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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, 2000,
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.
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(Exact name of registrant as specified in its charter)
DELAWARE 94-2170198
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(State or other jurisdiciton 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
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(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 31, 2001
----- ----------------
Common stock, $0.001 par value 25,647,734
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ROSS SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................................................1
Condensed Consolidated Balance Sheets -December 31, 2000 and June 30, 2000......................1
Condensed Consolidated Statements of Operations -Three months ended December 31, 2000
and 1999..................................................................................2
Condensed Consolidated Statements of Cash Flows -Three months
ended December 31, 2000 and 1999..........................................................3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................19
PART II. OTHER INFORMATION
Item 2. Changes in Securities..........................................................................20
Item 6. Exhibits and Reports on Form 8-K...............................................................20
SIGNATURE........................................................................................................22
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
DECEMBER 31, JUNE 30,
2000 2000
------------ --------
ASSETS (unaudited) (audited)
Current assets:
Cash and cash equivalents $ 683 $ 2,010
Accounts receivable, less allowance
for doubtful accounts 13,427 21,927
Prepaids and other current assets 2,354 1,501
------------ ------------
Total current assets 16,464 25,438
Property and equipment, net 2,145 3,009
Computer software costs, net 32,139 32,637
Other assets 2,749 3,211
------------ ------------
Total assets $ 53,497 $ 64,295
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of debt $ 8,653 $ 10,148
Accounts payable 7,718 6,949
Accrued expenses 4,242 5,459
Income taxes payable 207 248
Deferred revenues 13,335 17,974
------------ ------------
Total current liabilities 34,155 40,778
------------ ------------
Long-term debt, less current installments 1,087 2,627
------------ ------------
Shareholders' equity:
Common stock, $.001 par value; 35,000,000 shares authorized, 25,647,734 26 24
and 23,804,191 shares issued and outstanding at December 31, 2000 and
June 30, 2000, respectively. Preferred stock, no par value; 5,000,000
shares authorized, 0 outstanding.
Additional paid-in capital 86,918 85,780
Accumulated deficit (67,062) (63,034)
Accumulated comprehensive deficit (1,627) (1,880)
------------ ------------
Total shareholders' equity 18,255 20,890
------------ ------------
Total liabilities and shareholders' equity $ 53,497 $ 64,295
============ ============
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
1
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(unaudited) (unaudited)
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- --------------
Revenues:
Software product licenses $ 1,940 $ 5,077 $ 4,356 $ 11,047
Consulting and other services 4,162 9,834 9,130 20,035
Maintenance 6,496 6,931 13,264 14,023
-------------- --------------- -------------- --------------
Total revenues 12,598 21,842 26,750 45,105
-------------- --------------- -------------- --------------
Operating expenses:
Costs of software product licenses 325 781 809 1,933
Costs of consulting, maintenance and other services 3,596 11,025 10,114 21,905
Sales and marketing 3,463 5,426 8,506 10,640
Product development 3,076 2,311 6,121 4,765
General and administrative 1,215 1,870 2,752 3,867
Provision for uncollectible accounts 283 835 835 1,236
Amortization of other assets 135 260 360 520
Non-recurring costs 0 0 790 0
-------------- --------------- -------------- --------------
Total operating expenses 12,093 22,508 30,287 44,866
-------------- --------------- -------------- --------------
Operating earnings (loss) 505 (666) (3,537) 239
Other expenses, net (276) (324) (613) (676)
-------------- --------------- -------------- --------------
Earnings before taxes 229 (990) (4,150) (437)
Income tax expense (benefit) 62 83 (122) 291
-------------- --------------- -------------- --------------
Net earnings (loss) $ 167 $ (1,073) $ (4,028) $ (728)
============== =============== ============== ==============
Net earnings per common share - basic $ 0.01 $ (0.05) $ (0.16) $ (0.03)
============== =============== ============== ==============
Net earnings per common share - diluted $ 0.01 $ (0.05) $ (0.16) $ (0.03)
============== =============== ============== ==============
Shares used in per share computation - basic 25,690 23,336 24,432 23,155
============== =============== ============== ==============
Shares used in per share computation - diluted 25,690 23,336 24,432 23,155
============== =============== ============== ==============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
-------------------------------------
2000 1999
----------------- ----------------
Cash flows from operating activities:
Net earnings (loss) $ (4,028) $ (728)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 875 1,397
Amortization of computer software costs 3,977 3,331
Amortization of other assets 360 520
Provision for uncollectable accounts 835 1,236
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 7,813 4,448
Prepaids and other current assets (885) 1,207
Income taxes payable / recoverable (39) (129)
Accounts payable 814 (1,310)
Accrued expenses (1,184) (1,768)
Deferred revenues (4,606) (3,771)
------------ ------------
Net cash provided by operating activities 3,932 4,434
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (65) (233)
Computer software costs capitalized (3,732) (5,965)
Other 408 (14)
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Net cash used for investing activities (3,389) (6,212)
------------ ------------
Cash flows from financing activities:
Net line of credit activity (1,491) (3,672)
Capital lease payments (434) 1,137
Proceeds from issuance of common stock 29 129
------------ ------------
Net cash used for financing activities (1,896) (2,406)
------------ ------------
Effect of exchange rate changes on cash 26 29
------------ ------------
Net decrease in cash and cash equivalents (1,327) (4,155)
Cash and cash equivalents at beginning of period 2,010 6,294
------------ ------------
Cash and cash equivalents at end of period $ 683 $ 2,139
============ ============
Non-cash investing and financing activities:
Conversion of convertible debentures $ 584 $ 848
============ ============
Income taxes paid (-81) 188
============ ============
Interest paid 612 618
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial sheets.
3
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, 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 six months ended December 31,
2000 are not necessarily indicative of the results to be expected for the full
year.
These unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and, therefore,
certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in the Company's Annual Report to Stockholders on Form 10-K for the
fiscal year ended June 30, 2000 filed with the Securities and Exchange
Commission on October 13, 2000.
Certain fiscal 2000 amounts have been reclassified to conform to the fiscal 2001
financial statement presentation.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
On October 24, 2000 the Company entered into a plan to cease all direct sales,
service and support activities in France as a result of a pattern of significant
and sustained losses. As such, for purposes of the accompanying consolidated
financial statements, the balance sheet of the French subsidiary has been
eliminated as of December 31, 2001, resulting in a net credit to consolidated
equity of $348,000. For purposes of the accompanying statement of operations,
revenues and expenses netting to a loss of ($497,000) for the quarter ended
September 30, 2000 are included. Management believes that the potential future
costs of this action cannot be reasonably estimated at this time but do not
anticipate that the resolution of this uncertainty will have a material adverse
effect on the financial statements taken as a whole.
4
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed" in the computation of annual amortization expense of software costs.
The 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):
DECEMBER 31, JUNE 30,
2000 2000
----------------- ----------------
Trade accounts receivable $ 15,692 $ 25,498
Less allowance for doubtful accounts and returns (2,265) (3,571)
----------------- ----------------
$ 13,427 $ 21,927
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E) PROPERTY AND EQUIPMENT
As of the dates shown, property and equipment consisted of the
following (in thousands):
DECEMBER 31, JUNE 30,
2000 2000
---------------- ---------------
Computer equipment $ 12,675 $ 13,113
Furniture and fixtures 2,881 3,007
Leasehold improvements 1,749 1,705
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17,305 17,825
Less accumulated depreciation and amortization (15,160) (14,816)
---------------- ---------------
$ 2,145 $ 3,009
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F) 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
5
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6, 1998 and $4,000,000 on June 11, 1998. As of December 31, 2000, the remaining
balance after conversions and redemptions is $759,000. 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 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.
As of October 27, 2000 the Company had issued an aggregate amount of
shares equal to 19.99% of the number of common shares outstanding on February 6,
1998, the date of the original transaction. As such, NASDAQ capitalization
regulations preclude further issuances without shareholder approval or waiver by
the NASDAQ. The Company has been denied waiver by the NASDAQ and may be required
to pursue shareholder approval. However, at the debenture holders option, if
shareholder approval is not secured, the total outstanding debentures totaling
$759,000 may be redeemable in cash at a premium of 115% of the face value
outstanding.
G) SOFTWARE REVENUE RECOGNITION
The company recognizes revenue on software transactions in accordance
with Statement of Position No. 97-2 "Software Revenue Recognition" ("SOP 97-2).
The financial statements contained herein have been prepared in accordance with
the requirements of SOP 97-2.
H) 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
6
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 components of
comprehensive income (loss) for the three and six month periods ended December
31, 2000 and 1999 were as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- ------------------------
2000 1999 2000 1999
--------- ---------- --------- ----------
Net earnings (loss) $ 167 $ (1,073) $ (4,028) $ (728)
Foreign currency translation adjustments (524) (152) 253 (215)
--------- ---------- --------- ----------
Total comprehensive income (loss) $ (357) $ (1,225) $ (3,775) $ (943)
========= ========== ========= ==========
H) 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 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.
The following is a reconciliation of the numerators of diluted earnings
per share, (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ----------- ------------
Net earnings (loss) $ 167 $ (1,073) $ (4,028) $ (728)
Payment in kind interest on convertible debentures 13 0 0
------------ ------------ ----------- ------------
Numerator for diluted calculation $ 180 $ (1,073) $ (4,028) $ (728)
============ ============ =========== ============
When the Company is profitable, the only difference between the
denominator for basic and diluted net earnings per share is the effect of common
stock equivalents. In periods of a loss, the denominator does not change because
it would be anti-dilutive.
I) 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 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.
7
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 exercising 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 former 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 former Chief Executive Officer (the
Employment Agreements). In addition to a salary and benefits, Mr. Tinley's
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 that term is
defined in the Employment Agreement). In addition, if within the first nine
months following a "change of control" of the Company Mr. Tinley 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 twenty-four month period immediately following
the termination date and all unvested stock options and similar rights shall
become vested and exercisable. On December 31, 2000, Mr. Vohs ceased his
employment with the Company, but remains on the Board of Directors, and in a
consulting capacity. As such, his Employment Agreement terminated on December
31, 2000. Mr. Tinley's and Mr. Vohs Employment Agreements have been filed as
Exhibit 10.3 and Exhibit 10.4, respectively to the Company's Annual Report on
Form 10-K for the fiscal year 2000, Filed October 13, 2000.
On September 17, 1999, the Company entered into an employment agreement
with Robert B. Webster, Executive Vice President, 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 the 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 2000, filed October 13, 2000.
During the third quarter of fiscal year 2000, the Company recorded a
$1,145,000 expense to cover the liability arising from severance costs
associated with 19 employees employed in sales, marketing, services, and product
development in North America and Europe. The costs were accrued in accordance
with EITF Issue 94-3, "Liability Recognition for Certain Employee Terminations,
Benefits and Other Costs to Exit an Activity". At December 31, 2000, all of the
costs had been paid.
8
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On September 12, 2000, the Company announced a strategic restructuring
aimed at reducing costs and improving efficiencies. Under the restructuring, the
Company reduced 125 positions across the company as well as accelerated efforts
to eliminate unneeded office space, improve productivity through the use of
technology and focus on increased revenues through the use of distributors. Cost
savings associated with the restructuring were expected to be $12,000,000 on an
annualized basis. As a result of these actions, during the first quarter of
fiscal year 2001, the Company recorded a $790,000 expense to cover the liability
arising from associated employee separation costs. The costs were accrued in
accordance with EITF Issue 94-3, "Liability Recognition for Certain Employee
Terminations, Benefits and Other Costs to Exit an Activity". At December 31,
2000, $25,000 of the liability remained and will be paid in fiscal 2001.
On October 24, 2000 the Company entered into a plan to cease all direct
sales, service and support activities in France as a result of a pattern of
significant and sustained losses. As such, for purposes of the accompanying
consolidated financial statements, the balance sheet of the French subsidiary
has been eliminated as of December 31, 2001, resulting in a net credit to
consolidated equity of $348,000. For purposes of the accompanying statement of
operations, revenues and expenses netting to a loss of ($497,000) for the
quarter ended September 30, 2000 are included. Management believes that
potential future costs of this action cannot be reasonably estimated at this
time but does not anticipate that the resolution of this uncertainty will have a
material adverse effect on the financial statements taken as a whole.
On October 31, 2000, the Company was informed by Nasdaq staff that the
closing bid price of its common stock had fallen below the $1 minimum bid level
required by Nasdaq Marketplace Rule 4450(a)(5) for a period of thirty
consecutive trading days and that the Company would be delisted if it failed to
regain compliance. As of the date of this filing, the company has not regained
compliance but on February 2, 2001, filed a petition explaining its strategy to
cure this requirement, and will appear before the Listing Qualifications Panel
on March 9, 2001. Apart from its minimum bid price deficiency, the Company meets
the other quantitative maintenance criteria for the National Market. In the
event the panel determines to delist the Company's common stock, the Company
will then seek to have its common stock traded on the NASD OTC Bulletin Board.
The Company's ability to meet its cash requirements for operations will
depend upon funds to be generated from operations and amounts available under
its line of credit facility. The Company may be required to seek additional
financing to replace its asset based credit line which expires February 28, 2001
if not extended further beyond that date. The Company is currently negotiating
alternatives to raise additional funds through public and/or private financing
arrangements. In addition, management believes that the closure of the HR/PR
product line asset sale described within the subsequent event section of this
report will help to facilitate obtaining additional financing beyond that
transaction. The Company cannot be assured that additional funding will be
available on favorable terms or that the HR/PR product line asset sale will
close. Furthermore, additional equity financing will be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. The Company's failure to raise capital when needed, or to consummate
a sale of certain assets of the Company, may harm its business and operating
results. See note 1 to the consolidated financial statements, "Basis of
Presentation".
9
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
J) SUBSEQUENT EVENT
On February 5, 2001, the Company reported the signing of a definitive sale
agreement for certain assets related to its Human Resource and Payroll product
line to NOW SOLUTIONS, LLC, a private company. ROSS at the same time executed a
distribution agreement with NOW to continue to sell the product under license
from NOW as a complement to its enterprise systems for process manufacturing
companies.
The gross asset sale price is $6.1 million excluding incentives. After fees and
expenses the company expects the transaction to generate a non-recurring gain on
the sale of approximately $4.0 million before incentives. The twofold purpose of
the transaction is to strengthen the Company's balance sheet and to enable the
Company to focus on its core competencies in the process manufacturing sector.
K) NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES" ("Statement 133"). Statement 133 establishes
accounting and reporting standards for derivative instruments including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. The adoption of Statement 133 is
required for the Company's fiscal year 2001. The Company does not anticipate
that Statement 133 will have a significant impact on its financial statements or
financial statement disclosures.
In 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes the SEC staff's views in applying
generally accepted accounting principles to the recognition of revenues. The
Company is currently reviewing its revenue recognition policy and does not
expect the adoption of SAB No. 101 to have a material impact on its consolidated
results of operations, financial position, or cash flows.
L) GEOGRAPHIC SEGMENT INFORMATION
The Company has adopted the Financial Accounting Standards Board's
statement of Financial Accounting Standards No. 131, or SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information," effective for fiscal
years beginning after December 15, 1997. SFAS 131 supersedes Statement of
Financial Accounting standards No. 14, or SFAS 14, Financial Reporting for
Segments of a Business Enterprise. SFAS 131 changes current practice under SFAS
14 by establishing a new framework on which to base segment reporting and also
requires interim reporting of segment information.
The Company markets its products and related services primarily in
North America, Europe and Asia and primarily measures its business performance
based upon geographic results of operations. Selected balance sheet and income
statement information pertaining to the various significant geographic areas of
operation are as follows:
As of and for the quarter ended December 31, 2000:
NET INCOME DEPRECIATION CAPITAL
GROSS ASSETS REVENUE (LOSS) AND AMORTIZATION EXPENDITURES
------------ ------- ---------- ---------------- ------------
Belgium................................ $ 562 $ 495 $ 160 $ 5 $ 0
Netherlands............................ 1,052 581 57 10 0
10
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NET INCOME DEPRECIATION CAPITAL
GROSS ASSETS REVENUE (LOSS) AND AMORTIZATION EXPENDITURES
------------ ------- ---------- ---------------- ------------
Germany................................ 232 174 46 0 0
Spain.................................. 3,337 1,063 27 62 0
United Kingdom......................... 2,496 1,039 (193) 32 12
North America.......................... 46,025 9,246 70 350 5
--------- ------- ----- ------ ----
Total.................................. $ 53,704 $ 12,598 $ 167 $ 459 $ 17
========= ======== ===== ====== ====
As of and for the quarter ended December 31, 1999:
NET INCOME DEPRECIATION CAPITAL
GROSS ASSETS REVENUE (LOSS) AND AMORTIZATION EXPENDITURES
------------ -------- ---------- ---------------- ------------
Belgium................................ 322 318 (137) (20) 0
Netherlands............................ 1,522 880 135 21 0
France................................. 3,666 1,275 (610) 17 0
Germany................................ 435 440 103 0 0
Spain.................................. 4,417 1,487 140 47 0
United Kingdom......................... 3,110 2,306 (80) 48 8
North America.......................... 59,530 15,136 (624) 621 2
--------- ------- ----- ------ -----
Total.................................. $ 73,002 $ 21,842 $ (1,073) $ 734 $ 10
========= ======== ===== ====== =====
11
ROSS SYSTEMS, INC. AND SUBSIDIARIES
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
The Company is a supplier of enterprise-wide business systems and related
services to companies installing internet-enabled e-business software products,
in particular in the process manufacturing markets. Customers are primarily
medium-sized companies (with annual sales of $50 million to $2 billion)
upgrading internal systems to improve profitability through the availability of
timely and accurate information, or to modernize their management information
systems operations in order to reduce costs and provide business-to-business
(B2B) linkage with suppliers and customers. The Company licenses its products to
customers through a direct sales force in North America and Western Europe as
well as independent distributors in 24 other markets worldwide. Since the
Company's inception in 1988, the Company has licensed software products to an
installed base of over 3,400 customers worldwide.
The Company has developed a series of products designed for the Internet
environment which allow users to access and manipulate data from their personal
computers using a portal for functional personalization of the user's desktop.
These products incorporate an integrated, modular, feature-rich and
user-friendly operating environment. The integration of these products allows
the sharing of data between application products with a common user interface
while integrating frequently visited Web sites and other software tools. The
Company's open systems applications function in a relational database management
system ("RDBMS") environment that provides for a high degree of data
availability and integrity. Additionally, because the Company's iRenaissance
financial, manufacturing and distribution applications were developed with the
GEMBASE fourth generation language ("4GL"), the Company believes they are easily
modified and expanded. GEMBASE is a programming environment that delivers a
central data
12
ROSS SYSTEMS, INC. AND SUBSIDIARIES
dictionary, complete screen painting, editing and debugging capabilities, and
links to several popular RDBMSs. GEMBASE itself is written in the C programming
language to facilitate portability across multiple hardware and RDBMS platforms.
Because the iRenaissance financial, manufacturing and distribution products were
developed in GEMBASE, customers often find it easy to customize their own
applications.
The Company offers a comprehensive Enterprise Resource Planning ("ERP")
solution with functionality specifically tailored to the unique formula and
specifications-based requirements of process manufacturers, including food and
beverage, consumer packaged goods, pharmaceutical and biotechnology, chemical,
primary metals, and pulp and paper companies. The Company believes that this
native functionality is superior to the alternative presented by many of the
Company's competitors, which is to adapt systems designed primarily for the
discrete manufacturing sector. The product may be deployed in a thin client mode
to permit the greatest performance advantage for companies using remote
communications over the internet.
In fiscal 2000, the Company introduced its Resynt, suite of internet
applications and services include a wide range of e-commerce
business-to-business (B2B) features and technology to connect traditional ERP
(enterprise resource planning) 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
13
ROSS SYSTEMS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
REVENUES
Total revenues for the second quarter and three month period ended
December 31, 2000 decreased 42% to $12,598,000 from $21,842,000, in fiscal 2000.
Software product license revenues decreased 62%, consulting and other services
revenues decreased 58%, and maintenance revenues decreased 6% from the
comparable period in the prior year, respectively.
For the six-month period ended December 31, 2000, total revenues
decreased 41% to $26,750,000 from $45,105,000 in fiscal 2000. Software product
license revenues decreased 61%, consulting and other services revenues decreased
54%, and maintenance revenues decreased 5% from the comparable period in the
prior year, respectively.
For the three month period ended December 31, 2000 revenues have
decreased by $1,718,000 in North America and by $1,419,000 in Europe and the
Pacific Rim (International). The largest decreases in Europe were recorded in
the UK of $996,000, Spain of $345,000 and France of $342,000. The decrease in
revenues in France, reflects the closure of the Paris office. New arrangements
for sales through a local French distributor have been concluded. The company
believes that global decreases in software product licenses is principally a
result of an industry-wide slowdown in customer's willingness to purchase fully
integrated ERP software in favor of similar but modular internet enabled
enterprise systems and business to business internet applications.
The decrease in software revenues for the six-month period ended
December 31, 2000 was $6,691,000 or 60%, from the same period in fiscal 2000 and
is attributable to the industry-wide slowdown, as explained above.
Consulting and other service revenues for the three month period ended
December 31, 2000 decreased 58% to $4,162,000 from $9,834,000 in fiscal 2000.
Revenues from consulting and other services (which are recognized as performed)
are generally correlated with software product license revenues (which are
recognized upon delivery), therefore, service revenues fluctuate based upon
related fluctuations in software product revenue. For this period, North
American services revenues decreased by $4,239,000, or 61%, and International
services revenues decreased $1,433,000, or 50% respectively. These decreases in
consulting and other service revenues are attributable to lower software product
licensing activity during the previous quarters.
The total decrease in consulting and other services revenues for the
six-month period is $10,905,000, or 54%. Declining software revenues and
associated reduction in service revenues are the primary causes of this
decrease.
Maintenance revenues for the three month period ended December 31, 2000
decreased by $435,000, or 6% from the same quarter in fiscal 2000. This change
is essentially made up of a decrease in Europe and Asia of $582,000 and a
marginal increase of $ 147,000 in North America. Decreases are principally
attributable to lower software licensing activity during fiscal 2000.
Maintenance contracts sold by third party distributors are included by the
Company in software product license revenues because the Company has no support
obligations to any of the distributors' customers.
14
ROSS SYSTEMS, INC. AND SUBSIDIARIES
For the six-month period ended 31 December, 2000, the decline of
$758,000 in maintenance revenues, is mainly attributable to International
operations which decreased by 24%, with North America remaining virtually
unchanged.
For the three and the six month period ended December 31, 2000, North
American revenues constituted 73% of the total revenue of the Company.
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 and the six-month period of fiscal 2001
decreased by 58%, consistent with the decrease in software license sales. As a
percentage of software product license revenue, the costs of software product
licenses increased to 17% in the second quarter of fiscal 2001 compared to 15%
in the same quarter of fiscal 2000. The increase in costs for software product
licenses for the quarter was primarily due to the greater mix of third party
products sold in fiscal 2001, when compared to the prior year
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 67% to $3,596,000 in the second quarter of fiscal 2001, as
compared to $11,025,000 in the second quarter of fiscal 2000. This reflects the
reduction in headcount in the consulting organization, which has effectively
matched the resources to the decreased demand resulting from slowed software
sales activity mentioned earlier. The decrease in the second quarter, 2001 as
compared to the prior year consists of $2,534,000 attributable to third party
consulting, and $3,694,000 is a reduction in employee expenses. The Company's
gross margin resulting from consulting, maintenance and other services revenues
for the second quarter of fiscal 2001 was 66%, up from 34% in the same quarter
of fiscal 2000. The improvement in the gross profit margin for the three month
period was due largely to decreased use of third party consultants, lower
spending across the services organization, and a reflection of the higher
proportion that maintenance revenue has in the total profitability of consulting
and maintenance.
For the six-month period ended December 31, 2000, the gross profit
percentage on consulting, maintenance and other revenue is 55%, up from 36% in
the prior year period. This improvement in gross profit margin is due to the
improved utilization of consulting resources, as a result of matching the staff
levels to the demand for consulting services.
Sales and marketing expenses for the three month period ended December
31, 2000 are $1,963,000, or 36% lower than the prior year. This reflects
significant savings in employee costs in the second quarter, due to reduced
headcount, and an associated reduction in employee-related expenses. Stringent
cost-cutting measures have also realized savings in marketing costs.
Sales and marketing costs have decreased by 20% for the six month
period, as compared to the same period in the prior year. This decrease was due
to cost saving measures implemented over the period.
15
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Net product development (research and development) expenses increased
by 33%, to $3,076,000 in the second quarter , 2001 from $2,311,000 in the prior
year . However, actual gross research and development expenditure declined by
35% due to a lower headcount in research and development. The increase in the
total expense is due to decreased capitalization as a percent of expenditure,
while amortization of previously capitalized amounts continues to add to the
current expense level. This is true for both the quarter and six-month period.
The savings in actual expenditure have been realized in a reduction of $973,000
in employee expenses in second quarter , 2001 from the same quarter , 2000. The
following table summarizes product development expenditures (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
DECEEMBER 31, DECEEMBER 31,
---------------------------- -------------------------
2000 1999 2000 1999
-------------- ------------ ------------ -----------
Gross Expenditure for Product Development $ 2,360 $ 3,642 $ 5,606 $ 7,238
Less: Expenses capitalized (1,509) (2,963) (3,977) (5,965)
Plus: Amortization of previously
capitalized amounts
2,225 1,632 4,492 3,492
-------------- ------------ ------------ -----------
Total Product Development Expenses $ 3,076 $ 2,311 $ 6,121 $ 4,765
============== ============ ============ ===========
Measured as a percentage of total revenues, product development
expenditure for the second quarter, 2001 was 19% of total revenues, compared to
17% for the second quarter, 2000. Product development expenditures during fiscal
2001 have focused on new internet enabled modules and continued enhancements to
the underlying technology of released products and developing new web enabled
products The Company did not experience additional expenditures related to the
Y2K compliance of its products after December 1999.
General and administrative expenses for the second quarter, 2001
decreased by 35%, to $1,215,000 from $1,870,000 for the second quarter, 2000.
The major reason for the decrease in these expenses from the same period in the
prior year was the decreased spending on employee expenses of $797,000. These
cost savings are a result of headcount reduction and cost control measures. The
Company's administrative infrastructure is now more productive, and more closely
matched to current levels of revenue generating activity.
For the six month period, general and administrative expenses have
improved by 29% over the prior six month period.
In the second quarter, 2001, the Company recorded a provision for
doubtful accounts of $283,000, as compared to $835,000 recorded in the second
quarter, 2000. The fiscal 2001 and 2000 provisions consisted primarily of
specific customer accounts identified as being potentially uncollectible. These
provisions represent management's best estimate of the doubtful accounts for
each period. Reduced provisions reflect the steadily improving quality of the
Company's accounts receivable.
Amortization of other assets decreased to $135,000 in the second
quarter of fiscal 2001 from $260,000 in the same quarter of the prior 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.
There are no non-recurring costs reported in for the second quarter,
2001. The non-recurring costs shown in the six month period relate to a
strategic restructuring announced by the Company on September
16
ROSS SYSTEMS, INC. AND SUBSIDIARIES
12, 2000. Under the restructuring, the Company reduced 125 positions across the
company as well as accelerated efforts to eliminate unneeded office space,
improve productivity through the use of technology and focus on increased
revenues through the use of distributors. As a result of these actions, during
the first quarter of fiscal year 2001, the Company recorded a $790,000 expense
to cover the liability arising from associated employee separation costs. At
December 31, 2000, $25,000 of the liability remained and will be paid in fiscal
2001.
SUBSEQUENT EVENT
On 5 February, 2001, the Company reported the signing of a definitive sale
agreement for certain assets related to its Human Resource and Payroll product
line to NOW SOLUTIONS, LLC, a private company. ROSS at the same time executed a
distribution agreement with NOW to continue to sell the product under license
from NOW as a complement to its enterprise systems for process manufacturing
companies.
The gross asset sale price is $6.1 million excluding incentives. After fees and
expenses the company expects the transaction to generate a non-recurring gain on
the sale of approximately $3.7 million before incentives. The twofold purpose of
the transaction is to strengthen the Company's balance sheet and to enable the
Company to focus on its core competencies in the process manufacturing sector.
OTHER EXPENSE, NET
Other expense for Q2, 2001 was $276,000, as compared to $324,000 in Q2,
2000. These amounts primarily consisted of interest expense related to
borrowings under the Company's existing line of credit facility. The comparison
of the six month period ended December 31, 2001 shows little change from the
prior year for the same period.
INCOME TAX EXPENSE
The income tax benefit of $183,000 recorded in the first quarter of
fiscal 2001 has been offset by an income tax expense in the second quarter of
$62,000. This compares with an income tax expense of $83,000 recorded during the
same quarter in fiscal 2000. The net tax benefit recorded in the first quarter
of fiscal 2001 relates to certain tax refunds that have been approved by
associated tax jurisdictions. Income tax expense relates to withholding taxes 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 2001, net cash provided by operating
activities decreased $502,000 compared to the same period of the prior year. An
aggregate net decrease in non-cash charges for depreciation, amortization and
provisions for bad debt of $437,000, an aggregate decrease in the combined cash
effect of prepaid and other current assets, taxes payable, accrued expenses and
deferred revenues of $2,253,000 and decreased Company earnings of $3,300,000
were offset by cash provided by decreased accounts receivable and increased
accounts payable totaling $5,489,000. The decreased receivable portfolio and
deferred revenue balance was a result of slowed software and services volumes
and continued focus on maximizing collection efforts.
17
ROSS SYSTEMS, INC. AND SUBSIDIARIES
In the first six months of fiscal 2001, the Company required $3,389,000
for investing activities versus $6,212,000 over the same period of the prior
year, a decrease of $2,823,000. Investment in property and equipment decreased
by $168,000 over the same period of the prior year as a result of the Company's
cash conservation efforts and declining headcount. Investments in capitalized
computer software costs decreased by $2,233,000 due to lower development
headcount during fiscal 2001 as compared to the year earlier period. Other
investment items increased by $422,000 primarily attributable to changes in thr
cumulative translation adjustment related to capitalized software costs in
foreign subsidiaries.
The Company financed its continuing operations for the six months ended
December 31, 2000 through cash generated from operations and available credit
facilities. Cash flows from financing activities increased by $502,000 versus
the same six-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 $2,181,000. Capital lease payments utilized an incremental $1,571,000 of
cash versus the same quarter of the prior year. Proceeds from issuance of common
stock pursuant to the Company's Employee Stock Purchase Program as well as
issuance pursuant to interest in kind payments on convertible debt decreased by
$100,000 from the prior year period.
At December 31, 2000 the Company had $683,000 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
February 28, 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, 2000, the Company had $7,635,000
outstanding against the $15,000,000 revolving credit facility, and based on
eligible accounts receivable at December 31, 2000, the Company's cash and
remaining borrowing capacity under the revolving credit facility totaled
approximately $697,000.
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.
However, the Company will be required to seek additional financing to replace
its asset based credit line which expires February 28, 2001. The Company is
currently negotiating alternatives to raise additional funds through public or
private financing arrangements. In addition, management believes closure and
funding of the HR/PR product line asset sale described within the subsequent
event section of this report will facilitate obtaining additional financing. The
Company cannot assure you that additional funding will be available on favorable
terms or that the HR/PR product line asset sale will close. Furthermore, any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve restrictive covenants. The Company's failure to raise
capital when needed, or to consummate a sale of certain assets of the Company,
may harm its business and operating results. See note 1 to the consolidated
financial statements, "Basis of Presentation".
YEAR 2000 IMPLICATIONS
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.
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
18
ROSS SYSTEMS, INC. AND SUBSIDIARIES
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 world-wide presence and as such
maintains offices and derives revenues from sources overseas. For the first
quarter of fiscal 2001,. International revenues as a percentage of total
revenues was approximately 27%. The company's international business is subject
to typical risks of an international business, including, but not limited to:
differing economic conditions, changes in political climates, differing tax
structures, other regulations and restrictions, and foreign exchange rate
volatility. Accordingly, the Company's future results could be materially
adversely impacted by changes in these or other factors. The effect of foreign
exchange rate fluctuations on the Company in the first three months of fiscal
2001 was not material.
INTEREST RATES: The Company's exposure to interest rates relates
primarily to the Company's cash equivalents and certain debt obligations. The
company invests in financial instruments with original maturities of three
months or less. Any interest earned on these investments is recorded as interest
income on the Company's statement of operations. Because of the short maturity
of our investments, a near-term change in interest rates would not materially
effect our financial position, results of operations, or cash flows. Certain of
the Company's debt obligations include a variable rate of interest. A
significant, near term change in interest rates could materially effect our
financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on November 17,
2000. The following table shows voting information for each item voted upon:
FOR AGAINST
------------------------------------------------------ ------------------ --------------
NOMINEES FOR ELECTION AS DIRECTORS
------------------------------------------------------ ------------------ --------------
------------------------------------------------------ ------------------ --------------
Dennis V. Vohs 19,573,390 1,342,538
------------------------------------------------------ ------------------ --------------
Mario M. Rosati 19,604,423 1,311,325
------------------------------------------------------ ------------------ --------------
Bruce J. Ryan 19,657,623 1,258,125
------------------------------------------------------ ------------------ --------------
J. Patrick Tinley 19,649,403 1,266,345
------------------------------------------------------ ------------------ --------------
J. William Goodhew 19,642,073 1,273,675
------------------------------------------------------ ------------------ --------------
------------------------------------------------------ ------------------ --------------
TO INCREASE THE NUMBER OF OPTIONS AVAILABLE 18,683,998 2,109,005
UNDER THE 1998 STOCK OPTION PLAN
------------------------------------------------------ ------------------ --------------
------------------------------------------------------ ------------------ --------------
RATIFICATION OF APPOINTMENT OF 20,670,334 184,593
INDEPENDENT AUDITORS
------------------------------------------------------ ------------------ --------------
------------------------------------------------------ ------------------ --------------
19
ROSS SYSTEMS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the first quarter of fiscal 2001, the Investors converted an
aggregate principal amount of $600,000 plus accrued interest through the date of
conversion into 629,925 shares of the Company's Common Stock through several
transactions which were priced and executed in accordance with the convertible
debenture agreement.
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.
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)
20
ROSS SYSTEMS, INC. AND SUBSIDIARIES
(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.
(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.
21
ROSS SYSTEMS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROSS SYSTEMS, INC.
Date: February 20, 2001 /S/ VEROME M. JOHNSTON
----------------------------
Verome M. Johnston
Vice President, Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
22