As filed with the Securities and Exchange Commission on September 27, 2001
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2001
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.
Incorporated in Delaware IRS Employer Identification No. 94-2170198
Two Concourse Parkway, Suite 800
Atlanta, Georgia 30328
(770) 351-9600
------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None..............................................................None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value; Preferred Shares Purchase Rights
------------------------
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant, based upon the closing sale price of the
Common Stock on September 17, 2001 as reported by the NASDAQ National Market,
was approximately $9,457,427. Shares of voting stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of August 31, 2001, the Registrant had outstanding 2,592,076 shares of
Common Stock, and 500,000 Series A 7.5%, convertible preference shares.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Certain items in Part III of this form 10-K Report are incorporated by
reference to the Registrant's Proxy Statement for the Registrant's 2001 Annual
Meeting of Stockholders to be held November 15, 2001.
================================================================================
ROSS SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED JUNE 30, 2001
TABLE OF CONTENTS
Page No.
--------
PART I
Item 1. Business................................................................................... 1
Item 2. Properties................................................................................. 5
Item 3. Legal Proceedings.......................................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders........................................ 5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 7
Item 6. Selected Financial Data.................................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 8
Item 7.A. Quantitative and Qualitative Disclosures about Market Risk................................. 14
Item 8. Financial Statements and Supplementary Data................................................ 14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 14
PART III
Item 10. Directors and Executive Officers of the Registrant......................................... 15
Item 11. Executive Compensation..................................................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 15
Item 13. Certain Relationships and Related Transactions............................................. 15
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 16
SIGNATURES.................................................................................................. 17
PART I
ITEM 1. BUSINESS
THIS REPORT ON FORM 10-K (THE "REPORT") CONTAINS FORWARD LOOKING
STATEMENTS REGARDING FUTURE EVENTS WITH RESPECT TO ROSS SYSTEMS, INC. ACTUAL
EVENTS OR RESULTS COULD DIFFER MATERIALLY DUE TO A NUMBER OF FACTORS, INCLUDING
THOSE DESCRIBED HEREIN AND IN DOCUMENTS INCORPORATED HEREIN BY REFERENCE, AND
THOSE FACTORS DESCRIBED UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS".
General
The following description of business is qualified in its entirety by,
and should be read in conjunction with the more detailed information and
financial data, including the financial statements and notes thereto, appearing
elsewhere in this Report. Unless otherwise stated in this document, references
to (a) the "Company" or (b) "Ross" shall mean Ross Systems, Inc., a Delaware
corporation, and its subsidiaries.
Ross Systems Inc. (NASDAQ:ROSS) founded in 1972, supplies leading
enterprise solutions software designed for process manufacturing companies. The
Company offers both the award-winning iRenaissance(TM) enterprise resource
planning (ERP II) software package, as well as integrated e-business solutions
for food, beverage, chemicals, biotech/pharmaceutical, natural resources
including paper and metals manufacturers as well as specialty manufacturers. The
Ross Systems family of solutions includes a broad range of applications for
advanced planning, supply-chain management (SCM), materials management,
financials, manufacturing, maintenance management, transportation management and
human resources/payroll. iRenaissance(TM) application modules are renowned for
their deep and rich functional fit as well as their short implementation time
and cost-effective return on investment.
More than 3,000 companies around the world use Ross Systems solutions
on a wide range of popular databases, including Oracle and Microsoft, as well as
operating systems including NT and UNIX. Ross Systems has more than 13 offices
globally, to serve its customers. 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.
Products
The Company markets a broad range of sophisticated business application
software that addresses B2B electronic commerce including procurement,
collaborative planning, financial, manufacturing, distribution, supply chain
management, and human resource needs of manufacturers primarily in process
manufacturing type industries. In addition, the Company supports a large
installed base of companies, which utilize the Company's financial products
exclusively. The Company's software product license fees are based on the
modules licensed, and the number of concurrent users supported by the hardware
on which the modules operate.
General Business and Manufacturing Products
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(TM)
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 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(TM) financial, manufacturing and
distribution products were developed in GEMBASE, customers often find it easy to
customize their own applications.
The Company offers its 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
1
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.
The Company also markets a strategic management tool called Strategic
Application Modeler (SAM) that helps companies define and map their business
processes to industry best practices, which are included in the modeler's
library. The Company believes that this product shortens the implementation time
period of application software systems and allows users to manage those
applications throughout their life cycle.
The Company has sold its iRenaissance(TM) Human Resource Series product
line, but continues to be an active reseller of this comprehensive, human
resource management system including payroll processing. The client component
has a Windows and NT graphical user interface, which includes the customizable
toolbar feature. The host server processing is COBOL based, to efficiently
provide for the heavy batch processing requirements of payroll.
The iRenaissance(TM) server applications run on Microsoft's Windows;
Compaq Corporation's ("Compaq") Alpha, UNIX, and Open VMS operating systems;
International Business Machines Corporation's ("IBM") RS/6000; Hewlett-Packard
Company's ("HP") HP-UX; Sun's Solaris operating system, and Fujitsu's DS-90
UNIX. The company's products, currently support multiple database management
systems, including: Oracle Systems Corporation's Oracle 8i, RDB, and Microsoft's
SQL Server 7.
The Company's Renaissance classic line of general business accounting
applications is feature-rich and well-integrated. The Company has continued to
enhance these applications to serve existing customers. The Company will
continue to market the Renaissance classic products to its installed base of
customers, as well as to accounts that want to operate exclusively in a
Compaq/DEC proprietary environment. To provide a long-term growth path for
Renaissance classic customers, the Company offers them the ability to easily
upgrade to its new products.
Product Line Expansion
In fiscal 2001, the Company continued to expand its product line in the
collaborative business to business (B2B ) applications. With connectivity to the
ERP backbone systems over the internet to customers and suppliers, these
products enable customers to tightly link 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. To
simplify its market identification, the Company discontinued the use of the
"Resynt" brand name and has re-branded the suite of fully integrated products as
iRenaissance(TM).
This includes:
1. iRenaissance.portal - a user-configurable browser-based interface to
that provides access to all Ross' applications whether they are
located within the company's local network or over the Internet.
2. iRenaissance.erp - a complete Enterprise Resource Planning and
Supply Chain Management system that includes Manufacturing,
Distribution and Financial modules.
3. iRenaissance.aps - a comprehensive Advanced Planning and Scheduling
system that provides Forecasting, Demand Planning, Production
Planning and Finite Capacity Scheduling.
4. iRenaissance.cms - a Customer Management System capable of managing
complex commercial relationships with customers.
Third-Party Products
The Company resells complementary software products licensed from third
parties, including applications for custom reporting of information maintained
by the Company's programs such as Business Objects for executive information,
and FRx for financial reporting, as well as certain middle-ware products. The
Company resells other privatly labeled software products licensed from third
parties including Prescient Systems for demand planning, and Preactor for
capacity scheduling.. Additionally, the Company has entered into agreements
which enable it to resell database products and other products that are
sublicensed to end users in conjunction with certain of the Company's open
systems products. License revenues from the products described in this paragraph
constitute approximately 18% of total software product license revenue in fiscal
2001
2
Services
The Company's worldwide consulting services operation complements its
e-business and enterprise software sales organizations. The Company offers a
broad selection of services to install and optimize each available software
product. Services provided by the Company fall into two broad categories,
Professional Services and Client Support. In addition, the Company has
established professional service relationships with large international
information systems consulting firms to provide independent service offerings to
customers who may prefer a consulting alternative for their project
implementation.
Professional Services
The Company's Professional Services organization provides business
application experience, technical expertise and product knowledge to complement
the Company's products and to provide solutions to clients' business
requirements. The major types of services provided include the following:
Management Consulting involves in-depth analysis of the client's
specific needs and the preparation of detailed plans that list step-by-step
actions and procedures necessary to achieve a timely and successful
implementation of the Company's software products. These services are generally
offered on a time and expense reimbursement basis.
Technical Consulting involves evaluating and managing the client's
needs by supplying custom Web application systems, custom interfaces, data
conversions, and system conversions. These consultants participate in a wide
range of activities, including requirements definition, and software design,
development and implementation. These consultants also provide advanced
technology services focused on networking, database administration and tuning.
These services are generally offered on a time and expense reimbursement basis.
The Company also provides remote systems management, remote applications
management and a complete range of remote application systems hosting services
to companies that prefer to outsource their information systems infrastructure.
The Integris division of Bull, is the Company's partner in providing this remote
hosting service.
Education Services are offered to clients either at the Company's
education facilities or at the client's location, as either standard or
customized classes. These classes are priced at either fixed daily rates or on a
per student basis.
Established relationships with third party consulting partners are
utilized in specific instances, to take advantage of specialized industry
expertise and to support the implementation demands of the Company and its
customers.
Client Support Services
The Company's Client Support functions include web-based support,
telephone support, technical publications and product support guides, which are
provided under the Company's standard maintenance agreements, under which most
of the Company's installed customers are supported. The annual maintenance fee
for these services is based upon a percentage of the current price for the
licensed software. The standard maintenance agreement also entitles clients to
certain new product releases and product enhancements. The Company also offers a
premium support service, which, in exchange for an additional fee, entitles the
customer to guaranteed response times and access to the Company's most senior
support personnel.
Marketing and Sales
The Company sells its products and services in the US and Western
Europe primarily through its direct sales force. At June 30, 2001, the Company
had 43 sales and marketing employees. In other areas of the world, the Company
sells its products through distributors. In support of its sales force and
distributors, the Company conducts comprehensive marketing programs which
include telemarketing, direct mailings, advertising, promotional material,
seminars, trade shows, public relations and on-going customer communication.
The Company is headquartered in Atlanta, Georgia, with sales, service
and support centers in the major U.S. business locations of: Redwood City, (San
Francisco) and Escondido (San Diego). The Company has subsidiaries in Brussels,
Belgium; Ottawa, Canada; Berlin, Germany; Utrecht, the Netherlands; Barcelona,
Spain; Northampton, United Kingdom as well as Hong Kong and Singapore.
The Company has distribution arrangements with distributors in the
following countries: Argentina, Australia, Brazil, Chile, Colombia, Czech
Republic, Denmark, Finland, Germany, Greece, Hong Kong, Hungary, Indonesia,
Ireland, Italy, Japan, Jordan, Lebanon, Malaysia, Mexico, Morocco, New Zealand,
Norway, Pakistan, Peru, Poland, Portugal, Rumania, Russia, Saudi Arabia,
Singapore, Slovak Republic, Sweden, Taiwan, Thailand, Uruguay and Venezuela.
These distributors pay the Company royalties on the sales of the Company's
products and maintenance services.
International revenues (from foreign operations and export sales)
represented approximately 33%, 32%, and 33%, of the Company's revenues in fiscal
2001, 2000, and 1999, respectively. The Company intends to broaden its presence
in international markets by entering into additional distribution agreements.
3
Product Development, Acquisitions and Alliances
To meet the increasingly sophisticated needs of its customers and
address potential new markets, the Company continually strives to enhance its
existing product functionality and add new product features. The Company surveys
the needs of its customers annually through ballots and at its user conference
and incorporates many of their recommendations into its products. The Company
also conducts a variety of forms of market research with industry analyst groups
and targeted industries to determine strategies for new features and functions.
The Company is committed to achieving advances in the use of computer systems
technology and to expanding the breadth of its product line.
The Company intends to expand its potential markets by developing new
products which address the needs of additional prospective customers, including
those in key international markets related to both language, currency and local
accounting custom and procedure. In fiscal 1999, the Company introduced EMU
(European Monetary Unit) capabilities to its product lines. In fiscal 2000, the
Company introduced additional capabilities to its product lines for the Japanese
market. In fiscal 2001 the Company introduced iRenaissance.portal,
iRenaissance.aps, and iRenaissance.cms to its product suite. In support of its
product line expansion strategy, the Company continues to acquire products or
develop relationships with providers of complementary software to supplement its
existing product offerings. The Company believes that the acquired software
components will extend the functionality and overall value of the core product
line, while third party software components will both enhance the usability and
presentation of the data provided by the system and provide specialized
functional extensions. The Company has agreements with Seagate Software
Corporation, Inc., Preactor International Limited, Prescient Systems, Inc., FRx
Software Corporation, Business Objects, Inc., and Optical Technology Group, Inc.
In 1998, the Company acquired Bizware, Inc. ("Bizware"), a software
service provider specializing in Ross implementation and upgrade conversions. In
1999, the Company acquired Hipoint Systems Corporation, a Canadian software
service provider. Both acquisitions were primarily non-cash, stock transactions.
Competition
The business applications software market is intensely competitive. The
Company competes with a broad range of applications software companies. The
Company's competitors include the following: general business application
software providers, such as J.D. Edwards, Oracle Corporation, and SAP AG; as
well as business applications software providers in specific vertical markets
that offer products that compete with the Company's process manufacturing
products. The principal competitive factors in the market for business
application software include product reputation, product functionality,
performance, quality of customer support, size of installed base, financial
stability, hardware and software platforms supported, price, and timeliness of
installation. The Company believes it competes effectively with respect to these
factors.
Proprietary Rights and Licenses
The Company provides its products to end users generally under
nonexclusive, nontransferable licenses, which generally have perpetual terms.
Under the general terms and conditions of the Company's standard license
agreements, the licensed software may be used solely for internal operations on
designated computers at specific sites. The Company makes source code available
for certain portions of its products.
The Company has registered "iRENAISSANCE", "RENAISSANCE", "RENAISSANCE
CS", "STRATEGIC APPLICATION MODELER (SAM) and "ROSS SYSTEMS" as trademarks in
the United States. The Company has applied for a provisional patent with respect
to systems and associated methods for determining availability and pricing of
goods based on attributes. The Company has secured registration of its
copyrights in the United States for 19 of its products. The Company has service
mark applications pending for, "THE BUSINESS OF E-COMMERCE". Although the
Company takes steps to protect its intellectual property, misappropriation may
nevertheless occur and copyright and trade secret protection may not be
available in certain countries.
Except as noted above, the Company relies on a combination of trade
secret, copyright and trademark laws, and license agreements to protect its
proprietary rights in its products. The Company believes its products,
trademarks, copyrights and other proprietary rights do not infringe the rights
of third parties. If it is determined that the Company infringes the proprietary
rights of third parties, such determination may harm the Company's business and
operating results.
Employees
As of June 30, 2001, the Company employed a total of 246 full time
employees, including 43 in sales and marketing, 46 in product development, 112
in professional services and client support, and 45 in finance, administration
and operations. The Company's employees are not represented by a labor union,
and the Company believes that its employee relations are good.
4
ITEM 2. PROPERTIES
The Company's corporate headquarters, research and development, sales,
marketing, consulting and support facilities are located in Atlanta, Georgia,
where the Company occupies approximately 22,000 square feet. The Company also
maintains a regional office in Redwood City, California, which occupies
approximately 2,500 square feet, for product development, sales and consulting,
and a facility for product development and sales activities in Escondido,
California, which occupies 3,200 square feet.
International offices are maintained in Belgium (Antwerp); China (Hong
Kong); England (Northampton); Germany (Berlin); Netherlands (Utrecht); and Spain
(Barcelona). The Company believes its facilities are adequate for its current
needs and that the Company can obtain suitable additional space as required.
ITEM 3. LEGAL PROCEEDINGS
As of and for the fiscal year ended June 30, 2001, the Company is not a
party to any pending litigation other than ordinary routine litigation that is
incidental to the operations of the business and the Company is not aware of any
threatened litigation. For a discussion of litigation and litigation settlements
pre-fiscal 2001 and pre-fiscal 2001 accounting adjustments for such settlement
amounts, See "Management's Discussion and Analysis of Financial Condition and
Results of Operations Litigation Settlements and Expenses."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 26, 2001, the Company held a special meeting of its
stockholders to vote to (1) approve an amendment to the Company's certificate of
incorporation so as to effect a one for ten reverse stock split and (2) to
authorize the issuance of up to 5,000,000 shares of common stock to certain
holders of convertible debentures.
Proposal One: Reverse Stock Split Proposal Two: Common Stock Issuance
--------------------------------- ------------------------------------
Total votes in favor: 20,623,331 Total votes in favor: 5,574,259
Total votes against: 1,580,963 Total votes against: 2,254,024
Total abstentions: 91,024 Total abstentions: 161,502
Total broker non-votes: NIL Total broker non-votes: 14,307,512
The split which was effected April 27, 2001 issued one new share for each
ten shares retired.
Executive Officers of Ross Systems
The following table lists the names, ages and positions held by all
executive officers of the Company. There are no family relationships between any
director or executive officer and any other director or executive officer of the
Company. Executive officers serve at the discretion of the Board of Directors.
Name Age Position
J. Patrick Tinley...... 53 Chairman and CEO, and Director
Robert B. Webster...... 53 Executive Vice President and Secretary
Verome M. Johnston..... 36 Vice President and Chief Financial Officer
Eric W. Musser......... 36 Vice President Product Development & Support
Gary Nowacki........... 43 Vice President North American Sales
Al Johns............... 48 Vice President Consulting Services North America
Oscar Pierre Prats..... 45 Vice President Global Channels
Richard Thomas......... 38 Vice President Asia Pacific Sales
Mr. Tinley was promoted to Chairman & CEO in December 2000. He served
as President and Chief Operating Officer from 1995 to June 2000 and President
and CEO from July through December 2000. He has been a director of the Company
since 1993. Mr. Tinley joined the Company in November 1988 as Executive Vice
President, Business Development and has served as Executive Vice President,
Product Development and Executive Vice President, Product Development & Client
Services. Prior to 1988, Mr. Tinley held management positions with Management
Science of America, Inc. and Royal Crown Companies. Mr. Tinley received a
Bachelors in Science from Columbus University.
5
Mr. Webster, Executive Vice President and Secretary, joined the Company
in June 1998 as Vice President and Chief Financial Officer and Secretary and was
promoted to Executive Vice President in December 2000. Prior to joining the
Company, Mr. Webster served, since February 1995, as Executive Vice President
and Chief Financial Officer of Americom Holdings, Inc. and prior to that in
senior financial management positions at Wang Laboratories, Inc. and Unisys
Corporation. Mr. Webster is a Certified Public Accountant in the State of
Georgia. Mr. Webster received both BS in Accounting and Computer Science, as
well as an MBA in Information Systems degrees from the Jesuit University of New
Jersey, St. Peter's College.
Mr. Johnston, Vice President and Chief Financial Officer, joined the
Company in July 1998 as Corporate Controller. He was promoted to Vice President
in August 1999, and to Chief Financial Officer in December 2000. Immediately
prior to joining the Company, Mr. Johnston served as Vice President and Chief
Financial Officer of Market Area North America for Sunds Defibrator, where he
had been employed since June of 1991. Prior to that, Mr. Johnston was employed
with Deloitte & Touche. Mr. Johnston maintains a CPA certificate in Georgia and
earned Bachelor of Business Administration degrees in Accounting and Finance
from Valdosta State University .
Mr. Musser joined the Company in 1993 and was promoted to CTO in May of
2000. He has served in development for over 5 years and has held the position of
Vice President, Development for the past 2 years. Mr. Musser has also held
senior positions in Marketing and has been a critical influence in changing the
Company from client/server solutions to Internet based solutions. From 1989 to
1993 Mr. Musser held IT management positions in the steel industry.
Mr. Nowacki was promoted to Vice President of North American Sales in
January of 2001. Prior to that Mr. Nowacki served as Vice President of
e-Business Strategy and Initiatives where he played the lead role in crafting
the Company's e-Commerce strategy and vision. Previously, he served as Eastern
Region Sales Vice President. Mr. Nowacki originally joined the Company in 1993
as an Account Executive. Mr. Nowacki has worked in the Enterprise software field
since 1980, and has prior experience at Xerox, i2, and Effective Management
Systems. He earned a Bachelor of Arts degree in English from Lawrence
University.
Mr. Johns has served as Vice President North America Consulting
Services since December of 2000. Mr. Johns joined the Company in August 1998 as
Vice President Public Services Group upon the acquisition by Ross of Mr. Johns
consulting company. Prior to joining the firm in 1998 Mr. Johns, was the founder
and President of Hipoint Systems a software integration company which
specialized in the Ross Systems product line
Mr. Pierre joined the Company in 1997 as Vice President, European and
Latin American Operations. Prior to the acquisition, he was the majority
shareholder of the Company's Spanish business partner. From April 1990 to 1995,
Mr. Pierre was founder and majority shareholder of Software International S.A.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The following table sets forth the range of high and low sales prices
for the Company's Common Stock on the NASDAQ National Market for each of the
quarters of fiscal 2001 and 2000. The Company's Common Stock trades under the
NASDAQ symbol ROSS. The figures have been adjusted to reflect a one for ten
stock split effective at April 27, 2001.
Fiscal 2001 High Low
---------- ---- ----
First quarter............................................ $15.62 $6.56
Second quarter........................................... $6.87 $1.87
Third quarter............................................ $7.81 $2.18
Fourth quarter........................................... $4.45 $1.87
Fiscal 2000 High Low
---------- ---- ----
First quarter............................................ $33.10 $18.40
Second quarter........................................... $35.00 $20.00
Third quarter............................................ $38.10 $23.10
Fourth quarter........................................... $26.30 $11.90
On April 27, 2001, the Company executed a reverse stock split, on the
basis of 1 share for 10 shares. The stock prices displayed above are split
adjusted.
The Company has never declared or paid cash dividends on its Common
Stock, and the Company does not plan to declare or pay dividends in the future.
The Company intends to use earnings to finance the expansion of its business. In
addition, the Company's line of credit agreement with its lender contains
certain covenants which limit the Company's ability to pay cash dividends. As of
September 20, 2001, the number of Common Stock, stockholders "in the street" and
of record exceeded 7000.
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL DATA
(In thousands, except earnings per share)
Years Ended June 30,
-----------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- --------
Statements of Operations Data:
Total revenues .................................................. $ 49,498 $ 80,004 $ 101,791 $ 91,684 $ 78,773
Operating (loss) earnings ....................................... $ (2,029) $ (7,961) $ (3,936) $ 4,140 $ (622)
Net (loss) earnings ............................................. $ (842) $ (9,662) $ (5,626) $ 2,595 $ (2,353)
Diluted net (loss) earnings per share ........................... $ (0.33) $ (4.1) $ (2.5) $ 1.3 $ (1.3)
Shares used in computing diluted net (loss) earnings per share 2,566 2,330 2,223 2,039 1,851
Balance Sheet Data:
Working capital ................................................. $ (9,640) $ (15,340) $ (3,745) $ 5,544 $ (8,273)
Total assets .................................................... $ 50,462 $ 64,295 $ 83,185 $ 78,189 $ 69,715
Long-term debt, less current portion ............................ -- $ 2,627 3,705 8,918 $ 394
Preferred stock, no par value 5,000,000 shares authorized;
500,000 shares issued and outstanding .......................... $ 2,000 -- -- -- $ 1,053
Total shareholders' equity ...................................... $ 23,104 $ 20,890 $ 29,257 $ 30,774 $ 22,060
Prior years' Results of Operations have been reclassified to conform with
the fiscal 2001 presentation.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENTS IN THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS WHICH EXPRESS THAT THE COMPANY "BELIEVES",
"ANTICIPATES", OR "PLANS TO" AS WELL AS OTHER STATEMENTS WHICH ARE NOT
HISTORICAL FACT, ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ACTUAL EVENTS OR RESULTS MAY
DIFFER MATERIALLY AS A RESULT OF THE RISKS AND UNCERTAINTIES DESCRIBED HEREIN
AND ELSEWHERE INCLUDING, IN PARTICULAR THOSE FACTORS DESCRIBED UNDER "BUSINESS"
SET FORTH IN PART I OF THIS REPORT AS WELL AS IN OTHER RISKS AND UNCERTAINTIES
IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
Results of Operations
Fiscal Years Ended June 30, 2001, 2000, and 1999
The following table sets forth certain items reflected in the Company's
consolidated statements of operations as a percentage of total revenues for the
periods indicated, and a comparison of such statements is shown as a percentage
increase or decrease from the prior year's results:
Percentage of Revenue
Year Ended Percentage
June 30, Increase (Decrease)
------------------------ ---------------------
2001 2000 1999 2001/2000 2000/1999
---- ---- ---- --------- ---------
Revenues:
Software product licenses ......................... 19% 24% 32% (49%) (41)%
Consulting and other services ..................... 31 42 40 (54%) (19)
Maintenance ....................................... 50 34 28 (11%) (2)
---- ---- ---- ---- ----
Total revenues ............................ 100% 100% 100% (38%) (21)%
---- ---- ---- ---- ----
Operating expenses:
Costs of software product licenses ................ 3% 4% 4% (55%) (10)%
Costs of consulting, maintenance and other services 32 50 46 (61) (15)
Software product license sales and marketing ...... 30 26 31 (27) (35)
Product development ............................... 23 13 12 15 (16)
General and administrative ........................ 10 9 8 (36) (11)
Provision for uncollectible accounts .............. 3 6 2 (67) 92
Amortization of other assets ...................... 1 1 1 (31) (21)
Non-recurring costs ............................... 2 1 0 (31) N/A
---- ---- ---- ---- ----
Total operating expenses .................. 104 110 104 (40) (17)
---- ---- ---- ---- ----
Operating loss ............................ (4) (10) (4) (75) (102)
Other expense, net ................................ (3) (2) (1) 13 (17)
Gain on sale of product line ...................... 5 (0) (0) (0) (0)
---- ---- ---- ---- ----
Loss before income taxes .................. (2) (12) (5) (91) (83)
Income tax benefit (expense) ...................... (0) (0) (1) (97) 9
---- ---- ---- ---- ----
Net loss .................................. (2%) (12)% (6)% (91%) (72%)
---- ---- ---- ---- ----
Revenues. Revenues were affected by the sale in February 2001, of the
Human Resource product line. Fiscal 2001 therefore reflects mix of full and
partial years of product line activity. For comparison purposes, revenues for
fiscal 2001, 2000 and 1999 have been adjusted to exclude the Human Resource
product line activity. This revenue is referred to as "adjusted revenue".
Comparisons of both adjusted revenue and total revenue follow below.
8
Total revenues decreased 38%, to $49,498,000, in fiscal 2001 from
$80,004,000 in 2000. Fiscal 2000 revenues represented a a 21% decrease from
revenues of $101,791,000 in 1999. Software product license revenues decreased
49% from fiscal 2000 to 2001 and decreased 41% from fiscal 1999 to 2000.
Consulting revenues decreased 54% from fiscal 2000 to 2001 and decreased 19%
from fiscal 1999 to 2000. Maintenance revenues from first year and renewed
maintenance agreements, both of which are recognized ratably over the
maintenance period, decreased 11% from fiscal 2000 to 2001 and decreased 2% from
fiscal 1999 to 2000. Maintenance agreements are renewed annually by most of the
Company's maintenance customers. The Company believes this decrease is the
result of the general business slowdown in software sales coupled with
expiration of some maintenance contracts without renewal.
Software product license revenues in the North American, Europe and the
Asia/Pacific Rim markets decreased by 47%, 52% and 52% or $ 4,333,000,
$3,713,000 and $1,264,000, respectively. The Company believes that these
decreases are principally the 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 which are specialized for their line of business. Within Europe,
software product license revenues were adversely affected by the closure of the
Paris office. Fiscal 2000 European software product license revenues in the U.K.
and Spain increased from fiscal 1999, by 15% and 22% respectively, which offset
decreases in the German, French and Benelux Markets.
Revenues from consulting and other services (which are recognized as
performed) correlate with software product license revenues (which are
recognized upon delivery), so that when software product license revenues
decrease, future period services revenues generally decrease as a result. In
fiscal 2001, consulting and other services revenues decreased 54%, from fiscal
2000 results. Services revenues were hampered by fewer new customers, which was
due to lower new license revenues. Fiscal 2000 consulting and other services
revenues decreased 19%, or $7,919000, over fiscal 1999 results. In fiscal 2001
and 2000, the Company significantly lowered its use of third party consultants
in cases where the margin earned was not adequate to provide an acceptable
profit. In fiscal 2001, the Company experienced shrinkage in the North American,
European and Asia/Pacific markets of 60%, 39% and 54%, respectively. As a result
of this decreased consulting and services demand the Company reduced its
consultant resources by 59% to 112 employee consultants.
As a percentage of total revenues, the Company's international
operations have remained relatively consistent at 33%, 32%, and 34% in fiscal
years 2001, 2000, and 1999, respectively. In fiscal 2001, the Company
experienced revenue shrinkage in North America, Europe, and the Asia/Pacific Rim
of 39%, 37% and 36% respectively.
The Company's largest Pacific Rim contract represents a distributor
agreement with a Japanese Company (the "Distributor") whereby the Distributor
has an exclusive license to reproduce and sell certain Ross products in the
Pacific Rim. The Company recognizes revenue at the greater of the annual minimum
royalty amount or a contractually defined amount determined from licenses sold
by the distributor. The Company and the Distributor negotiated agreements
whereby annual minimum royalties of $2.5 million, $1.9 million and $755,000 were
earned during fiscal 1999, 2000 and 2001, respectively. The decrease in this
source of revenue over the 3 years has been due to the continued weakness in
demand in Japan, caused by the economic downturn in the region.
Revenues have been derived from a relatively large number of customers.
No single customer accounted for more than 10% of revenues during fiscal 2001,
2000 or 1999.
Adjusted revenues, as defined above, decreased 38% to $44,882,000 in
fiscal 2001 from $71,927,000 in 2000. Fiscal 2000 adjusted revenues represented
a 23% decrease from revenues of $93,181,000 in fiscal 1999. Adjusted software
product license revenues decreased 48% from fiscal 2000 to 2001 and decreased
41% from fiscal 1999 to 2000. Adjusted consulting revenues decreased 55% from
fiscal 2000 to 2001 and decreased 21% from fiscal 1999 to 2000. Adjusted
maintenance revenues from first year and renewed maintenance agreements, both of
which are recognized ratably over the maintenance period, decreased 7% from
fiscal 2000 to 2001, and decreased 4% from fiscal 1999 to 2000.
Costs of software product licenses. Costs of software product licenses
include expenses related to royalties paid to third parties and product
documentation and packaging. Third party royalty expenses will vary from quarter
to quarter based on the mix of third-party products being sold. Many of the
Company's newer products have third party royalty obligations associated with
them that had not existed previously. Costs of software product licenses for
fiscal 2001 decreased by 55% to $1,595,000, and for fiscal 2000 the decrease was
10% to $3,503,000 from $3,895,000 in fiscal 1999. This decrease was due to the
overall reduced software volumes largely offset by a greater amount of
third-party products being bundled with the Company's product. As a percent of
software revenue, third party royalties comprised 17% in fiscal 2001, compared
to 18% for fiscal 2000, and 12% for fiscal 1999.
Costs of consulting, maintenance and other services. 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. From time to time the
Company also uses outside consultants to supplement Company personnel in meeting
peak customer consulting demands. Costs of consulting, maintenance and other
services decreased 61% to $15,673,000, from $39,650,000 in fiscal 2000, which
was a decrease of 15% from $46,410,000 in fiscal 1999. The decline in fiscal
2001 is composed primarily of a $4,183,000 decrease in third party service
costs, and a decrease of $ 8,502,000 in employee expenses. A similar decline in
9
costs in fiscal 2000 consists of a $3,977,000 decrease in third party services
costs as well as an aggregate $2,895,000 decline in employee related expenses
including salaries, benefits, supplies and other administrative expenses across
the services and consulting business. These cost decreases relate directly to
the 19% decrease in consulting revenues and the decrease in headcount from
fiscal 1999 to fiscal 2001.
Gross Profit Margins. The Company's gross profit margins resulting from
consulting, maintenance and other services revenues for fiscal 2001, 2000, and
1999 were 60%, 35%, and 33% , respectively. The increase in gross profit margins
from fiscal 2000 to fiscal 2001 is due primarily to the greater proportion of
maintenance revenue. Maintenance revenues comprised 62% of services revenues in
fiscal 2001, compared to 45% in fiscal 2000. The increase in gross profit
margins from fiscal 1999 to 2000 was due largely to decreased spending on third
party service providers that typically yield lower margins. Consulting,
maintenance and other service revenues represented 81% of total revenues in
fiscal 2001, 76% of total revenues in fiscal 2000 and 68% in fiscal 1999.
Software Product License Sales and Marketing Expenses. Software product
license sales and marketing expenses decreased $5,559,000 or 27% in fiscal 2001
as compared to fiscal 2000, and the decrease in fiscal 2000 was $10,857,000 or
35% over fiscal 1999. The decreases for fiscal 2001, and 2000 over fiscal 1999,
are directly related to decreased headcount, and reduced spending on
discretionary marketing programs. Employee related expenses decreased by
$3,883,000 while travel, trade show, advertising and related expenses decreased
by $1,624,000. In fiscal 2000, employee related expenses decreased by $6,544,000
while travel, trade show, advertising and related expenses decreased by
$3,977,000 over fiscal 1999.
Product Development Expenses. Product development expenditures for the
past three years were as follows (in thousands):
Year Ended June 30,
--------------------------------------
2001 2000 1999
-------- -------- --------
Product development ............................................................ $ 11,496 $ 10,003 $ 11,959
Amortization of previously capitalized software development costs ...... (7,369) (6,875) (8,806)
-------- -------- --------
Expenses, net of amortization .......................................... 4,127 3,128 3,153
Capitalized software development costs ................................. 6,878 12,127 11,572
-------- -------- --------
Cash expenditures ............................................................. $ 11,005 $ 15,255 $ 14,725
-------- -------- --------
Total expenditures as a percent of total revenues .............................. 22% 19% 14%
-------- -------- --------
Capitalized software, net of amortization, as a percentage of total expenditures (4%) 34% 19%
-------- -------- --------
Product development expenditures increased 15% from fiscal 2000 to
fiscal 2001, and 4% from fiscal 1999 to fiscal 2000. This increase in
expenditures is primarily due to a decrease in capitalized development costs of
43% in fiscal 2001 from $12,127,000 in fiscal 2000. As a percentage of total
revenues, fiscal 2001 total expenditures increased slightly to 21% from 19% in
fiscal 2000 and 14% in fiscal 1999.
Product development expenditures during fiscal 2001 continued to focus
on internet based business to business solutions which encompass the traditional
backbone ERP as an element of a modular solution. Product development
expenditures during fiscal 2000, and 1999 were primarily focused on new internet
enabled modules and continued enhancements to the underlying technology of
released products and developing new web enabled products. During fiscal 2000,
1999, software development costs capitalized included amounts attributable to
the development of additional international features for the Company's
iRenaissance(TM) products, developing the 5.X series of iRenaissance(TM), and
development of new products aimed at end-to-end e-commerce solutions. The
Company did not experience additional expenditures related to the Y2K compliance
of its products after December 1999.
General and Administrative Expenses. General and administrative
expenses decreased 36% to $4,742,000 in fiscal 2001 over 2000, and decreased 11%
to $7,430,000 in fiscal 2000 from $8,337,000 in fiscal 1999. The savings in
costs achieved in 2001 are primarily due to the closure or consolidation of
several regional offices, and a reduction in employee costs associated with a
lower headcount. The net decrease from 1999 to 2000 is primarily attributable to
savings achieved by an increased use of networked administrative tools, reduced
network communications costs and a reduction of administrative staffs and
related costs in both Europe and North America.
Provision for Doubtful Accounts and Returns. In fiscal 2001, 2000, and
1999, the Company recorded provisions of $1,514,000, $4,645,000, and $2,421,000,
respectively. These provisions represent management's best estimate of the
doubtful accounts for each period. The lower provision in fiscal 2001 was made
possible by tighter and better controls over accounts receivable.
Amortization of Other Assets. Amortization of intangible assets
resulted in charges of $691,000, $1,004,000, and $1,263,000, in fiscal 2001,
2000, and 1999, respectively. These charges related to acquisitions of products
and companies. During fiscal 1999, the Company purchased HiPoint Systems Inc.
The related intangible assets are being amortized over periods ranging from two
to seven years. Increases in fiscal 1999 are directly related to the acquisition
of Hipoint Systems. During fiscal 1998, the Company purchased Bizware, Inc. The
related intangible assets are being amortized over periods ranging from two to
seven years. Also during fiscal 1998, the Company capitalized approximately
$431,000 of debt issuance costs related to the receipt of $10,000,000 of
10
convertible debenture financing. For a description of the convertible debenture
financing, see "Liquidity and Capital Resources." These costs are being
amortized over five years. During fiscal 1997, the Company acquired its Spanish
distributor. The related goodwill of $1,541,000 is being amortized over seven
years.
Non-Recurring costs. At the end of Q1, fiscal 2001, the Company
recorded an expense of $790,000 to cover separation costs associated with 125
employees employed in sales, marketing, services, and product development in
North America and Europe. Cost savings associated with this reduction in staff,
and other restructuring measures were expected to be $12,000,000 on an
annualized basis. During Q3 fiscal 2000 the Company recorded a $1,145,000
expense to cover the liability arising from separation costs associated with 19
employees employed in sales, marketing, services and product development in
North America and Europe. At June 30, 2001, the liabilities relating to both
events had been fully discharged.
Other Income and Expense. Fiscal 2001, 2000, and 1999 other income is
composed largely of interest income of $52,000, $103,000, and $196,000,
respectively. Fiscal 2001 interest income decreased from fiscal 2000 and fiscal
2000 interest income decreased from 1999. Both decreases were as a result of
lower invested cash balances.. Interest expense decreased in fiscal 2001 as
compared to fiscal 2000, due mainly to lower utilization of the Company's
revolving credit facilities. Interest expense increased from fiscal 1999 to
fiscal 2000 as a result of increased borrowings under the Company's revolving
credit facilities and increased capital lease activities.
Income Taxes. The Company recorded income tax expense of $9,000 during
fiscal 2001. This expense is made up of foreign withholding taxes, state
franchise taxes and income tax expense totaling $244,000, and refunds of taxes
paid in prior periods totaling $235,000. The Company recorded income tax expense
of $349,000 during fiscal 2000. This expense relates to foreign withholding
taxes expensed during the period in certain foreign jurisdictions. The Company
recorded income tax expense of $321,000 during fiscal 1999. This expense relates
to a refund received for a carry-back of certain net operating losses against
prior period income ($414,000), foreign withholding taxes expensed during the
year ($473,000), an accrual for federal alternative minimum taxes ($89,000) and
accruals for other state taxes payable ($173,000).
At June 30, 2001, 2000 and 1999, the Company had net income taxes
payable of $335,000, $248,000 and $145,000 respectively. These tax liabilities
primarily relate to various taxing jurisdictions in North America, principally
Canada where the Company has used all of its net operating loss carryforwards.
The Company anticipates recording future foreign withholding tax expenses
related to the aforementioned Japanese distributorship agreement, representing
10% of future annual royalty payments from this agreement. At June 30, 2001, the
Company had net operating loss carryforwards of approximately $40,379,000,
$14,473,000, and $7,692,000 for federal, California and foreign tax purposes,
respectively.
Liquidity and Capital Resources
During fiscal 2001, net cash provided by operating activities increased
by $3,827,000 from $10,231,000 in the prior year to $14,058,000 in the current
year.. An aggregate net decrease in non-cash charges for depreciation,
amortization and provisions for uncollectible accounts of $3,620,000 and an
aggregate decrease in the changes in operating assets and liabilities including
accounts receivable, pre-paid expenses, accounts payable and accrued expenses of
$1,373,000 were offset by an improvement of Company net earnings of $8,820,000
and the one time gain of the disposition of the human resources and payroll
product line of $2,372,000. The decreases in accounts payable and accrued
expenses are the result of lower headcount and operating expenses compared to
the prior year. The decrease in deferred revenues is related to the product line
disposition, the change in market presence in France and the timing and nature
of new software contracts closed during the year..
The net cash used for investing purposes has decreased by $7,144,000
from $12,303,000 to $5,159,000. One of the main components of investing
activities for the Company is the amount of net computer software costs
capitalized. For FY 2001, this amount decreased by $5,243,000 due to the
disposition of the product line and due to higher amortization amounts from
software development projects closing and beginning to be amortized. In
conjunction with the product line disposition, the Company transferred net
assets and liabilities realizing $1,567,000 of net cash flow from the
transaction. Together, purchases of property and equipment and other investing
activities resulted in an additional $334,000 of improved cash flow versus the
prior fiscal year.
Cash flows from financing activities decreased $2,915,000 from net
repayments in the prior year of $2,144,000 to net repayments in the current year
of $5,059,000. In fiscal 2001, repayments under the line of credit were greater
by $3,263,000. Net repayments of capital leases and long term debt consumed
$1,447,000 of incremental cash compared to the previous fiscal year. The Company
received $2,000,000 in a preferred stock issuance in the current year. The net
proceeds of other financing activities declined a net $205,000 from the prior
year.
At June 30, 2001, the Company had $5,716,000 of cash and cash
equivalents. The Company also has a revolving credit facility with an
asset-based lender with a maximum credit line of $5,000,000, a maturity date of
October 31, 2001, and an interest rate equaling the Prime Rate plus 2%.
Subsequent to year end, the Company renegotiated the line and it now has a
maturity of July 31, 2002. Borrowings under the credit facility are
collateralized by substantially all assets of the Company. At June 30, 2001, the
Company had $3,747,000 outstanding against the $5,000,000 revolving credit
11
facility, and based on the eligible accounts receivable at June 30, 2001, the
Company's cash and remaining borrowing capacity under the revolving credit
facility total approximately $5,874,000. This represents an increase in total
availability of cash of $3,263,000 from June 30, 2000. The Company expects its
operations to be cash positive for the year ending June 30, 2002.
During fiscal 2000, net cash provided by operating activities increased
by $3,778,000 from $6,453,000 to $10,231,000. An aggregate net increase in
non-cash charges for depreciation, amortization and provisions for uncollectible
accounts of $42,000 and an aggregate decrease in the changes in operating assets
and liabilities including accounts receivable, pre-paid expenses, accounts
payable and accrued expenses of $7,985,000 were offset by decreased Company
earnings of $4,249,000. The decreased receivables portfolio was a result of
lower revenue volumes and improved days of sales outstanding. The decreases in
accounts payable and accrued expenses are the result of lower headcount and
operating expenses compared to the prior year. Management believes that the risk
of accounts receivable uncollectability has been appropriately assessed and
reflected in the consolidated financial statements.
During fiscal 2000, the Company required $12,303,000 for investing
activities versus $13,091,000 in the prior year, a decrease of $788,000.
Investment in property and equipment decreased by $1,505,000 over the prior year
as a result of lower spending on computers and infrastructure assets. 1999
spending programs aimed at expansion of European operations as well asY2K
preparedness activities were completed early in fiscal 2000 and contributed to
lower fiscal 2000 spending. Capitalized computer software costs increased by
$549,000 due to timing of development work performed. The Company financed its
continuing operations during fiscal 2000 through cash generated from operations
and available credit facilities.
Cash flows from financing activities decreased $7,922,000 from net
borrowings of $5,778,000 to net repayments of $2,144,000. In fiscal 2000,
borrowings under the line of credit decreased by approximately $2,090,000 from
fiscal 1999 while borrowings under the line of credit increased from fiscal 1999
over 1998 by $8,576,000. Proceeds from capital leases totaled $1,052,000 during
the year. Capital lease borrowings increased as a result of the decrease in cash
available from the line of credit.
On February 6, 1998, the Company closed a private placement of up to
$10,000,000 of convertible subordinated debentures to certain institutional
investors (the "Investors") pursuant to Regulation D promulgated under the
Securities Act of 1933, as amended. The Investors invested $6,000,000 on
February 6, 1998 and $4,000,000 on June 11, 1998. The material agreements
between the Company and each Investor have been filed as exhibits to the Current
Report on Form 8-K filed with the Securities and Exchange Commission by the
Company on February 12, 1998. $3,033,000 and $1,933,000 of these debentures
remained outstanding at June 30, 1999 and June 30, 2000, respectively. With the
exception of the redemption described below, the difference between the original
$10,000,000 borrowing and amounts outstanding at the above mentioned dates
represents conversion of the debt into shares of the Company's Common Stock at
various conversion prices as determined in accordance with the convertible
debenture agreement. The Company notified the Investors that it would redeem
$4,000,000 of the convertible subordinated debentures on October 7, 1998 (the
"Redemption Date") at a redemption price of $4,320,000 (108 percent of the face
value of the redeemed debentures) plus interest accrued through the redemption
date. On the Redemption Date, the Company actually redeemed $2,667,000 of the
convertible subordinated debentures at a redemption price of $2,880,000. The
difference between the face amount of debentures redeemed and the total
redemption price paid represents the conversion premium which has been reported
as an extraordinary item during fiscal 1999. The Company and the Investor
holding the convertible subordinated debenture that was not redeemed negotiated
certain changes to the conversion features of the debenture that, among other
things, precludes conversion prior to October 7, 1999.
In December of 2000, it was determined that the investor's aggregate
conversions had reached the Nasdaq exchange imposed limit of 20% of the total
outstanding shares of the Company, calculated as of the date the debentures were
originally issued. Pursuant to the terms of the debenture agreement, the Company
requested the Nasdaq to waive the 20% dilution limit to allow the remainder of
the debentures to be converted. The Nasdaq denied this request. Next, as
required by the debenture agreement, the Company placed the additional dilution
request to a vote of the shareholders. The shareholders denied the debenture
holders' request for additional dilution. Therefore, in accordance with the
debenture agreement, the remaining debentures were redeemed for cash on June
29,2001. A contractual payment of $120,000 for the conversion was paid and
recorded as additional interest expense during the quarter ended June 30, 2001.
Per the terms of the agreement, total payments to the debentures holders were
approximately $919,000, including the contractual payment of $114,000. As of
June 30, 2001 no debentures remain outstanding.
On June 29, 2001, the Company issued convertible preferred stock to a
qualified investor in a private placement transaction. This agreement is filed
as exhibit 10.9 to this report on Form 10-K. In summary, the investor purchased
500,000 preferred shares at $4 per share yielding $2,000,000 for the Company.
The shares can not be converted for one year but must be converted within three
years from the issue date. The shares earn interest at the rate of 7.5%. In
conjunction with this transaction, the Company issued warrants to the broker who
assisted in securing the investor. These warrants were fairly valued at $60,000
on the date of issuance and the expense has been recorded in the statement of
operations as a component of other expense (net) in the quarter ended June 30,
2001.
12
New accounting pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements.
Other intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal 2002. Application of
the Statements is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
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.
Risk Factors
The risks described below are not the only ones that we face.
Additional risks and uncertainties not presently known to us may also impair our
business operations. Our business, operating results or financial condition
could be materially adversely affected by, and the trading price of our common
stock could decline due to any of these risks. You should also refer to the
other information included in this Annual Report on Form 10-K and the other
information, our financial statements and the related notes incorporated by
reference into this Annual Report on Form 10-K.
The Company's software product license revenues can fluctuate depending
upon such factors as overall trends in the United States and International
economies, new product introductions by the Company, hardware vendors and other
software vendors as well as 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.
Our business maybe adversely impacted by the worldwide economic
slowdown and related uncertainties. Weak economic conditions worldwide have
contributed to the current technology industry slow-down. This may impact our
business resulting in reduced demand and increased price competition, which may
result in higher overhead costs, as a percentage of revenues. Additionally, this
uncertainty may make it difficult for our customers to forecast future business
activities. This could create challenges to our ability to grow our business
profitably. If the economic or market conditions further deteriorate, this could
have a material adverse impact on our results of operations and cash flow.
We may face increased competition and our financial performance and
future growth depend upon sustaining a leadership position in our product
functionality.. Competitive challenges faced by Ross are likely to arise from a
number of factors, including: industry volatility resulting from rapid
development and maturation of technologies; industry consolidation and
increasing price competition in the face of worsening economic conditions.
Although there are fewer competitors in our target markets than previously, our
failure to compete successfully against those remaining could harm our business
operating results and financial condition
Retaining key management and employees are critical to our success. Our
success depends upon retaining and recruiting highly qualified employees and
management personnel. However, we may face severe challenges in attracting and
retaining such employees. Although our turnover is historically low, if our
ability to maintain a stable workforce is significantly handicapped ability to
compete may be adversely affected.
13
ITEM 7.A. 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 fiscal 2001,
international revenue as a percentage of total revenue was 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 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 maturates 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 the
Company's investments, a near-term change in interest rates would not materially
affect the Company's 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 affect the
Company's financial position, results of operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference
herein from Part IV Item 14(a) (1) and (2) of this Form 10-K Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no disagreements between the Company's accountants and the
Company on accounting and financial disclosure.
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 of Form 10-K with respect to
identification of directors is incorporated by reference from the information
contained in the section captioned "Election of Directors" in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held
November 15, 2001 (the Proxy Statement), a copy of which will be filed with the
Securities and Exchange Commission before the meeting date. For information with
respect to the executive officers of the Company, see "Executive Officers of
Ross Systems" at the end of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Consolidated Financial Statements. The following Consolidated
Financial Statements of Ross Systems, Inc. are filed as part of this
report:
Page
----
Fiscal 2001, 2000 and 1999 Report of Arthur Andersen LLP, Independent Public Accountants.............. F-1
Consolidated Balance Sheets as of June 30, 2001 and 2000............................................... F-2
Consolidated Statements of Operations--Years Ended June 30, 2001, 2000, and 1999....................... F-3
Consolidated Statements of Cash Flows--Years Ended June 30, 2001, 2000, and 1999....................... F-4
Consolidated Statements of Shareholders' Equity--Years Ended June 30, 2001, 2000, and 1999............. F-5
Notes to Consolidated Financial Statements............................................................. F-6
2. Financial Statement Schedule. The following financial statement
schedule of Ross Systems, Inc. for the Years Ended June 30, 2001,
2000, and 1999 is filed as part of this Report and should be read in
conjunction with the Consolidated Financial Statements of Ross
Systems, Inc.
Schedule Page
-------- ----
II Valuation and Qualifying Accounts................................................................ S-1
Schedules not listed above have been omitted because they are not
applicable or are not required, or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes thereto.
3. Exhibits. The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedules are filed as
part of, or incorporated by reference into, this Report.
(b) Reports on Form 8-K.
On May 15, 2001, the Company filed a report on form 8-K which stated
under item 2 that the Company sold certain assets related to its Human Resources
and Payroll product line to Now Solutions, LLC for approximately $6,100,000
excluding certain incentives not yet earned Under item 7, the Company disclosed
that the product line was not treated as a separate business in the Company's
accounts. Therefore, no pro-forma financial statements were presented. However,
the Company did disclose that the revenues associated with the product line were
approximately $4,806,000, $8,052,000 and $8,882,000 for the eight months ended
February 28, 2001 and the fiscal years ended June 30, 2000 and 1999,
respectively. The net book value of the intellectual property transferred in the
sale transaction was approximately $3,936,000, $4,134,000 and $3,749,000 at
February 28, 2001 and June 30, 2000 and 1999. These assets were pledged as
collateral on the Company's asset based credit facility. Simultaneously with the
closing of this transaction, the asset based lender reduced the Company's line
of credit to a maximum of $5,000,000. The asset sale agreement is incorporated
by reference as exhibit 2.1 to this report on form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Atlanta, State of Georgia, on the 20th day of September, 2001.
ROSS SYSTEMS, INC.
By: /s/ J. Patrick Tinley
-------------------------
J. Patrick Tinley
Chairman and
Chief Executive Officer
16
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints J. Patrick Tinley his attorney-in-fact,
with the power of substitution, for him in any and all capacities, to sign any
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that the said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ J. Patrick Tinley Chairman and Chief Executive Officer September 20, 2001
----------------------- (Principal Executive Officer)
J. Patrick Tinley
/s/ Verome M. Johnston Vice President and Chief Financial Officer September 20, 2001
----------------------- (Principal Financial and Accounting
Verome M. Johnston Officer)
/s/ Dennis V. Vohs Director September 20, 2001
-----------------------
Dennis V. Vohs
/s/ William Goodhew Director September 20, 2001
-----------------------
J. William Goodhew
/s/ Frank Dickerson Director September 20, 2001
-----------------------
Frank Dickerson
/s/ Bruce J. Ryan Director September 20, 2001
-----------------------
Bruce J. Ryan
17
ROSS SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED JUNE 30, 2001
ROSS SYSTEMS, INC.
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
2.1 Asset Sale Agreement between Registrant and Now Solutions LLC dated
March 5, 2001 (1)
3.1 Certificate of the Registrant, as amended (2)
3.2 Certificate of Designation of Rights, Preferences and Privileges of
Series B Preferred Stock of the Registrant (4)
4.3 Form of the subordinated debenture agreement due February 6, 2003
issued by the Registrant to each investor (4)
4.4 Registration Rights Agreement between the Registrant and each
Investor (4)
10.1 Preferred Share Rights Agreement, dated September 4, 1999 between the
Registrant and BankBoston N.A. (3)
10.2 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 (5)
10.3 Extension Agreement and Amendment to Loan Documents dated August 18,
1995 between Registrant and CoastFed Business
Credit Corporation ("Coast") (5)
10.4 First Amendment to Loan and Security Agreement dated June 30, 1995
between Registrant and Coast (5)
10.5 Loan and Security Agreement dated October 11, 1994 between Registrant
and Coast (5)
10.6 Employment Agreement dated January 7, 1999, between Mr. Patrick Tinley
and the Registrant (6)
10.7 Employment Agreement dated January 7, 1999, between Mr. Dennis Vohs
and the Registrant (6)
10.8 Employment Agreement dated September 13, 1999, between Mr. Robert B.
Webster and the Registrant (7)
10.9 Convertible Preferred Stock Purchase Agreement dated June 29, 2001
between Registrant and Benjamin W. Griffith, III
21.1 Listing of Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included on signature page)
27 Financial Data Schedule
---------------
(1) Incorporated by reference to the exhibit filed with the Registrant's
current Report on Form 8-K/A filed May 15, 2001.
(2) Incorporated by reference to the exhibit filed with the Registrant's
current Report on Form 8-K filed July 24, 1998.
(3) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form 8-A filed September 4, 1998.
(4) Incorporated by reference to the exhibit filed with the Registrant's
current report on Form 8-K filed February 12, 1998.
(5) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form 10-K/A filed April 30, 1998.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 filed
May 17, 1999.
(7) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-K filed September 28, 1999.
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Ross Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Ross Systems,
Inc. (a Delaware corporation) AND SUBSIDIARIES as of June 30, 2001 and 2000 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years ended June 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ross Systems, Inc. and
subsidiaries as of June 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years ended June 30, 2001 in
conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements included in Item 14 is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 17, 2001
F-1
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30,
------------------------
2001 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................................................... $ 5,716 $ 2,010
Accounts receivable, less allowance for doubtful accounts and returns
of $2,930, and $3,571 in 2001, and 2000 respectively..................................... 10,128 21,927
Prepaid and other current assets............................................................ 1,874 1,501
-------- --------
Total current assets..................................................................... 17,718 25,438
Property and equipment, net.................................................................... 1,694 3,009
Computer software costs........................................................................ 27,918 32,637
Other assets................................................................................... 3,132 3,211
-------- --------
Total assets............................................................................. $ 50,462 $ 64,295
-------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of debt................................................................ $ 4,522 $ 10,148
Accounts payable............................................................................ 4,920 6,949
Accrued expenses............................................................................ 4,870 5,459
Income taxes payable........................................................................ 335 248
Deferred revenues........................................................................... 12,711 17,974
-------- --------
Total current liabilities................................................................ 27,358 40,778
Long-term debt, less current installments...................................................... -- 2,627
-------- --------
Total liabilities........................................................................ 27,358 43,405
-------- --------
Commitments and contingencies (Note 7) -- --
Shareholders' equity:
Preferred stock, no par value 5,000,000 shares authorized; 500,000 and 0 shares issued and
outstanding at June 30, 2001 and 2000, respectively....................................... 2,000 --
Common stock, $0.001 par value; 35,000,000 shares authorized; 2,565,989 and
2,380,419 shares issued and outstanding at June 30, 2001 and 2000, respectively......... 26 24
Additional paid-in capital.................................................................. 87,032 85,780
Accumulated deficit......................................................................... (63,876) (63,034)
Accumulated other comprehensive deficit..................................................... (2,078) (1,880)
-------- --------
Total shareholders' equity............................................................... 23,104 20,890
-------- --------
Total liabilities and shareholders' equity..................................................... $ 50,462 $ 64,295
-------- --------
See accompanying Notes to Consolidated Financial Statements
F-2
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years ended June 30,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Revenues:
Software product licenses ................................................................ $ 9,607 $ 18,943 $ 32,207
Consulting and other services ............................................................ 15,213 33,339 41,258
Maintenance .............................................................................. 24,678 27,722 28,326
--------- --------- ---------
Total revenues ........................................................................ 49,498 80,004 101,791
--------- --------- ---------
Operating expenses:
Costs of software product licenses ....................................................... 1,595 3,503 3,895
Costs of consulting, maintenance and other services (exclusive of non recurring expense of
$353 and $208 for 2001 and 2000 respectively) ......................................... 15,673 39,650 46,410
Software product license sales and marketing (exclusive of non recurring expense of $136
and $687 for 2001 and 2000 respectively) ............................................. 15,026 20,585 31,442
Product development net of capitalized computer software costs (exclusive of non recurring
expense of $301 and $250 for 2001 and 2000 respectively) .............................. 4,127 3,128 3,153
Amortization of computer software costs .................................................. 7,369 6,875 8,806
General and administrative ............................................................... 4,742 7,430 8,337
Provision for uncollectible accounts ..................................................... 1,514 4,645 2,421
Amortization of other assets ............................................................. 691 1,004 1,263
Non-recurring costs ...................................................................... 790 1,145 --
--------- --------- ---------
Total operating expenses .............................................................. 51,527 87,965 105,727
--------- --------- ---------
Operating loss ........................................................................ (2,029) (7,961) (3,936)
Gain on sale of product line ............................................................... 2,372 -- --
Other income (expense):
Interest income .......................................................................... 52 103 196
Interest expense ......................................................................... (1,228) (1,455) (1,352)
--------- --------- ---------
Loss before income taxes .............................................................. (833) (9,313) (5,092)
Extraordinary Item, net of tax .............................................................. -- -- (213)
Income tax expense .......................................................................... 9 349 321
--------- --------- ---------
Net loss .............................................................................. $ (842) $ (9,662) $ (5,626)
--------- --------- ---------
Net loss per common share--basic (Note 1(e)) ................................................ $ (0.33) $ (4.15) $ (2.53)
--------- --------- ---------
Net loss per common share--diluted (Note 1(e)) .............................................. $ (0.33) $ (4.15) $ (2.53)
--------- --------- ---------
Shares used in per share computation--basic (Note 1(e)) ..................................... 2,566 2,330 2,223
--------- --------- ---------
Shares used in per share computation--diluted (Note 1(e)) ................................... 2,566 2,330 2,223
--------- --------- ---------
See accompanying Notes to Consolidated Financial Statements
F-3
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended June 30,
----------------------------------
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net loss ...................................................................... $ (842) $ (9,662) $ (5,413)
Adjustments to reconcile net loss to net cash provided by operating activities:
Non cash financing costs ................................................... 60 -- --
Non-cash stock compensation costs .......................................... -- 50 --
Extraordinary loss on early debt extinguishment ............................ -- -- (213)
Depreciation and amortization of property and equipment .................... 1,592 2,272 2,526
Amortization of computer software costs .................................... 7,369 6,875 8,806
Amortization of other assets ............................................... 691 1,004 1,263
Provision for uncollectible accounts ....................................... 1,514 4,645 2,421
Changes in operating assets and liabilities, net of sale of product line:
Accounts receivable ...................................................... 9,911 10,961 (5,394)
Prepaid and other current assets ......................................... (149) 1,074 (721)
Income taxes recoverable/payable ......................................... 92 104 (256)
Accounts payable ......................................................... (2,178) (3,367) 3,811
Accrued expenses ......................................................... (1,011) (3,113) (732)
Deferred revenues ........................................................ (2,991) (612) 350
Other, net ............................................................... -- -- 5
-------- -------- --------
Net cash (used in) provided by operating activities ................... 14,058 10,231 6,453
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment, net ...................................... (277) (308) (1,813)
Computer software costs capitalized ........................................... (6,878) (12,121) (11,572)
Sale of product line, net of assets disposed .................................. 1,567 -- --
Other ......................................................................... 429 126 294
-------- -------- --------
Net cash used in investing activities ................................. (5,159) (12,303) (13,091)
-------- -------- --------
Cash flows from financing activities:
Net cash received on line of credit ........................................... -- -- 8,576
Net cash paid on line of credit activity ...................................... (5,353) (2,090) --
Debt and capital lease payments ............................................... (1,723) (276) (432)
Proceeds from issuance of preferred stock ..................................... 2,000 -- --
Retirement of convertible debt ................................................ -- -- (2,667)
Proceeds from issuance of common stock ........................................ 17 222 301
-------- -------- --------
Net cash (used in) provided by financing activities ................... (5,059) (2,144) 5,778
-------- -------- --------
Effect of exchange rate changes on cash .......................................... (134) (68) (94)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ............................. 3,706 (4,284) (954)
-------- -------- --------
Cash and cash equivalents at beginning of fiscal year ............................ 2,010 6,294 7,248
-------- -------- --------
Cash and cash equivalents at end of fiscal year .................................. $ 5,716 $ 2,010 $ 6,294
-------- -------- --------
Non-cash items
Stock compensation costs .................................................... -- 50 --
Warrants issued for services rendered ....................................... 60 -- --
See accompanying Notes to Consolidated Financial Statements
F-4
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
(Comparative numbers of shares have been restated to reflect the one for ten
reverse stock split. See accompanying Notes to the Consolidated Financial
Statements)
Accumulated
Preferred Stock Common Stock Other Total
------------------ --------------- Paid in Accumulated Comprehensive Shareholders'
Shares Amount Shares Amount Capital Deficit Deficit Equity
------ ------- ------ ------- ------- ---------- ------------- ------------
Balances as of June 30, 1998. -- -- 2,111 $ 21 $79,646 $(47,746) $(1,148) $30,773
---- ---- ---- ----- ------ ------- ------ ------
Exercise of stock options.... -- -- 9 -- 105 105
Issuance of stock for
acquisition............... -- -- 47 1 1,546 1,547
Issuance of stock pursuant to
employee stock purchase
plan...................... -- -- 12 -- 322 322
Stock issuance costs......... -- -- -- -- (52) (52)
Effect of foreign currency
translation............... -- -- -- -- (507) (507)
Conversion of debentures -- -- 111 1 2,694 2,695
Net loss..................... -- -- -- -- (5,626) (5,626)
Comprehensive loss...........
---- ------ ---- ----- ------ ------- ------ ------
Balances as of June 30, 1999. -- -- 2,290 $ 23 $84,261 $(53,372) $(1,655) $29,257
Exercise of stock options.... -- -- 1 -- --
Issuance of stock for hiring
bonus..................... -- -- 2 50 50
Conversion of debentures .... -- -- 73 1 1,247 1,248
Issuance of stock pursuant to
employee stock purchase
plan...................... -- -- 14 222 222
Effect of foreign currency
translation............... (225) (225)
Net loss..................... (9,662) (9,662)
Comprehensive loss...........
---- ---- ----- ----- ------ ------- ------ ------
Balances as of June 30, 2000. -- -- 2,380 $24 $85,780 $(63,034) $(1,880) $20,890
---- ---- ----- ----- ------ ------- ------ ------
Conversion of debentures .... -- -- 173 2 1,175 1,177
Issuance of stock pursuant to
employee stock purchase
plan...................... -- -- 13 17 17
Effect of foreign currency
translation............... (198) (198)
Issuance of preference shares 500 2,000 2,000
Issuance of warrants pursuant
to cost of financing 60 60
Net loss..................... (842) (842)
---- ----- ----- ----- ------ ------- ------ ------
Comprehensive loss...........
---- ----- ----- ----- ------ ------- ------ ------
Balances as of June 30, 2001. 500 $2,000 2,566 $26 $87,032 $(63,876) $(2,078) $23,104
==== ====== ===== === ======= ======== ======= =======
Comprehensive
Loss
-------------
Balances as of June 30, 1998.
Exercise of stock options....
Issuance of stock for
acquisition...............
Issuance of stock pursuant to
employee stock purchase
plan......................
Stock issuance costs.........
Effect of foreign currency
translation............... $ (507)
Conversion of debentures
Net loss..................... (5,626)
------
Comprehensive loss........... $(6,133)
======
Balances as of June 30, 1999.
Exercise of stock options....
Issuance of stock for hiring
bonus.....................
Conversion of debentures ....
Issuance of stock pursuant to
employee stock purchase
plan......................
Effect of foreign currency
translation............... $ (225)
Net loss..................... (9,662)
------
Comprehensive loss........... $(9,887)
======
Balances as of June 30, 2000.
Conversion of debentures ....
Issuance of stock pursuant to
employee stock purchase
plan......................
Effect of foreign currency
translation............... $ (198)
Issuance of preference shares
Issuance of warrants pursuant
to cost of financing
Net loss..................... (842)
------
Comprehensive loss........... $(1,040)
======
Balances as of June 30, 2001.
See accompanying Notes to Consolidated Financial Statements
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business and Summary of Significant Accounting Policies
(a) Business of the Company
Ross Systems Inc. (NASDAQ:ROSS), (the "Company") founded in 1972,
supplies leading enterprise solutions software designed for process
manufacturing companies. The Company offers both the award-winning
iRenaissance(TM) enterprise resource planning (ERP II) software package, as well
as integrated e-business solutions for food, beverage, specialty chemical,
biotech/pharmaceutical, paper and metals manufacturers. The Ross Systems family
of solutions includes a broad range of applications for advanced planning,
supply-chain management (SCM), materials management, financials, manufacturing,
maintenance management, transportation management and human resources/payroll.
In addition to the aforementioned software suites, the Company also provides
professional consulting services for implementation, custom application
development and education. It offers ongoing maintenance and support services
via the internet and telephone help desks.
The Company operates in one business segment and no individual customer
accounts for more than 10% of total revenues. The Company does not have a
concentration of credit risk in any one industry or geographic region.
(b) Basis of Presentation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant inter-company
balances and transactions have been eliminated in consolidation.
In order to rightsize the Company and adjust to lower revenue
forecasts, the Company initiated a series of actions designed to return the
Company to profitability. During the first and second quarter of fiscal 2001,
the Company reorganized its management team and terminated 125 employees while
instituting a policy of not rehiring for attrition. The Company also exited
certain real estate locations that were not utilized to capacity. As a result of
these actions and 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". By March 31, 2001, all of the costs had been
paid. Additionally, the Company reorganized its European presence and went from
a direct to an indirect sales model in France by terminating its ownership and
control of the French subsidiary due to the chronic and sustained losses and
negative cash flows suffered by the French subsidiary. Management has also
effectively recorded what they deem to be adequate reserves related to the
possible future costs for the change of presence in France by deferring the gain
associated with divesting net liabilities in this liquidating transaction. (New
and existing customers in France receive maintenance services from French
speaking employees of the Company in Belgium or via the internet.)
Collectively, these actions returned the Company to operating and net
profitability for the second quarter of fiscal 2001 which ended December 31,
2001. The Company has remained profitable and cash flow positive in each
subsequent quarter of fiscal 2001 while eliminating its long term debt, reducing
its short term bank debt and reducing its trade payables.
Effective February 28, 2001, the Company completed the sale of certain
assets related to its Human Resource and Payroll product line to Now Solutions,
LLC, a private company. At the same time the Company executed a distribution
agreement with Now Solutions to continue to sell the product under license from
Now Solutions 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 transaction generated a gain on the sale
of approximately $2.4 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.
Sales, services and maintenance revenues related to this product line for the
eight months ended February 28, 2001 were approximately $4,642,000. The product
lines total revenues for years ended June 30, 2000 and 1999 were $8,076,000 and
$8,610,000, respectively. The net book value of the intellectual property
transferred in this sale was approximately $3,936,000, $4,134,000, and
$3,749,000 at February 28, 2001, June 30, 2000 and June 30, 1999, respectively.
F-6
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On June 29, 2001, the Company issued convertible preferred stock to a
qualified investor in a private placement transaction. This agreement is filed
as exhibit 10.9 to this report on Form 10-K. In summary, the investor purchased
500,000 preferred shares at $4 per share yielding $2,000,000 for the Company.
The shares can not be converted for one year but must be converted within three
years from the issue date. The shares earn dividends at the rate of 7.5%. In
conjunction with this transaction, the Company issued warrants to the broker who
assisted in securing the investor. These warrants were fairly valued at $60,000
on the date of issuance and the expense has been recorded in the statement of
operations as a component of other expense (net) in the quarter ended June 30,
2001.
The Company's asset based credit line (Note 6) was set to expire on
October 31, 2001. Subsequent to year end, but before the date of this report on
Form 10-K, the Company renegotiated the facility and the maturity date has been
extended until July 31, 2002.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity date of three months or less to be cash equivalents.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation is accumulated
using the straight-line and declining balance methods over the estimated useful
lives of the respective assets, generally three to seven years. Leasehold
improvements and equipment under capital leases are amortized using the
straight-line method over the shorter of the terms of the related leases or the
respective useful lives of the assets.
(e) Net Earnings (Loss) Per Common and Common Equivalent Share
Basic 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 loss 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 loss per share.
For the year ended June 30,
---------------------------------
2001 2000 1999
------- ------- -------
Net loss ......................................... $ (842) $(9,662) $(5,626)
Payment in kind interest on convertible debentures -- -- --
------- ------- -------
Net loss for use in per share calculations ....... $ (842) $(9,662) $(5,626)
------- ------- -------
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 years of a loss, the denominator is the same for basic and
diluted loss per share.
(f) Amortization of Other Assets
The other assets described in Note 4 are amortized using the
straight-line method over the following estimated useful lives:
Acquired software technology................................ 3 to 5 years
Covenants not to compete.................................... 3 to 5 years
Goodwill.................................................... 7 to 10 years
Other assets have generally resulted from business combinations
accounted for as purchases and are recorded at the lower of unamortized cost or
fair value. The Company annually reviews the carrying amounts of these assets
for indications of impairment, based on expected undiscounted cash flows related
to the acquired entities or products. Impairment of value, if any, is recognized
in the period it is determined.
(g) Revenue Recognition
In accordance with SEC Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements", the Company recognizes revenues from
licenses of computer software provided that a non-cancelable license agreement
has been signed, the software and related documentation have been shipped, there
F-7
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
are no material uncertainties regarding customer acceptance, collection of the
resulting receivable is deemed probable, and no significant other vendor
obligations exist. The revenue associated with any license agreements containing
cancellation or refund provisions is deferred until such provisions lapse. Where
the Company has future obligations, if such obligations are insignificant,
related costs are accrued immediately. When the obligations are significant, the
software product license revenues are deferred. Future contractual obligations
can include software customization, requirements to provide additional products
in the future and porting products to new platforms. Contracts which require
significant software customization are accounted for on the
percentage-of-completion basis. Revenues related to significant obligations to
provide future products or to port existing products are deferred until the new
products or ports are completed.
Service revenues generated from professional consulting and training
services are recognized as the services are performed. Maintenance revenues,
including revenues bundled with original software product license revenues, are
deferred and recognized over the related contract period, generally 12 months.
The Company's revenue recognition policies are designed to comply with American
Institute of Certified Public Accountants Statement of Position 97-2, "Software
Revenue Recognition" (SOP 97-2).
(h) Computer Software Costs
The Company capitalizes computer software product development costs
incurred in developing a product once technological feasibility has been
established and until the product is available for general release to customers.
Technological feasibility is established when the Company either (i) completes a
detail program design that encompasses product function, feature and technical
requirements and is ready for coding and confirms that the product design is
complete, that the necessary skills, hardware and software technology are
available to produce the product, that the completeness of the detail program
design is consistent with the product design by documenting and tracing the
detail program design to the product specifications, and that the detail program
design has been reviewed for high-risk development issues and any related
uncertainties have been resolved through coding and testing or (ii) completes a
product design and working model of the software product, and the completeness
of the working model and its consistency with the product design have been
confirmed by testing. The Company evaluates realizability of the capitalized
amounts based on expected revenues from the product over the remaining product
life. Where future revenue streams are not expected to cover remaining amounts
to be amortized, the Company either accelerates amortization or expenses
remaining capitalized amounts. Amortization of such costs is computed as the
greater of (1) the ratio of current revenues to expected revenues from the
related product sales or (2) a straight-line basis over the expected economic
life of the product (not to exceed five years). As of June 30, 2001 and 2000,
capitalized computer software costs approximated $79,347,000 and $80,840,000
respectively, and related accumulated amortization totaled $51,429,000 and
$48,203,000 respectively. Software costs related to the development of new
products incurred prior to establishing technological feasibility or after
general release are expensed as incurred.
(i) Income Taxes
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("Statement 109"), the Company utilizes the asset
and liability method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
established to recognize the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
(j) Foreign Operations and Currency Translation
The local currencies of the Company's foreign subsidiaries are the
functional currencies. Assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at current exchange rates, and the resulting
translation gains and losses are included as an adjustment to shareholders'
equity. Transaction gains and losses relate to U.S. dollar denominated
intercompany receivables recorded in the financial statements of the Company's
foreign subsidiaries and are reflected in income. Where related intercompany
balances have been designated as long-term, gains and losses are included as an
adjustment to shareholders' equity. Net gains and losses arising from foreign
currency transactions for all periods have not been significant.
(k) Reclassifications
It is the Company's policy to reclassify prior year amounts to conform
with current year financial statement presentation when necessary.
(l) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
F-8
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
(m) Advertising Costs
The Company generally expenses advertising costs as incurred.
Advertising costs for the fiscal years ended June 30, 2001, 2000, and 1999 were
approximately $607,000, $1,517,000 and $2,360,000, respectively.
(n) 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-shareholder changes in equity in interim periods and
additional disclosures of the components of shareholder changes on an annual
basis. Total non-shareholder changes in equity include all changes in equity
during a period except those resulting from investments by and distributions to
shareholders.
(o) 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 certain geographic results of operations. During fiscal 2001, the
Company divested its French subsidiary and adopted an indirect sales approach in
the French market. See further discussion of this matter under "Acquisitions and
Divestitures" below.
For these management purposes, the results of the Asian operations are
included in the North American results since the costs associated with managing
the Asian marketplace are born by the North American entities within the Group.
Selected balance sheet and income statement information pertaining to the
various significant geographic areas of operation are as follows:
As of and for the year ended June 30, 2001:
Net Income Depreciation Capital
Gross Assets Revenue (Loss) and Amortization Expenditures
------------ ------- ------- ----------------- ------------
Belgium ...... $ 260 $ 1,113 $ 1 $ 22 $ --
Netherlands .. 1,174 2,511 184 43 35
France ....... -- 362 (497) 13 --
Germany ...... 149 961 102 2 --
Spain ........ 2,248 4,218 (56) 182 38
United Kingdom 2,985 5,162 (1,014) 126 4
North America 43,646 35,171 438 1,895 200
------- ------- ------- ------- -------
Total ........ $50,462 $49,498 $ (842) $ 2,283 $ 277
======= ======= ======= ======= =======
F-9
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of and for the year ended June 30, 2000:
Net Income Depreciation Capital
Gross Assets Revenue (Loss) and Amortization Expenditures
------------ --------- ----------- ---------------- ------------
Belgium ...... $ 416 $ 1,138 $ (620) $ 42 $ 13
Netherlands .. 658 2,963 (74) 68 29
France ....... 2,261 3,782 (3,107) 63 8
Germany ...... 360 1,626 179 2 0
Spain ........ 4,185 5,411 (582) 177 45
United Kingdom 4,809 7,968 (785) 177 58
North America 51,606 57,116 (4,673) 1,743 155
------- ------- ------- ------- -------
Total ........ $64,295 $80,004 $(9,662) $ 2,272 $ 308
======= ======= ======= ======= =======
As of and for the fiscal year ended June 30, 1999:
Net Income Depreciation Capital
Gross Assets Revenue (Loss) and Amortization Expenditures
------------ --------- ----------- ---------------- ------------
Belgium ...... $ 720 $ 1,400 $ (1,873) $ 63 $ 28
Netherlands .. 1,553 4,409 (480) 76 44
France ....... 4,691 6,616 (3,709) 73 47
Germany ...... 281 1,533 (68) 6 0
Spain ........ 5,028 6,615 (4,226) 492 727
United Kingdom 4,505 9,355 (1,098) 232 155
North America 66,407 71,863 5,828 1,584 812
-------- -------- -------- -------- --------
Total ........ $ 83,185 $101,791 $ (5,626) $ 2,526 $ 1,813
======== ======== ======== ======== ========
The Company has no customers that represent ten percent or more of
annual revenues.
(p) New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill will no longer
be amortized but will be subject to annual impairment tests in accordance with
the Statements. Other intangible assets will continue to be amortized over their
useful lives. The Company will apply the new rules on accounting for goodwill
and other intangible assets beginning in the first quarter of fiscal 2002.
Application of the Statements is not expected to have a material impact on the
Company's consolidated financial position or results of operations.
(q) Non-recurring costs
During the third quarter of fiscal year 2000, the Company recorded a
$1,145,000 expense to cover the liability arising from separation 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. At June 30, 2000, $589,000 of the liability remained.
On September 12, 2000, the Company announced further restructuring
efforts 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. 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". By March 31, 2001,
all of the costs accrued in conjunction with both actions had been paid.
(2) Acquisitions and Divestitures
In October of 2000, the Company reorganized its European presence and
adopted an indirect sales model in France by terminating its ownership and
control of the French subsidiary due to the chronic and sustained losses and
negative cash flows suffered by the French subsidiary. Management has also
effectively recorded what they deem to be adequate reserves related to the
possible future costs for the change of presence in France by deferring the gain
associated with divesting net liabilities in this liquidating transaction. New
and existing customers in France receive maintenance services from French
speaking employees of the Company in Belgium or via the internet.
F-10
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $1,547,000. 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 (loss), and net earnings
(loss) 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.
On January 6, 1998, the Company acquired the assets of its business
partner, Bizware Corporation, in exchange for shares of the Company's common
stock valued at approximately $2.0 million. The acquisition was 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 since 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 are not significant.
On December 30, 1996, the Company acquired a 100% ownership interest in
Ross Iberica, its distributor in Spain and Portugal for the past five years, in
exchange for shares of the Company's common stock valued at approximately
$1,400,000. The acquisition was 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 since 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 are not
significant.
(3) Property and Equipment
A summary of property and equipment follows:
June 30,
-----------------------
(In thousands)
2001 2000
-------- --------
Computer equipment ........................... $ 9,101 $ 13,113
Furniture and fixtures ....................... 1,782 3,007
Leasehold improvements ....................... 1,546 1,705
-------- --------
12,429 17,825
-------- --------
Less accumulated depreciation and amortization (10,735) (14,816)
-------- --------
$ 1,694 $ 3,009
======== ========
F-11
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Other Assets
A summary of other assets follows:
June 30,
-----------------------
(In thousands)
2001 2000
-------- --------
Covenants not to compete ..................... $ -- $ 1,285
Goodwill ..................................... 4,414 7,479
Note receivable .............................. 750 --
Other ........................................ 201 2,153
-------- --------
5,365 10,917
Less accumulated amortization................. (2,233) (7,706)
-------- --------
$ 3,132 $ 3,211
======== ========
(5) Accrued Expenses
A summary of accrued expenses follows:
June 30,
------------------
(In thousands)
2001 2000
------ ------
Accrued vacation, salary and social costs $1,201 $1,739
Sales, use, VAT and GST taxes payable ........ 861 556
Interest payable ............................. 32 84
Professional fees ............................ 69 112
Royalties .................................... 791 647
Other ........................................ 1,916 2,321
------ ------
$4,870 $5,459
====== ======
(6) Debt
The Company has a revolving credit facility for up to $5,000,000 which
is collateralized by substantially all assets of the Company. As of June 30,
2001, the facility had an expiration date of October 31, 2001. Subsequent to
year end, the Company renewed the facility. It has a maturity date of July 31,
2002. The credit facility bears interest at the prime rate plus 2%
(approximately 9.5% at June 30, 2001), and requires the Company to secure the
lender's approval prior to any acquisition or merger not in the Company's
regular line of business. The agreement also restricts the Company from paying
any cash dividends on the Company's stock. The revolving credit facility may be
withdrawn if (a) the Company fails to pay any principal or interest amount due
or (b) there is a material impairment of the Company's business which would
prevent loan repayment and (c) any of these events are not remedied by the
Company within allowable periods. At June 30, 2001, $4,522,000 was outstanding
under the Company's revolving credit facility and local European credit
facilities. At June 30, 2000, approximately $8,974,000 was outstanding under the
Company's then existing $15,000,000 revolving credit facility.
Long term debt consists of convertible debentures. (See Note 8.)
As of June 30, 2001 and 2000, the Company had outstanding capital lease
obligations aggregating $265,000 and $870,000, respectively. As of June 30, the
Company's future obligations under capital leases are as follows (in thousands):
2001 2000
---- ----
Fiscal Year:
2001 ......................................... $ -- $689
2002 ......................................... 299 307
---- ----
Total future capital lease payments........... 299 996
Less amounts representing interest ........... 34 126
---- ----
$265 $870
---- ----
---- ----
F-12
(7) Commitments and Contingencies
The Company leases facilities and certain equipment under operating
leases which expire at various dates through fiscal 2016. Certain leases include
renewal options and rental escalation clauses to reflect changes in price
indices, real estate taxes, and maintenance costs. As of June 30, 2001, future
minimum lease payments under noncancelable operating leases were as follows (in
thousands):
Fiscal Year
----------
2002............................................................ $1,061
2003............................................................ 334
2004............................................................ 324
2005............................................................ 324
Thereafter...................................................... 2,365
------
Total future minimum lease payments............................. $4,408
======
The Company has an irrevocable letter of credit outstanding in the
amount of $222,000 which was issued in conjunction with securing a capital lease
during fiscal 2000. Rent expense approximated $2,267,000, $3,612,000 and
$3,829,000, for fiscal 2001, 2000, and 1999, respectively.
(8) Capital Stock
(a) Mandatorily Redeemable Preferred Stock and New Private Placement
In fiscal 1991, the Company authorized a new class of no par value
preferred stock consisting of 5,000,000 shares. The Board of Directors is
authorized to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions of such stock, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the shareholders. All preferred stock was issued with a mandatory
redemption factor. As of June 30, 2000, the Company had no shares of its
Manditorily redeemable convertible preferred stock outstanding.
On June 29, 2001, the Company issued mandatorily convertible preferred
stock to a qualified investor in a private placement transaction. In summary,
the investor purchased 500,000 preferred shares at $4 per share yielding
$2,000,000 for the Company. This price represented a premium to the market for
the Company's common stock at the time of issuance. The average closing share
price of the Company's common stock for the 30 trading days prior to the private
placement was approximately $2.22. The preferred shares can not be converted for
one year but must be converted within three years from the issue date. The
shares earn dividends at the rate of 7.5%. In conjunction with this transaction,
the Company issued warrants to the broker who assisted in securing the investor.
These warrants were fairly valued at $60,000 on the date of issuance and the
expense has been recorded in the statement of operations as a component of other
expense (net) in the quarter ended June 30, 2001.
(b) Other Private Equity Financing and Warrants
During fiscal 1996, the Company completed two private placements of
equity securities. On January 2, 1996, the Company received approximately
$1,820,000 in cash proceeds, net of offering expenses, for the issuance of
500,000 shares of the Company's Series A, Mandatorily redeemable convertible
preferred stock. In addition, on February 28, 1996, the Company received
approximately $4,575,000 in cash proceeds, net of offering expenses, for the
issuance of 500 shares of the Company's Series D Mandatorily redeemable
convertible preferred stock.
During fiscal 1997, the Company completed two additional private
placements of equity securities with the same investor who had purchased and
converted the Company's Series A Mandatorily redeemable convertible preferred
stock. On July 8, 1996, the Company received approximately $3,737,000 in cash
proceeds, net of offering expenses, for the issuance of 500,000 shares of the
Company's Series B Mandatorily redeemable convertible preferred stock and
500,000 shares of the Company's Series C Mandatorily redeemable convertible
preferred stock. Additionally, on January 6, 1997, the Company received
approximately $1,983,000 in cash proceeds, net of offering expenses, for the
issuance of 200 shares of the Company's Series E Mandatorily redeemable
convertible preferred stock. All of the Series A, B, C, D and 93 shares of the
Series E Mandatorily redeemable convertible preferred stock were converted to
common stock by June 30, 1997. Therefore, as of June 30, 1997, 107 shares of the
Company's Series E Redeemable Mandatorily redeemable convertible preferred stock
remained outstanding. These remaining shares were converted in April 1998, and
the Company issued 286,633 shares of common stock.
In connection with the issuance of the Company's Series A Mandatorily
redeemable convertible preferred stock and the subsequent issuance's of the
Company's Series B and Series C Mandatorily redeemable convertible preferred
stock, the Company granted a warrant to the investor to purchase 400,000 shares
F-13
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of the Company's Common Stock at an exercise price of $5.576 per share during
the period from and including July, 1, 1997 through and including December 29,
2000. Additionally, in connection with the subsequent issuance of the Company's
Series E Mandatorily redeemable convertible preferred stock, the Company granted
another warrant to the investor to purchase 640,000 shares of the Company's
Common Stock at a maximum exercise price of $8.00 per share during the period
from and including July, 1, 1997 through and including December 29, 2000.
On April 23, 1998, the Company issued and sold 353,000 shares of its
Common Stock to this investor upon the exercise of the warrant to purchase
640,000 shares of the Company's Common Stock mentioned above. The Company and
the investor also agreed to cancel the remaining 287,000 shares of Common Stock
subject to the warrant. The aggregate exercise price paid by this investor was
$1,141,946, representing a per share exercise price of $3.234975. The Company
and the investor agreed to reduce the exercise price from that set forth in the
warrant certificate, dated July 3, 1996, representing the warrant in
consideration for the cancellation.
(c) Convertible Debentures
On February 6, 1998, the Company closed a private placement of up to
$10,000,000 of convertible subordinated debentures to certain institutional
investors (the "Investors") pursuant to Regulation D promulgated under the
Securities Act of 1933, as amended. The investors invested $6,000,000 on
February 6, 1998 and $4,000,000 on June 11, 1998 The terms of 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. During fiscal 2001 and fiscal
2000, through the issuance of additional common shares, the Company paid
interest in kind of $31,575 and $149,000, respectively, related to these
debentures. The remaining portion of the convertible debentures and accrued but
unpaid interest, issued in June 1998 (the "Second Closing Debentures"), was
redeemed by the Company on June29, 2001. When the Company is profitable, this
payment in kind interest is added back to net earnings in the determination of
diluted earnings per share. In years of loss, this amount in not added back as
it would be anti-dilutive. (See Note 1.)
In December of 2000, it was determined that the investor's aggregate
conversions had reached the Nasdaq exchange imposed limit of 20% of the total
outstanding shares of the Company, calculated as of the date the debentures were
originally issued. Pursuant to the terms of the debenture agreement, the Company
requested the Nasdaq to waive the 20% dilution limit to allow the remainder of
the debentures to be converted. The Nasdaq denied this request. Next, as
required by the debenture agreement, the Company placed the additional dilution
request to a vote of the shareholders. The shareholders denied the debenture
holders' request for additional dilution. Therefore, in accordance with the
terms of the debenture agreement, the Company paid a contractually defined
premium in addition to the face amount of the debentures then outstanding. The
remaining debentures were redeemed for cash on June 29, 2001. Per the terms of
the agreement, interest accrued to the date of payment was capitalized into the
face amount of the debentures outstanding and subject to the defined cash
redemption premium. The total payments to the debenture holder was $919,000 of
which approximately $114,000 represented the premium paid to redeem the
debentures in cash versus common stock. The Company expensed the premium paid as
additional interest expense during the quarter ended June 30, 2001, which is the
quarter in which the redemption took place. As of June 30, 2001 no convertible
debentures remain outstanding.
(d) Reincorporation
In June, 1998, the Company effected a change in its legal domicile from
California to Delaware by creating a Delaware corporation which was the
surviving entity of a merger with the California corporation. With this
reincorporation, the shares of the Delaware corporation have a stated par value
of $0.001 per share.
F-14
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(e) Reverse Stock Split
On April 27, 2001, the Company executed a reverse stock split, on the
basis of 1 share for 10 shares. The split was approved by the stockholders in a
special meeting on April 26, 2001 to facilitate the Company's continued listing
on the Nasdaq National Market.
(9) Employee Stock Plans
At June 30, 2001, the Company had three stock-based compensation plans,
which are described below. The Company applies Accounting Principles Board
Opinion No. 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its Stock Option Plan
and its Stock Purchase Plan. Had compensation cost for the Company's Stock
Option and Stock Purchase Plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of Statement
123, the Company's net loss and net loss per share would have been the pro forma
amounts indicated below (in thousands, except per share data):
Year ended June 30,
---------------------------------
2001 2000 1999
------- ------- -------
Net loss:
As reported.......................... $ (842) $ (9,662) $(5,626)
Pro forma............................ (1,302) (10,657) (7,087)
Net loss per share:
As reported basic.................... $ (0.33) $ (0.41) $ (0.25)
As reported diluted.................. (0.33) (0.41) (0.25)
Pro forma basic...................... (0.52) (0.46) (0.32)
Pro forma diluted.................... (0.52) (0.46) (0.32)
The above numbers have been restated to reflect the Company's 1 for 10
stock split on April 27, 2001. For purposes of computing the pro forma amounts
above, the Black-Scholes option pricing model was used. The assumptions used in
this model are disclosed for the individual plans below.
(a) Stock Option Plan
The Company has reserved 210,000 shares of common stock for issuance
under its 1988 Incentive Stock Plan (the "Plan") and 190,000 shares of common
stock for issuance under its 1998 Incentive Stock Plan. Under the Plan, the
Company may issue options to purchase shares of the Company's common stock to
eligible employees, officers, directors, independent contractors and
consultants. The term of the options issued under the Plan cannot exceed ten
years from the date of grant. Options granted to date generally become
exercisable over four to five years based on the grantees' continued service
with the Company.
On September 18, 1998 the Board of Directors of the Company approved an
adjustment to the exercise price for certain outstanding stock options held by
all current employees, which have an exercise price of $3.00 and above. In
consideration for this repricing offer, officers of the Company participating in
the option repricing were required to forfeit 10% of the shares subject to each
option being repriced, while non-officer employees participating in the option
repricing are subject to a one year limitation on the exercisability of repriced
options subject to certain exceptions. The revised exercise price was
established by reference to the closing price of the Company's Common Stock on
September 28, 1998, which was approximately $2.59. Approximately 90 employees
participated in the repricing with approximately 133,600 options being repriced.
Of the stock options repriced, options to purchase approximately 83,100 shares
were held by executive officers of the Company.
A summary of the status of the Company's Plan as of June 30, 2001, 2000
and 1999 and activity for the fiscal years then ended is presented below:
Number of Weighted Average
Shares Exercise Price Exercisable
---------- ---------------- -----------
Balance as of June 30, 1998............ 188,800 $47.60 74,900
Granted (at fair value)................ 173,100 $27.90
Exercised.............................. (2,500) $25.90
Canceled............................... (180,800) $46.60
--------
Balance as of June 30, 1999............ 178,600 $29.70 86,000
Granted (at fair value)................ 61,100 $25.80
Exercised.............................. (1,000) $25.90
Canceled............................... (35,100) $28.80
--------
Balance as of June 30, 2000............ 203,600 $28.70 102,800
Granted (at fair value)................ 165,219 $ 4.90
Canceled............................... (77,148) $21.80
--------
Balance as of June 30, 2001............ 291,671 $16.91 112,255
F-15
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted average estimated grant date fair value of options
granted during fiscal 2001, 2000, and 1999 was $4.49, $25.80, and $27.90,
respectively.
The following table summarizes information about the stock options
outstanding at June 30, 2001:
Options Outstanding
------------------------------------------------------
Options Exercisable
---------------------------------
Weighted Average
Remaining
Range of Exercise Shares Contractual Weighted Average Shares Weighted Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
--------------------- ----------- ---------------- ---------------- ----------- ----------------
$1.88-$1.88........... 88,883 9.5 years $1.88 0 0
$3.75-$11.88.......... 43,345 9.3 years 7.88 0 0
$13.75-$25.00......... 32,350 8.4 years 21.62 8,353 22.79
$25.94-$25.94......... 86,003 5.4 years 25.94 77,568 25.94
$26.56-$38.13......... 31,130 6.7 years 31.31 17,387 32.00
$38.75-$52.50......... 5,663 5.8 years 42.47 4,650 42.65
$55.00-$55.00......... 435 5.2 years 55.00 435 55.00
$65.00-$65.00......... 2,412 5.4 years 65.00 2,412 65.00
$67.50-$67.50......... 1,440 5.0 years 67.50 1,440 67.50
$86.25-$86.25......... 10 2.3 years 86.25 10 86.25
---------------------- -- --------- ----- ------- -----
Totals................ 291,671 7.7 years $16.91 112,255 $28.83
-------- --------- ----- ------- -----
The following weighted average assumptions for the Company's Stock
Option Plan were used to determine the pro forma amounts noted above:
Year ended June 30,
-----------------------
2001 2000
---- ----
Expected life........................................ 5 5
Expected volatility.................................. 121.6% 104.7%
Risk-free interest rate.............................. 5.3% 6.5%
Expected dividend yield.............................. * *
* Not applicable
(b) Employee Stock Purchase Plan
The Company initially reserved 80,000 shares of common stock for
issuance under its 1991 Employee Stock Purchase Plan ("ESPP"). In fiscal 1999,
the stockholders approved an amendment to the plan whereby the number of shares
reserved for issuance was increased to 95,000. The amendment also provides that
beginning in fiscal 2000 and each year thereafter, the amount reserved for
issuance is increased by the lesser of 15,000 shares or 1% of total outstanding
common stock.
Under the ESPP, the Company's employees may purchase, through payroll
deductions of 1% to 10% of compensation, shares of common stock at a price per
share that is the lesser of 85% of its fair market value as of the beginning or
end of the offering period. Under the ESPP, the Company sold 11,409 shares,
13,955 shares, and 12,186 shares to employees in fiscal 2001, 2000, and 1999
respectively. The weighted average fair value of those purchase rights granted
in fiscal 2001, and 2000 was $1.12 and $1.45, respectively. As of June 30, 2001,
99,168 shares had been issued under the ESPP.
The following weighted average assumptions for the Company's ESPP were
used to determine the pro forma amounts noted above:
Year ended June 30,
------------------------
2001 2000
---- ----
Expected life................................... 0.5 years 0.5 years
Expected volatility............................. 165.0% 104.7%
Risk-free interest rate......................... 5.1% 6.5%
Expected dividend yield......................... * *
* Not applicable
F-16
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(c) Other Employee Plan
In June 1992, the Company reserved 20,000 shares of common stock for
issuance to certain employees as payment under compensation agreements. As of
June 30, 2001, 1,000 shares had been issued under the plan.
(10) Income Taxes
Losses before income taxes include foreign losses before income taxes
of approximately $(1,280,000), $(4,640,000), and $11,450,000, for fiscal 2001,
2000, and 1999, respectively. During fiscal 1999, the Company forgave
approximately $6,702,000 in intercompany debt, but elected to treat the
forgiveness as an infusion of capital at the subsidiary level.
Income tax expense for the years ended June 30, 2001, 2000 and 1999
consists of the following (in thousands):
2001 2000 1999
---- ---- ----
Current:
Federal ..................... $(140) $ -- $ (325)
Foreign ..................... 123 349 473
State ....................... 26 -- 173
----- ----- -----
9 349 321
----- ----- -----
Deferred:
Federal ..................... -- -- --
Foreign ..................... -- -- --
State ....................... -- -- --
----- ----- -----
$ 9 $ 349 $ 321
====== ===== =======
For the years ended June 30, 2001, 2000, and 1999, the reconciliation
between the amounts computed by applying the United States federal statutory tax
rate of 34% to loss before income taxes and the actual tax expense follows (in
thousands):
2001 2000 1999
---- ---- ----
Income tax benefit at statutory rate ............................ (283) (3,166) (1,804)
State income tax benefit, net of federal income tax benefit ..... (37) (422) (159)
Change in beginning of year valuation allowance ................. 3,063 1,526 (215)
Losses for which no benefit is recognized (foreign loss and rate) 435 1,630 2,190
Rate differential related to foreign income and foreign tax
withholdings ................................................. 485 349 473
Amortization of other assets and other permanent differences .... (3,654) 432 326
Federal income tax benefit from net operating loss carryback .... -- -- (414)
Other ........................................................... -- -- (76)
------- ------- -------
$ 9 $ 349 $ 321
======= ======= =======
F-17
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at June 30, 2001
and 2000 were as follows (in thousands):
2001 2000
--------- --------
Accruals and reserves ....................... $ 654 $ 997
Net operating loss carryforward (federal) ... 13,728 12,241
Net operating loss carryforward (state) ..... 2,525 2,012
Net operating loss carryforward (foreign) ... 2,615 3,834
Foreign tax and research credit carryforwards 3,802 3,802
-------- --------
Total gross deferred tax assets ....... 23,324 22,886
Less valuation allowance .............. (12,865) (9,802)
-------- --------
Net deferred tax assets ............... 10,459 13,084
-------- --------
Capitalized computer software costs ......... (10,905) (12,969)
Undistributed earnings of subsidiary ........ 196
Fixed assets depreciation differences ....... 446 (311)
-------- --------
Total gross deferred liabilities ...... (10,459) (13,084)
-------- --------
Net deferred taxes .......................... $ -- $ --
======== ========
The net change in total valuation allowance for the year ended June 30,
2001, was an increase of $3,063,000. The valuation allowance has been
established to recognize the uncertainty of utilizing loss and credit carryovers
and certain deferred assets.
At June 30, 2001, the Company had net operating loss carry-forwards of
approximately $40,379,000, $14,473,000 and $7,692,000 for federal, California
and foreign tax purposes, respectively. At June 30, 2001, the Company also had
unused research and other credit carry-forwards of approximately $3,248,000 and
$554,000 for federal and California tax purposes, respectively. The loss and
research credit carry-forwards, if not utilized, will expire between fiscal 2001
and 2014.
(11) 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.
(12) Subsequent Events
As of June 30, 2001, the Company's asset based line of credit was due
to expire on October 31, 2001. On September 5, 2001, the Company renewed the
$5,000,000 maximum facility with a new maturity date of July 31, 2002.
Additional fees required by the lender in conjunction with this transaction are
$75,000. These fees will be expensed ratably over the term of the new loan
facility.
During August, 2001, the company established a subsidiary in New
Zealand as a base for the Company's offshore development activities. The
subsidiary is named Ross Systems Auckland, Limited.
(13) Supplemental Cash Flow Information
Supplemental cash flow information for the years ended June 30, 2001,
2000, and 1999 follows (in thousands):
2001 2000 1999
------ ------ ------
Cash payments:
Interest ............................................................... $1,228 $1,327 $1,289
Income taxes ........................................................... $ 75 $ 245 $ 686
Non-cash investing and financing activities:
Acquisition of equipment under capital lease obligations ............... -- -- --
Conversion of convertible debentures into stock (non-cash transaction) . $1,177 $1,248 $2,795
Issuance of stock in settlement of litigation .......................... -- -- --
Issuance of stock for product/business acquisitions .................... -- $2,067
F-18
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(14) Selected Unaudited Quarterly Information (In thousands, except per
share data)
June 30 March 31 Dec. 31 Sept. 30
2001 2001 2000 2000
---- ---- ---- ----
Fiscal year 2001
Total net revenues $ 11,254 $ 11,494 $ 12,598 $ 14,152
Cost of sales 433 352 325 483
Income (Loss) before extraordinary items 399 2787 167 (4,195)
Net income 399 2787 167 (4,195)
Non-recurring costs -- -- -- 790
Earnings per share before extraordinary items 0.15 1.09 0.07 (1.74)
Earnings per share 0.15 1.09 0.07 (1.74)
Number of shares used in per share computation 2,662 2,566 2,569 2,412
June 30 March 31 Dec. 31 Sept. 30
2001 2001 2000 2000
---- ---- ---- ----
Fiscal year 2000
Total net revenues $ 16,421 $ 18,477 $ 21,842 $ 23,263
Cost of sales 811 759 781 1,001
Income (Loss) before extraordinary items (5,080) (3,853) (1,073) 346
Net income (5,080) (3,853) (1,073) 346
Non-recurring costs -- 1,145 -- --
Earnings per share before extraordinary items (2.16) (1.65) (0.46) 0.15
Earnings per share (2.16) (1.65) (0.46) 0.15
Number of shares used in per share computation 2,348 2,342 2,334 2,353
F-19
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SCHEDULE II
ROSS SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
-----------------------
Balance at Charged to Charged
Beginning costs and to other Balance at
Description of period expenses accounts Deductions(1) End of period
----------- --------- --------- -------- ------------ -------------
Year ended June 30, 2001 allowance for
doubtful accounts and returns.......... $3,571 $1,514 $-- $2,155 $2,930
------ ------ --- ------ ------
Year ended June 30, 2000 allowance for
doubtful accounts and returns.......... $2,884 $4,645 $-- $3,958 $3,571
------ ------ --- ------ ------
Year ended June 30, 1999 allowance for
doubtful accounts and returns.......... $1,974 $2,421 $-- $1,511 $2,884
------ ------ --- ------ ------
--------------
(1) Represents net charge-off of specific receivables.
S-1