, the costs associated with post employment benefits and salary
continuation have been accrued. This action resulted in a one-time non-recurring
charge of $1,145,000. North America, Spain, and France were primarily affected
by this reduction in force. Management estimates that this action will remove
$2,000,000 from the annual operating costs of the company.
OTHER EXPENSE, NET
Other expense for the quarter ended March 31, 2000 was $359,000, as compared
to $329,000 in the same quarter of fiscal 1999. For the nine-month period ended
March 31, 2000, other expense was $1,034,000, as compared to $662,000 in the
same period of fiscal 1999. These amounts primarily consisted of interest
expense related to the increased borrowing by the Company under its existing
line of credit facility during the three month and nine-month periods ended
March 31, 2000 versus the same period of fiscal 1999.
INCOME TAX EXPENSE
During the third quarter of fiscal 2000, the Company recorded income tax
expense of $4,000 compared with an income tax benefit of $41,000 recorded during
the same quarter in fiscal 1999. For the nine month period ended March 31, 2000,
the company recorded income tax expense of $295,000 compared with an income tax
expense of $391,000 recorded during the same period of fiscal 1999. Income tax
expense 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.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of fiscal 2000, net cash provided by operating
activities increased $6,868,000 compared to the same period of the prior year.
An aggregate net decrease in the non-cash charges for depreciation, amortization
and provisions for bad debt of $1,444,000 and an aggregate decrease in the
combined cash effect of accounts payable and accrued expenses changes of
$4,261,000 and by decreased Company earnings of $3,348,000 were offset by cash
provided through decreased accounts receivable of $15,507,000. The decrease in
accounts payable and certain other current liabilities is a function of the
timing of the business cycle. The decreased receivables portfolio was a result
of timing of revenues recognized, increased collection efforts, and major
improvement of the receivables turnover. Management feels that the risk of
uncollectibility has been appropriately assessed and reflected in the
accompanying condensed, consolidated financial statements. Early debt
extinguishments, which resulted in a decrease in cash of $213,000 for the nine
months ended March 31, 1999, were not repeated in the current fiscal year.
Changes in prepaid expenses, accrued income taxes and other miscellaneous
accounts resulted in a further increase in cash of $2,751,000. However, cash was
decreased by $2,550,000 due to work performed in fulfillment of the company's
deferred revenue obligations.
In the first nine months of fiscal 2000, the Company required $9,686,000 for
investing activities versus $10,431,000 over the same period of the prior year,
a decrease of $745,000. Investment in property and equipment decreased by
$1,369,000 over the same period of the prior year as a result of the Company's
ongoing austerity measures. Capitalized computer software costs increased by
$781,000 due to increased effort on the Company's iRennaisance suite and related
offerings. Other investment items decreased by $157,000. The Company financed
its continuing operations for the nine months ended March 31, 2000 through cash
generated from operations and available credit facilities.
Cash flows from financing activities decreased by $5,530,000 versus the same
nine-month period of the prior fiscal year. Repayments of amounts previously
borrowed under the Company's line of credit resulted in a decrease in cash of
$8,653,000. The company entered into two capital lease arrangements related to
previously purchased assets. These new arrangements, net of repayments on
existing leases during the period, resulted in increased cash of $690,000. There
were no retirements of convertible debt in the current fiscal year, compared
with $2,667,000 of retirements in the prior fiscal year period. Proceeds from
issuance of common stock decreased by $234,000.
At March 31, 2000 the Company had $3,590,000 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
March 31, 2000, the Company had $9,998,000 outstanding against the $15,000,000
revolving credit facility, and based on eligible accounts receivable at
March 31, 2000, the Company's cash and remaining borrowing capacity under the
revolving credit facility totaled approximately $3,765,000.
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. In the
future, the company may need to seek additional financing which may be in the
form of debt or equity. If required, additional debt financing would increase
the Company's interest expense while additional equity financing would increase
the number of shares outstanding, resulting in dilution for current
stockholders.
THE YEAR 2000 ISSUE
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.
17
<PAGE>
The Company expended approximately $350,000 related to year 2000
preparedness of its internal systems. Management of the Company believes that
the preparations were adequate, and there have been no year 2000 related
problems in the Company's internal systems between December 31, 1999 and the
date of filing of this Report on Form 10-Q. Further, Management believes that
the more recent versions of its product were developed as year 2000 compliant
while older versions of its product were brought into year 2000 compliance
through updates provided in conjunction with customer's ongoing maintenance
contracts. Management believes that its product design was adequate, and
Management has not been made aware of any year 2000 processing problems in the
Company's products between December 31, 1999 and the date of the filing of this
Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE: The Company has a worldwide presence and as such
maintains offices and derives revenues from sources overseas. For the third
quarter of fiscal 2000, international revenues as a percentage of total revenues
were approximately 30%. For the nine-month period ended March 31, 2000,
international revenues as a percentage of total revenues were approximately 33%.
The Company's international business is subject to typical risks of an
international business, including, but not limited to: differing economic
conditions, changes in political climates, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors. The effect of foreign exchange rate fluctuations on
the Company in the first six months of fiscal 2000 was not material.
INTEREST RATES: The Company's exposure to interest rates relates primarily
to the Company's cash equivalents and certain debt obligations. The Company
invests in financial instruments with original maturities of three months or
less. Any interest earned on these investments is recorded as interest income on
the Company's statement of operations. Because of the short maturity of our
investments, a near-term change in interest rates would not materially effect
our financial position, results of operations, or cash flows. Certain of the
Company's debt obligations include a variable rate of interest. A significant,
near term change in interest rates could materially effect the Company's
financial position, results of operations or cash flows.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the first nine months of fiscal 2000, the Investors converted an
aggregate principal amount of $800,000 plus accrued interest through the date of
conversion into 446,000 shares of the Company's Common Stock through several
transactions which were priced and executed in accordance with the agreements
between the Company and each of the Investors regarding the convertible
subordinated debentures.
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.
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of the Registrant, as amended
(1)
3.2 Bylaws of the Registrant (1)
4.3 Form of the subordinated debenture agreement due February 6,
2003 issued by the Registrant to each Investor (3)
4.4 Registration rights agreement between the Registrant and
each Investor (3)
10.1 Preferred Shares Rights Agreement, dated as of September 4,
1998 between the Registrant and BankBoston, N.A. (2)
10.2A Extension Agreement and Amendment to Loan Documents dated
March 21, 1997 between Registrant and Coast Business Credit,
a division of Southern Pacific Thrift and Loan Association
(4)
10.2B Extension Agreement and Amendment to Loan Documents dated
August 18, 1995 between Registrant and CoastFed Business
Credit Corporation ("Coast") (4)
10.2C First Amendment to Loan and Security Agreement dated June
30, 1995 between Registrant and Coast (4)
10.2D Loan and Security Agreement dated October 11, 1994 between
Registrant and Coast (4)
10.3 Employment Agreement, dated as of January 7, 1999, between
Mr. Patrick Tinley and the Registrant (5)
10.4 Employment Agreement, dated as of January 7, 1999, between
Mr. Dennis Vohs and the Registrant (5)
10.5 Employment Agreement, dated as of September 17, 1999,
between Mr. Robert Webster and the Registrant (6)
27.1 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.
19
<PAGE>
(3) Incorporated by reference to the exhibit filed with the Registrant's Current
Report on form 8-K filed February 12, 1998.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form 10-K/A filed April 30, 1998.
(5) Incorporated by reference to the exhibit filed with the Registrant's Current
Report on Form 10-Q filed May 17,. 1999.
(6) Incorporated by reference to the exhibit filed with the Registrant's Current
Report on Form 10-K filed September 28, 1999.
(b) Reports on Form 8-K
ITEMS 1,4 AND 5 HAVE BEEN OMITTED, AS THEY ARE NOT APPLICABLE.
20
<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.
<TABLE>
<S> <C>
ROSS SYSTEMS, INC.
Date: May 15, 2000 /s/ ROBERT B. WEBSTER
------------------------------------------------
Robert B. Webster
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
AND DULY AUTHORIZED OFFICER)
</TABLE>
21
<PAGE>
ROSS SYSTEMS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,590
<SECURITIES> 0
<RECEIVABLES> 28,842
<ALLOWANCES> 1,665
<INVENTORY> 0
<CURRENT-ASSETS> 31,633
<PP&E> 18,847
<DEPRECIATION> 15,353
<TOTAL-ASSETS> 70,338
<CURRENT-LIABILITIES> 42,113
<BONDS> 2,977
0
0
<COMMON> 23
<OTHER-SE> 25,225
<TOTAL-LIABILITY-AND-EQUITY> 70,338
<SALES> 0
<TOTAL-REVENUES> 18,477
<CGS> 0
<TOTAL-COSTS> 21,967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 770
<INTEREST-EXPENSE> 359
<INCOME-PRETAX> (3,849)
<INCOME-TAX> 4
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,853)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
