UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 2002,
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-19092
ROSS SYSTEMS, INC.
------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2170198
------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification Number
Two Concourse Parkway,
Suite 800, Atlanta, Georgia 30328
----------------------------------------- -----------
(Address of principal executive offices) (Zip code)
(770) 351-9600
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Outstanding
Class October 30, 2002
------------------------------ ----------------
Common stock, $0.001 par value 2,645,726
Preferred stock, no par value 500,000
================================================================================
1
ROSS SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
--------------------------------
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................................................3
Condensed Consolidated Balance Sheets - September 30, 2002 and June 30, 2001....................3
Condensed Consolidated Statements of Operations - Three months ended
September 30, 2002 and 20014
Condensed Consolidated Statements of Cash Flows - Three months ended
September 30, 2002 and 20015
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................18
Item 4. Evaluation of Disclosure Controls and Internal Controls........................................20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................................................21
SIGNATURE................................................................................................... 23
This Quarterly Report on Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 2, contains
forward-looking statements that involve risks and uncertainties, as well as
assumptions that, if they never materialize or prove incorrect, could cause the
results of Ross Systems to differ materially from those expressed or implied by
such forward-looking statements. All statements other than statements of
historical fact are statements that could be deemed forward-looking statements,
including any projections of earnings, revenue, synergies, accretion, margins or
other financial items; any statements of the plans, strategies and objectives of
management for future operations, including the execution of integration and
restructuring plans; any statement concerning proposed new products, services,
developments or industry rankings; any statements regarding future economic
conditions or performance; any statements of belief; and any statements of
assumptions underlying any of the foregoing. The risks, uncertainties and
assumptions referred to above include the performance of contracts by customers
and partners; employee management issues; the challenge of managing asset
levels; the difficulty of aligning expense levels with revenue changes; and
other risks that are described herein and that are otherwise described from time
to time in Ross Systems' Securities and Exchange Commission reports. Ross
Systems assumes no obligation and does not intend to update these
forward-looking statements.
2
ROSS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share related data)
September 30, June 30,
2002 2002
ASSETS (unaudited) (audited)
------ ----------- ---------
Current assets:
Cash and cash equivalents $ 4,588 $ 5,438
Accounts receivable, less allowance 10,851 12,319
for doubtful accounts
Prepaid and other current assets 1,142 1,282
Note receivable from related party 850 850
-------- --------
Total current assets 17,431 19,889
Property and equipment, net 1,449 1,450
Computer software costs, net 14,010 14,036
Other assets 2,227 2,243
-------- --------
Total assets $ 35,117 $ 37,618
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of debt $ 3,207 $ 3,967
Accounts payable 2,361 2,682
Accrued expenses 4,231 4,476
Income taxes payable 40 15
Deferred revenues 10,647 12,535
-------- --------
Total current liabilities 20,486 23,675
-------- --------
Shareholders' equity:
Common stock, $.001 par value; 35,000,000 shares authorized, 2,645,726 26 26
and 2,625,378 shares issued and outstanding at September 30, 2002 and
June 30, 2002, respectively
Preferred Stock, no par value; 5,000,000 authorized, 500,000 shares 2,000 2,000
outstanding
Additional paid-in capital 87,240 87,133
Accumulated deficit (72,849) (73,450)
Accumulated comprehensive deficit (1,786) (1,766)
-------- --------
Total shareholders' equity 14,631 13,943
-------- --------
Total liabilities and shareholders' equity $ 35,117 $ 37,618
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended
September 30,
(unaudited)
2002 2001
---- ----
Revenues:
Software product licenses $ 3,733 $ 3,180
Consulting and other services 2,515 2,763
Maintenance 4,923 5,222
Reimbursable expenses 255 165
-------- --------
Total revenues 11,426 11,330
-------- --------
Operating expenses:
Costs of software product licenses 346 396
Costs of consulting, maintenance and other services 4,401 4,084
Software product license sales and marketing 2,422 1,984
Product development net of capitalized and amortized
computer software costs 1,801 2,439
General and administrative 1,361 1,378
Provision for uncollectable accounts 272 285
-------- --------
Total operating expenses 10,603 10,566
-------- --------
Operating earnings 823 764
Other expenses, net (94) (124)
Income tax expense (90) (188)
-------- --------
Net earnings 639 452
Preferred stock dividend (38) (38)
-------- --------
Net profit available to common shareholders $ 601 $ 414
======== ========
Net earnings per common share - basic $ 0.23 $ 0.16
======== ========
Net earnings per common share - diluted $ 0.20 $ 0.14
======== ========
Shares used in per share computation - basic 2,646 2,585
======== ========
Shares used in per share computation - diluted 3,267 3,126
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Three months ended
September 30,
-------------
2002 2001
---- ----
Cash flows from operating activities:
Net earnings $ 639 $ 452
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization of property and equipment 206 238
Amortization of computer software costs 1,186 1,709
Provision for uncollectable accounts 272 285
Changes in operating assets and liabilities:
Accounts receivable 1,209 (598)
Prepaids and other current assets 141 53
Income taxes payable 25 32
Accounts payable (318) (1,635)
Accrued expenses (281) (620)
Deferred revenues (1,870) (1,702)
------- -------
Net cash provided by operating activities 1,209 (1,786)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (205) (63)
Computer software costs capitalized (1,160) (974)
Other 16 45
------- -------
Net cash used in investing activities (1,349) (992)
------- -------
Cash flows from financing activities:
Net cash paid on line of credit (760) (319)
Proceeds from issuance of common stock 107 42
------- -------
Net cash used in financing activities (653) (277)
------- -------
Effect of exchange rate changes on cash (57) 109
------- -------
Net decrease in cash and cash equivalents (850) (2,946)
Cash and cash equivalents at beginning of period 5,438 5,716
------- -------
Cash and cash equivalents at end of period $ 4,588 $ 2,770
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
ROSS SYSTEMS, INC. AND SUBSIDIARIES
1) BUSINESS OF THE COMPANY & BASIS OF PRESENTATION
Ross Systems Inc. (NASDAQ:ROSS) founded in 1972, supplies leading
enterprise solutions software designed for process manufacturing companies
primarily in the food and beverage, life sciences, chemicals, metals and natural
products industries. The Company offers the award-winning iRenaissance(TM)
family of software solutions which is an integrated suite of enterprise resource
planning (ERP II), financials, materials management, manufacturing and
distribution, supply chain management (SCM), advanced planning and scheduling,
customer relationship management (CRM), electronic commerce, business
intelligence and analytics applications. 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.
The accompanying unaudited condensed consolidated financial statements of
Ross Systems, Inc reflect all adjustments of a normal recurring nature which
are, in the opinion of management, necessary to present a fair statement of its
financial position as of September 30, 2002, and the results of its operations
and cash flows for the interim periods presented. The Company's results of
operations for the three months ended September 30, 2002 are not necessarily
indicative of the results to be expected for the full year.
These unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and, therefore,
certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in the Company's Annual Report to Stockholders on Form 10-K for the
fiscal year ended June 30, 2002 which was filed with the Securities and Exchange
Commission during September 2002.
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
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
It is the Company's policy to reclassify prior year amounts to conform with
the current year presentation when necessary.
2) PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter-company balances and
transactions have been eliminated.
3) CAPITALIZED COMPUTER SOFTWARE COSTS AND OTHER ASSETS
It is the Company's policy to follow paragraph 8 of SFAS 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" in
the computation of annual amortization expense of software costs. The 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
7
ROSS SYSTEMS, INC. AND SUBSIDIARIES
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).
The other assets described in Note 5 are amortized using the straight-line
method over their estimated useful lives. 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 non-discounted cash flows related to the acquired entities or products.
Impairment of value, if any, is recognized in the period it is determined. The
Company reviews the carrying value of goodwill in accordance with Financial
Accounting Standards No. 142, Goodwill and Other Tangible Assets. (See Note 10
below). There was no impairment of these assets during the first quarter of
fiscal 2002.
4) PROPERTY AND EQUIPMENT
As of the dates shown, property and equipment consisted of the following
(in thousands):
September 30, June 30,
2002 2002
---- ----
Computer equipment $ 5,963 5,691
Furniture and fixtures 1,153 1,143
Leasehold improvements 1,376 1,508
------- -------
8,492 8,342
Less accumulated depreciation and amortization (7,043) (6,892)
------- -------
$ 1,449 $ 1,450
======= =======
7
ROSS SYSTEMS, INC. AND SUBSIDIARIES
5) OTHER ASSETS
Other assets is primarily comprised of Goodwill. As of September 30, 2002,
Goodwill consisted of the following (in thousands):
Accumulated
Asset Value Amortization Net Value
----------- ------------ ---------
Excess of purchase price over tangible asset value of
acquired software services companies $ 4,414 $(2,233) $ 2,181
======= ======= =======
The Company does not consider these assets to be impaired at either September
30, 2002 or as of the filing date of this report on form 10-Q. In accordance
with the provisions of Statement on Financial Accounting Standard No. 142,
"Goodwill and Other Intangible Assets", the Company does not intend to record
any future amortization of these assets. (See Note 10)
6) SOFTWARE 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 "up-front" provided that a non-cancelable license
agreement has been signed, the software and related documentation have been
shipped, there 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, and
future unspecified enhancements to the Company's products, 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).
Prior to January 1, 2002, the Company recorded reimbursement by its
customers for out-of-pocket expenses as a decrease to cost of services. The
Company's results of operations for the first quarter of fiscal year 2002 have
been reclassified for comparable purposes in accordance with the Emerging Issues
Task Force release 01-14, "Income Statement Characterization of Reimbursements
Received for Out of Pocket Expenses Incurred". The effect of this
reclassification was to increase both services revenues and cost of services by
$165,000 for the first quarter of fiscal year 2002.
7) COMPREHENSIVE INCOME
Total non-stockholder changes in equity include all changes in equity
during a period except those resulting from investments by and distributions to
stockholders. The components of comprehensive income for the three-month periods
ended September 30, 2002 and 2001 were as follows (in thousands):
8
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Three months ended
September 30,
2002 2001
---- ----
Net earnings $ 639 $ 452
Foreign currency translation adjustments (20) 125
----- -----
Total comprehensive income $ 619 $ 577
===== =====
8) NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Basic earnings per common share are computed by dividing net earnings
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per common share is computed in
a manner consistent with that of basic earnings per share while giving effect to
all potentially dilutive common shares that were outstanding during the period.
The following is a reconciliation of the numerators of diluted earnings per
share, (in thousands):
Three months ended
September 30,
2002 2001
---- ----
Net earnings - basic $601 $414
Interest on convertible securities 38 38
--- ----
Net earnings - diluted $639 $452
==== ====
The following is a reconciliation of the denominators of diluted earnings
per share, (in thousands):
Three months ended
September 30,
2002 2001
---- ----
Weighted average shares outstanding - basic 2,646 2,585
Conversion of preferred stock 500 500
"In the money" stock options, warrants and
contingent securities 121 41
----- -----
Weighted average shares outstanding - diluted 3,267 3,126
===== =====
In periods when the Company is profitable, the only difference between the
denominator for basic and diluted net earnings per share is the effect of
potentially dilutive common shares. In periods of a loss, the denominator does
not change because it would be antidilutive.
9) CAPITAL STOCK
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
10
ROSS SYSTEMS, INC. AND SUBSIDIARIES
further vote or action by the shareholders. All preferred stock was issued with
a mandatory conversion factor.
On June 29, 2001, the Company issued 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 be converted at $4.00 per share
after June 29, 2002 but before June 29, 2006, on a one for one basis. 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.
10) 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.
Goodwill attributable to each of the Companies reporting units was tested for
impairment by comparing the fair value of each of the reporting units with its
carrying value. The fair values of these reporting units were determined using a
combination of discounted cash flow analysis and market multiples based on
historical and projected financial information. The initial phase of the
impairment tests were performed within six months of adoption of SFAS 142 or
December 31, 2001, and are required at least annually thereafter. On an ongoing
basis (absent of any impairment indicators), we expect to perform our impairment
tests during the June quarter, in connection with our annual planning process.
In June 2001, the Financial Accounting Standards Board approved the
issuance of Statements of Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations." SFAS 143 establishes accounting standards for
the recognition and measurement of legal obligations associated with the
retirement of tangible long-lived assets and requires recognition of a liability
for an asset retirement obligation in the period in which it is incurred. The
provisions of this statement are effective for financial statements issued for
fiscal years beginning after June 15, 2002. The adoption of SFAS 143 will not
have a current impact on the Company's consolidated financial statements.
In October 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting for the
impairment or disposal of long-lived assets. The provisions of this statement
are effective for financial statements issued for fiscal years beginning after
December 15, 2001. The adoption of SFAS 144 will not have a current impact on
the Company's consolidated financial statements.
In April 2002, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 145, "Rescission of SFAS No. 4, 44, 64,
Amendment of SFAS No. 13, and Technical Corrections." SFAS 4, which was amended
by SFAS 64, required all gains and losses from the extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net of related
income tax effect. As a result, the criteria in Opinion 30 will now be used to
classify those gains and losses. SFAS 13 was amended to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. The adoption of SFAS
145 will not have a current impact on the Company's consolidated financial
statements.
In July 2002, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 146,
10
ROSS SYSTEMS, INC. AND SUBSIDIARIES
"Accounting for Costs Associated with Exit or Disposal Activities." Generally,
SFAS 146 provides that defined exit costs (including restructuring and employee
termination costs) are to be recorded on an incurred basis rather than on a
commitment basis as is presently required. SFAS 146 is effective for exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS 146
will not have a current impact on the Company's consolidated financial
statements.
11) GEOGRAPHIC 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.
For management purposes, the results of the Austral-Asian operations are
included in the North American results since the costs associated with managing
that 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 quarter ended September 30, 2002:
Net Income Depreciation Capital
Total Assets Revenue (Loss) and Amortization Expenditures
------------ ------- ------ ---------------- ------------
Belgium ...... $ 886 $ 333 $ 48 $ 2 $ --
Netherlands .. 1,116 606 (6) 12 --
Germany ...... 131 42 (9) -- --
Spain ........ 4,908 1,249 121 76 48
United Kingdom 3,203 1,390 113 11 37
North America 24,873 7,806 372 1,291 120
------- ------- ------- ------- -------
Total ........ $35,117 $11,426 $ 639 $ 1,392 $ 205
======= ======= ======= ======= =======
As of and for the quarter ended September 30, 2001:
Net Income Depreciation Capital
Total Assets Revenue (Loss) and Amortization Expenditures
------------ ------- ------ ---------------- ------------
Belgium ...... $ 351 $ 204 $ (41) $ 6 $ 7
Netherlands .. 1,090 825 219 9 1
Germany ...... 223 118 (5) 1 2
Spain ........ 2,800 1,323 448 60 6
United Kingdom 2,415 1,381 110 21 1
North America 39,944 7,479 (279) 1,850 46
------- ------- ------- ------- -------
Total ........ $46,823 $11,330 $ 452 $ 1,947 $ 63
11
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
Consolidated Condensed Financial Statements and the related notes that appear
elsewhere in this document.
Overview
Variability of Quarterly Results
The Company's software product license revenues can fluctuate from quarter
to quarter depending upon, among other things, such factors as overall trends in
the United States and international economies, new product introductions by the
Company, and customer buying patterns. Because the Company typically ships
software products within a short period after orders are received, and therefore
maintains a relatively small backlog, any weakening in customer demand can have
an almost immediate adverse impact on revenues and operating results. Moreover,
a substantial portion of the revenues for each quarter is attributable to a
limited number of sales and tends to be realized in the latter part of the
quarter. Thus, even short delays or deferrals of sales near the end of a quarter
can cause substantial fluctuations in quarterly revenues and operating results.
Finally, certain agreements signed during a quarter may not meet the Company's
revenue recognition criteria resulting in deferral of such revenue to future
periods. Because the Company's operating expenses are based on anticipated
revenue levels and a high percentage of the Company's expenses are relatively
fixed, a small variation in the timing of the recognition of specific revenues
can cause significant variation in operating results from quarter to quarter.
Business Summary
Description of Business
The Company markets a broad range of sophisticated business applications
that address B2B electronic commerce including collaborative planning,
financial, manufacturing, distribution, supply chain management, and human
resource needs of process manufacturers. Specifically, these applications are
designed to address the unique requirements of manufacturers in the food and
beverage, life sciences, chemicals, metals and natural products 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.
More than 1,000 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 10 offices
globally, to serve its customers. Customers are primarily medium-sized companies
(with annual sales of $50 million to $1 billion) upgrading internal systems to
improve profitability through the availability of timely and accurate
information, ensure compliance with regulatory requirements such as those
imposed by the FDA and USDA, and to collaborate effectively with customer and
suppliers.
The Company licenses its products to customers through a direct sales force
in North America and Western Europe as well as independent distributors in
dozens of other markets worldwide.
The Company supplies leading enterprise solutions software designed for
process manufacturing companies primarily in the food and beverage, life
sciences, chemicals, metals and natural products industries. The Company offers
the award-winning iRenaissance(TM) family of software solutions which is an
integrated
12
ROSS SYSTEMS, INC. AND SUBSIDIARIES
suite of enterprise resource planning (ERP II), financials, materials
management, manufacturing and distribution, supply chain management (SCM),
advanced planning and scheduling, customer relationship management (CRM),
electronic commerce, business intelligence and analytics applications.
iRenaissance applications are renowned for their deep and rich functional
fit to process industry requirements as well as their short implementation times
and cost-effective returns on investment.
The Company leverages contemporary Internet technologies to enable
significant benefits for its customers. Many Ross customers have benefited from
technology obsolescence protection as they have moved from older computing
platforms to current platforms by upgrading to new releases. Built on a highly
flexible technology platform, iRenaissance applications cost-effectively support
mid-size companies and scale effectively to support large, global organizations
with thousands of users processing hundreds of thousands of transactions daily.
Ross customers also benefit from the low cost of deployment and centralized
maintenance afforded by browser-based PC clients that provide secure access from
any PC with Internet access, to the system infrastructure at central locations
where the software resides and the data is managed. End-user satisfaction is
enhanced by highly configurable and easily personalized applications that
provide follow-me profiles for each user, regardless of physical location.
Utilizing contemporary standards such as XML, SOAP, Microsoft .NET and others,
iRenaissance applications can be effectively connected to any other applications
or devices via the Internet. Robust security features that leverage Internet
standards protect applications and data with both user-based and application
function profiles. The security facilities further enable companies in their
effort to achieve regulatory compliance by providing detailed audit trails for
every action taken by every user.
Because the Company's iRenaissance financial, manufacturing and
distribution applications were developed with the GEMBASE fourth generation
language ("4GL"), the Company believes they are easily modified and expanded.
GEMBASE is a programming environment that delivers a central data dictionary,
complete screen painting, editing and debugging capabilities, and links to
several popular RDBMSs. GEMBASE itself is written in the C programming language
to facilitate portability across multiple hardware and RDBMS platforms. Because
the iRenaissance financial, manufacturing and distribution products were
developed in GEMBASE, customers often find it easy to customize their own
applications.
Results of Operations
Revenues
Total revenues for the quarter ended September 30, 2002 of $11,426,000 were
virtually unchanged from $11,330,000 in the same quarter of fiscal 2002.
Software product license revenues were $3,733,000 during the quarter ended
September 30, 2002, an increase of $553,000, or 17%, from the same quarter in
fiscal 2002. The Company experienced an increase over the same quarter of fiscal
2002 in the North American market of approximately $935,000, or 98%. This North
American increase was primarily due to the closing of several software license
sales contracts which had been in the sales pipeline for several months. In
addition, the improving license revenue trend is a result of an increased
visibility of the Company in the North American process software ERP market
space arising from effective marketing activities over the fiscal year ended
June 30, 2002. The Company's sales in the European markets were virtually
unchanged, with a net decrease of $76,000, or 6% over the same quarter in fiscal
2002 Product license sales in the Asian and Pacific rim region decreased by
$306,000 to $678,000 during the quarter ended September 30, 2002, from $984,000
in the same quarter of fiscal 2002. This primarily reflects the fact that with
the Company's principal distributor in the Japanese market, sales which
historically have been concentrated in the first quarter, have taken place more
frequently in the nine months prior to the current quarter, and have thus been
spread over the Company's quarterly periods. Overall sales with this distributor
have not diminished, but the volume occurring in the first quarter has
decreased.
13
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Consulting and other services revenues for the first quarter of fiscal 2002
decreased 9% to $2,515,000 from $2,763,000 in the same quarter of fiscal 2002.
Revenues from consulting and other services (which are typically recognized as
performed) are generally correlated with software product license revenues
(which are typically recognized upon delivery), therefore, service revenues
fluctuate based upon related fluctuations in software product revenue. For the
quarter ended September 30, 2002, North American services revenues increased 17%
at $1,604,000 compared to $1,368,000 over the same quarter in the prior year.
This primarily reflects new services work arising from the growth in software
sales over the last fiscal year. International services revenues decreased
$484,000, or 35% over the same quarter in the prior year. This decrease is
mainly due to the absence of Euro dollar implementation work in the current
quarter compared to the same quarter in the prior year.
Maintenance revenues for the first quarter decreased by $299,000 or 6% in
the first quarter of fiscal 2002 versus the same quarter in the prior year. This
is attributable mainly to new maintenance contract additions from prior year
software license sales occurring at a lower rate than retirements in North
America. The increase of $326,000 or 26% in International maintenance revenues
is attributable mainly to the negotiation of new maintenance contracts,
including back-maintenance provisions, for contracts which had previously
cancelled but have been reinstated on the Euro compliant version of the product.
Maintenance contracts sold by third party distributors are included by the
Company in software product license revenues because the Company has no support
obligations to any of the distributors' customers.
International revenues as a percentage of total revenues for the first
quarter of fiscal 2002 decreased to 39% in fiscal 2002 from 44% for the same
quarter in fiscal 2002. International revenues decreased $545,000 or 11% over
the same quarter in the prior year. This decrease was due to lower software
license revenues and lower services revenues in the first quarter of fiscal 2003
as compared to the same quarter in the prior year.
North American revenues comprised 61% of the first quarter 2002 total
revenues, up from 56% in the same quarter of the prior year. North American
revenues increased 29% over the same quarter of the previous fiscal year. This
increase was due to the steady growth software revenues combined with a
commensurate increase in services revenues.
Operating Expenses
Costs of software product licenses include expenses primarily related to
royalties paid to third parties. Third party royalty expenses will vary from
quarter to quarter based on the number of third party products being sold by the
Company. Major third party products sold by the Company include Oracle databases
and other optional software including reporting, and productivity tools. Costs
of software product licenses for the first quarter of fiscal 2002 decreased by
13% to $346,000 from $396,000 in the first quarter of fiscal 2002. As a
percentage of software product license revenue, the costs of software product
licenses decreased to 9% in the third quarter of fiscal 2002 compared to 12% in
the same quarter of fiscal 2002. The decrease in costs for software product
licenses for the quarter was primarily due to the decline in the proportion of
third party products in total software sales sold in fiscal 2002 compared to the
prior year. This relative decline in third party content in sales reflects the
particular mix of sales in the quarter and is not related to any specific trend
in software sales generally.
Costs of consulting and other services include expenses related to
consulting and training personnel, personnel providing customer support pursuant
to maintenance agreements, and other related costs of sales. The Company also
uses outside consultants to supplement Company personnel in meeting peak
customer consulting demands.
Certain expenses previously reflected as sales and marketing have been
reclassified as costs of consulting, maintenance and other services for the
quarter ended September 30, 2001. This reclassification of expenses arose out of
the requirement to match a change in the presentation of costs in the current
period. Historically, the European subsidiaries have been predominantly sales
offices and as such the majority of their operating costs have been reflected in
sales and marketing in the Condensed Consolidated Statements of Operations.
However as a result of a recent material growth in the services and support
functions at the European subsidiaries, and in the interests of a more
appropriate portrayal of the functional activities of the Company, certain costs
are no longer classified as sales and marketing, and are now classified as
consulting, maintenance, and other services.
Certain expenses previously reflected as sales and marketing have been
reclassified as costs of consulting, maintenance and other services for the
quarter ended September 30, 2001. This reclassification of expenses arose out of
14
ROSS SYSTEMS, INC. AND SUBSIDIARIES
the necessity to match a change in the presentation of costs in the current
period. Historically, the European subsidiaries have been predominantly sales
offices and, as such, the majority of their operating costs have been reflected
in sales and marketing in the Condensed Consolidated Statements of Operations.
During the first quarter of FY2003, the Company undertook a specific and
detailed review of the cost structures of our European subsidiaries in light of
the change in sales mix and employee base over time. It was determined that many
of the costs, including salary and social costs of the employees, travel and
entertainment expenses and certain allocable common infrastructure costs which
relate to consulting and support activity were being grouped with sales and
marketing costs. The change between sales and marketing versus consulting arose
due to the maturity of the European operations and the manner in which the
operations have evolved over the last several reported accounting periods. While
the allocation of costs requires judgment, and while our employees perform
multiple tasks based upon the then current needs of the organization, management
believes that this reclassification of costs is necessary to provide the most
accurate view of the efforts expended by the European subsidiaries over the
periods reported. Therefore for current quarter, and the comparative quarter in
the prior fiscal year, the expenses named above which relate to consulting and
support services, have been reclassified from sales and marketing, and are now
classified as consulting, maintenance, and other services.
A corresponding reclassification of costs in the prior year figures has
been effected as shown in the table below:
--------------------------------------------- -----------------------------------------------------------------------
Three months ended
--------------------------------------------- -----------------------------------------------------------------------
Costs of consulting, maintenance and other Sept. 30, 2001 Dec. 31, 2001 Mar. 31, 2002 June 30, 2002
services
--------------------------------------------- ----------------- ----------------- ----------------- -----------------
As previously reported $ 2,057 $ 2,516 $ 2,572 $ 2,619
--------------------------------------------- ----------------- ----------------- ----------------- -----------------
As currently reported with reclassification $ 4,084 $ 5,489 $ 4,470 $ 4,789
--------------------------------------------- ----------------- ----------------- ----------------- -----------------
Software product license sales and marketing
--------------------------------------------- ----------------- ----------------- ----------------- -----------------
As previously reported $ 3,437 $ 3,505 $ 3,537 $ 3,867
--------------------------------------------- ----------------- ----------------- ----------------- -----------------
As currently reported with reclassification $ 1,984 $ 2,169 $ 2,379 $ 2,361
--------------------------------------------- ----------------- ----------------- ----------------- -----------------
Costs of consulting and other services increased by 8% to $4,401,000 in the
first quarter of fiscal 2002, as compared to $4,084,000 in the first quarter of
fiscal 2001. The increase in these costs for the quarter relates to the
Company's a higher volume of costs which are recoverable from customers and a
higher content of outside consultants utilized in Europe for localized software
maintenance, when compared to the costs of the same quarter in the prior year.
As a result of the higher cost levels, the Company's operating margin resulting
from consulting, maintenance and other services revenues for the first quarter
of fiscal 2002 was 43%, down from 50% in the same quarter of fiscal 2001.
Sales and marketing expenses of $2,422,000 for the quarter ended September
30, 2002 reflected an increase of 22% when compared to $1,984,000 in the first
quarter of fiscal 2002. This increase indicates the higher levels of sales
personnel in Europe, additional marketing staff in North America, and higher
North American sales commissions due to the higher sales levels in the first
quarter of fiscal 2003 compared to the same quarter in the prior year.
15
ROSS SYSTEMS, INC. AND SUBSIDIARIES
An amount of $318,000 previously reflected as product development expenses
has been reclassified as costs of consulting, maintenance and other services for
the quarter ended September 30, 2001. This reclassification of expenses arose
out of the necessity to match a change in the presentation of costs in the
current period. Certain personnel related expenses incurred in support of
customer specific activity have historically been reflected in product
development expenses. However, due to the increasing materiality of these
expenses, they are now more appropriately classified as consulting, maintenance
and other services expenses.
Product development (research and development) expenses of $1,801,000 in
the first quarter of fiscal 2002 were down from $2,439,000 in the same quarter
of the prior year. The following table summarizes product development
expenditures (in thousands):
Three months ended
------------------
September 30,
2002 2001
---- ----
Gross Expenditures for Product Development..................................... $ 1,775 $ 1,704
Less: Expenses capitalized..................................................... (1,160) (974)
Plus: Amortization of previously capitalized amounts........................... 1,186 1,709
------- -------
Total Product Development Expenses............................................. $ 1,801 $ 2,439
======= =======
As a percentage of total revenues, product development expenses for the
three-month period ended September 30, 2002 decreased over the expense in the
same period of the prior year as a result of the lower amortization of
previously capitalized expenses. Amortization expense is now lower by 31% due to
a charge for impairment of unamortized software effected in the quarter ended
June 30, 2002. Product development expenditures increased marginally by 7% to
$1,831,000 in the quarter ended September 30, 2002 from $1,704,000 in the same
quarter in the prior year. General and administrative expenses for the quarter
ended September 30, 2002 decreased by 1%, to $1,361,000 from $1,378,000 in the
same quarter of the prior year. This decrease was due to minor savings in
several expense categories.
In the three month period ended September 30, 2002, the Company recorded a
provision for doubtful accounts of $272,000, as compared to $285,000 recorded in
the first quarter of fiscal 2002. The fiscal 2003 and 2002 provisions consisted
primarily of specific customer accounts identified as being potentially
uncollectable. These provisions represent management's best estimate of the
doubtful accounts for each period.
Other Expense, Net
Other expense for the quarter ended September 30, 2002 was $94,000 as
compared to $124,000, in the same quarter of fiscal 2002. These amounts
primarily consisted of interest expense related to borrowings under the
Company's existing line of credit facility, and the reduction reflects the lower
levels of the Company's indebtedness.
Income Tax Expense
During the first quarter of fiscal 2002, the Company recorded an income tax
expense of $90,000 compared with $188,000 recorded during the same quarter in
fiscal 2002. The fiscal 2002 tax expense relates primarily to withholding taxes
in certain foreign jurisdictions where the Company had either no available net
operating losses or had to pay treaty-based taxes. The reduction was due to a
lower level of excise tax payments in Japan due to reduces sales volume in that
territory.
16
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
In the first three months of fiscal 2002, net cash provided by operating
activities increased $2,995,000 compared to the same period of the prior year.
This included an aggregate net decrease in the non-cash charges for
depreciation, amortization and provisions for bad debt of $568,000 and an
aggregate increase in the combined cash use of prepaids and other current
assets, taxes payable, accrued expenses, accounts payable and deferred revenues
of $1,569,000. In addition, source of cash increased by $1,807,000 in accounts
receivable in the three months ended September 30, 2002 as compared to the same
period in fiscal 2002. This net cash increase was enhanced by cash provided by
an increase of Company earnings of $187,000 in the first three months of fiscal
2002 as compared to the first three months of fiscal 2002.
In the first three months of fiscal 2002, the Company utilized $1,349,000
for investing activities versus $992,000 over the same period of the prior year,
an increase of $357,000. Investment in property and equipment was up $142,000 to
$205,000 in the first three months of fiscal 2002, from $63,000 in same period
in the prior year. Investments in capitalized computer software costs increased
by $186,000.
Net cash flows used for financing activities increased by $376,000 for the
three months ended September 30, 2002, versus the same three month period of the
prior fiscal year. Cash decreased during the three months ended September 30,
2002 by repayments of $760,000 under the Company's lines of credit, $441,000
higher than the repayments in the same quarter of the prior year. Proceeds from
the issue of shares to employees under the Employee Stock Purchase Plan, and the
exercise of options by employees, amounted to $107,000 in the quarter ended
September 30, 2002, an increase of $65,000 over the same quarter in the prior
year.
At September 30, 2002 the Company had $4,588,000 of cash and cash
equivalents. The Company also has a revolving credit facility with an
asset-based lender with a maximum credit line for up to $5,000,000, an
expiration date of September 23, 2004, and an interest rate equal to the Prime
Rate plus 2% (approximately 6.75% at September 30, 2002). Borrowings under the
credit facility are collateralized by substantially all the assets of the
Company. At September 30, 2002, the Company had $2,428,000 outstanding against
the $5,000,000 revolving credit facility, and based on eligible accounts
receivable at September 30, 2002, the Company's cash and remaining borrowing
capacity under the revolving credit facility totaled approximately $4,600,000,
higher by $1,574,000 compared to $3,026,000 at September 30, 2001.
17
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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.
Foreign Exchange: The company has a world-wide presence and as such
maintains offices and derives revenues from sources overseas. For the first
quarter of fiscal 2002, international revenues as a percentage of total revenues
were approximately 39%. The Company's international business is subject to
typical risks of an international business, including, but not limited to:
differing economic conditions, changes in political climates, differing tax
structures, other regulations and restrictions, and foreign exchange rate
volatility. Accordingly, the Company's future results could be materially
adversely impacted by changes in these or other factors. The effect of foreign
exchange rate fluctuations on the Company in the first three months of fiscal
2002 was not material.
Interest Rates: The Company's exposure to interest rates relates primarily
to the Company's cash equivalents and certain debt obligations. The Company
invests in financial instruments with original maturities of three months or
less. Any interest earned on these investments is recorded as interest income on
the Company's statement of operations. Because of the short maturity of our
investments, a near-term change in interest rates would not materially effect
our financial position, results of operations, or cash flows. Certain of the
Company's debt obligations include a variable rate of interest. A significant,
near term change in interest rates could materially effect our financial
position, results of operations or cash flows.
The Company did not engage in any derivative/hedging transactions.
License revenues: 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, 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.
Economic slowdown: 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.
Competition: 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
18
ROSS SYSTEMS, INC. AND SUBSIDIARIES
previously, our
failure to compete successfully against those remaining could harm our business
operating results and financial condition.
Stock price: Our stock price, like that of other technology companies, is
subject to volatility because of factors such as the announcement of new
products, services or technological innovations by us or our competitors,
quarterly variations in our operating results, and speculation in the press or
investment community. In addition, our stock price is affected by general
economic and market conditions and may be negatively affected by unfavorable
global economic conditions.
Intellectual property: Our business may suffer if we cannot protect our
intellectual property. We generally rely upon copyright, trademark and trade
secret laws and contract rights in the United States and in other countries to
establish and maintain our proprietary rights in our technology and products.
However, there can be no assurance that any of our proprietary rights will not
be challenged, invalidated or circumvented. In addition, the laws of certain
countries do not protect our proprietary rights to the same extent as do the
laws of the United States. Therefore, there can be no assurance that we will be
able to adequately protect our proprietary technology against unauthorized
third-party copying or use, which could adversely affect our competitive
position. Further, there can be no assurance that we will be able to obtain
licenses to any technology that we may require to conduct our business or that,
if obtainable, such technology can be licensed at a reasonable cost.
Litigation: In the ordinary course of business, we may become involved in
litigation and administrative proceedings. Such matters can be time-consuming,
divert management's attention and resources and cause us to incur significant
expenses. Furthermore, there can be no assurance that the results of any of
these actions will not have a material adverse effect on our business, results
of operations or financial condition.
Key Personnel: 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, our ability to compete may be adversely affected.
19
ROSS SYSTEMS, INC. AND SUBSIDIARIES
Item 4. Evaluation of Disclosure Controls and Internal Controls
Part I
Within 90 days prior to the filing date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and the
Chief Financial Officer ("CFO") of the effectiveness of the design and operation
of the Company's disclosure controls and procedures. Based on that evaluation,
the Company's CEO and CFO have concluded that the Company's disclosure controls
and procedures (as defined in Rules 13a-14 and 15d-14 of the Exchange Act) are
effective. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these internal
controls subsequent to the completion of their evaluation.
20
ROSS SYSTEMS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The Exhibits listed on the accompanying Index to Exhibits are filed as part
of, or incorporated by reference into, this Report.
2.1 Asset Sale Agreement between Registrant and Now Solutions LLC dated
March 5, 2001 (2)
3.1 Certificate of Incorporation of the Registrant, as amended (3)
3.2 Bylaws of the Registrant (3)
3.3 Amendment to the Certificate of Incorporation of the Registrant,
dated April 26, 2001, for the 1 for 10 Reverse Stock Split (8)
4.1 Certificate of Designation of Rights, Preferences and Privileges of
Series B Preferred Stock of the Registrant (1)
10.1 Preferred Shares Rights Agreement, dated as of September 4, 1998
between the Registrant and Registrar and Transfer Company (2)
10.2 Loan and Security Agreement dated September 24, 2002 between
Registrant and Silicon Valley Bank (8)
10.2A Series A Convertible Preferred Stock Agreement dated 29 June, 2001
between Registrant and Benjamin W. Griffith III (6)
10.3 Employment Agreement, dated as of January 7, 1999, between Mr.
Patrick Tinley and the Registrant (4)
10.4 Employment Agreement, dated as of September 17, 1999, between Mr.
Robert Webster and the Registrant (5)
99.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(1) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 10-Q filed May 6, 1996.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form 8-A filed September 4, 1998.
(3) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 8-K filed July 24, 1998.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 10-Q filed May 17, 1999.
21
ROSS SYSTEMS, INC. AND SUBSIDIARIES
(5) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 10-K filed September 28, 1999.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 10-K filed September 27, 2001.
(7) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form 8-A/A filed October 3, 2001.
(8) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 10-K/A filed October 2, 2002
(b) Reports on Form 8-K
o On July 12, 2002 Ross Systems filed a Current Report on Form 8-K
reporting the dismissal of Arthur Andersen LLP as the company's
independent auditor and the engagement of BDO Seidman, LLP as new
independent auditor to the company effective July 11, 2002.
o On August 9, 2002 Ross Systems filed an amendment to the Current
Report on Form 8-K filed July 12, 2002 stating that Arthur Andersen
LLP had informed the company that it would not respond to notices of
changes in certifying accountants due to restructuring issues.
ITEMS 1, 2, 3, 4, AND 5 HAVE BEEN OMITTED, AS THEY ARE NOT APPLICABLE.
22
ROSS SYSTEMS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROSS SYSTEMS, INC.
Date: November 11, 2002 /s/ VEROME M. JOHNSTON
------------------------------------------------
Verome M. Johnston
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer and
Duly Authorized Officer)
23
ROSS SYSTEMS, INC. AND SUBSIDIARIES
CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS
I, J. Patrick Tinley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ross Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 11, 2002 /s/ J. Patrick Tinley
------------------------------------
J. Patrick Tinley
Chairman and Chief Executive Officer
24
ROSS SYSTEMS, INC. AND SUBSIDIARIES
I, Verome M. Johnston, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ross Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 11, 2002
/s/ Verome M. Johnston
------------------------------------------
Verome M. Johnston
Vice President and Chief Financial Officer
25
CERTIFICATION
-------------
I, J. Robert B. Webster, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ross Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 11, 2002 /s/ Robert B. Webster
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Robert B. Webster
Executive Vice President, Operations
and Secretary
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