-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jf2g8vX8zhZxLIDOY9xmJh68FNG7ufk8agfG8xmFvmKw+aZH+tn3RHEr+nPvUB+4 7tsIEbD3DxtXzaaqM3aeNg== 0000950152-02-007296.txt : 20020930 0000950152-02-007296.hdr.sgml : 20020930 20020930172411 ACCESSION NUMBER: 0000950152-02-007296 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTSTEP INC CENTRAL INDEX KEY: 0000872443 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 311083175 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19024 FILM NUMBER: 02777240 BUSINESS ADDRESS: STREET 1: 2800 CORPORATE EXCHANGE DR STREET 2: N/A CITY: COLUMBUS STATE: OH ZIP: 43231 BUSINESS PHONE: 6145237000 MAIL ADDRESS: STREET 1: 2800 CORPORATE EXCHANGE DR CITY: COLUMBUS STATE: OH ZIP: 43231 FORMER COMPANY: FORMER CONFORMED NAME: SYMIX SYSTEMS INC DATE OF NAME CHANGE: 19930328 10-Q/A 1 l96369ae10vqza.txt FRONTSTEP, INC. 10-Q/A ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-Q/A (AMENDED) (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________ TO ____________________ COMMISSION FILE NUMBER: 0-19024 -------------- FRONTSTEP, INC. (Exact name of registrant as specified in its charter) OHIO 31-1083175 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 2800 CORPORATE EXCHANGE DRIVE 43231 COLUMBUS, OHIO (Zip Code) (Address of principal executive offices) (614) 523-7000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NOT APPLICABLE. (Former name, former address and former fiscal year, if changed since last report) -------------- 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 |_| As of February 13, 2001 7,568,218 shares of the issuer's common stock, without par value, were outstanding. ================================================================================ FRONTSTEP, INC. AND SUBSIDIARIES FISCAL YEAR 2001 FORM 10-K/A AND ANNUAL REPORT This Amendment No 1 to Form 10-Q/A ("Form 10-Q/A") amends Item 1, 2 and 3 of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2001 including the consolidated financial statements therein, that was originally filed on February 14, 2002. As described in Note 2 to consolidated financial statements, a restatement has been made to correct the previously reported financial results due to an isolated error in third-party software used by the Company which affected the timing of recognition of revenue from renewals of the Company's maintenance and support contracts. This amendment does not otherwise update the other information in the originally filed form 10-Q to reflect events after the original filing date. FRONTSTEP, INC. AND SUBSIDIARIES INDEX
PAGE PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 2001 (unaudited) and June 30, 2001........... 3 Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended December 31, 2001 and 2000................................................. 4 Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended December 31, 2001 and 2000.................................................................. 5 Notes to Consolidated Financial Statements (unaudited)...................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................................................... 24 Item 2. Changes in Securities and Use of Proceeds................................................... 24 Item 3. Defaults Upon Senior Securities............................................................. 24 Item 4. Submission of Matters to a Vote of Security Holders......................................... 24 Item 5. Other Information........................................................................... 25 Item 6. Exhibits and Reports on Form 8-K............................................................ 25 SIGNATURES ............................................................................................ 26 EXHIBIT INDEX........................................................................................... 28
Page 2 PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. FRONTSTEP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30, 2001 2001 ---- ---- RESTATED RESTATED (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.................................................... $ 6,611 $ 1,512 Trade accounts receivable, net............................................... 27,135 31,446 Prepaid expenses............................................................. 4,255 3,756 Income taxes receivable...................................................... - 47 Deferred income taxes........................................................ 2,026 2,026 Inventories.................................................................. 685 738 Other current assets......................................................... 373 979 ------------ ------------- 41,085 40,504 Capitalized software, net....................................................... 15,329 15,094 Goodwill, net................................................................... 7,902 7,911 Property and equipment, net..................................................... 6,219 7,646 Other assets.................................................................... 1,506 1,438 ------------ ------------- Total assets.................................................................... $ 72,041 $ 72,593 ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses........................................ $ 13,810 $ 15,610 Deferred revenue............................................................. 18,224 20,278 Current portion of long-term obligations..................................... 7,061 1,967 ------------ ------------- 39,095 37,855 Noncurrent liabilities: Long-term debt............................................................... 9,387 8,337 Deferred income taxes........................................................ 2,737 2,891 Other ....................................................................... 188 405 ------------ ------------- 12,312 11,633 Minority interest............................................................... 1,045 2,102 Shareholders' equity: Series A Convertible Participating Preferred Stock, no par value; 1,000,000 shares authorized; 566,933 shares issued and outstanding at December 31, 2001 and June 30, 2001; liquidation preference $13,606,392........................................ 10,865 10,865 Common stock; no par value; 20,000,000 shares authorized; 7,872,418 shares issued at December 31, 2001 and June 30, 2001, at stated capital amounts of $0.01 per share............... 79 79 Additional paid-in capital................................................... 38,746 37,470 Treasury stock, at cost; 304,200 shares...................................... (1,320) (1,320) Retained deficit............................................................. (25,462) (22,773) Accumulated other comprehensive loss......................................... (3,319) (3,318) ------------ ------------- 19,589 21,003 ------------ ------------- Total liabilities and shareholders' equity...................................... $ 72,041 $ 72,593 ============ =============
The accompanying notes are an integral part of these consolidated financial statements. Page 3 FRONTSTEP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------ ------------ 2001 2000 2001 2000 ---- ---- ---- ---- RESTATED RESTATED (UNAUDITED) (UNAUDITED) Revenue: License fees............................... $ 9,366 $ 17,185 $ 18,695 $ 29,066 Service.................................... 5,197 8,041 11,383 15,994 Maintenance and support.................... 8,764 8,630 18,220 16,861 ------------ ------------- ------------ ------------- Total revenue........................... 23,327 33,856 48,298 61,921 Cost of revenue: License fees............................... 4,421 5,489 8,671 9,934 Service, maintenance and support........... 7,326 9,566 14,252 19,408 ------------ ------------- ------------ ------------- Total cost of revenue................... 11,747 15,055 22,923 29,342 ------------ ------------- ------------ ------------- Gross margin.................................. 11,580 18,801 25,375 32,579 Operating expenses: Selling, general and administrative........ 11,995 15,991 22,818 28,254 Research and development................... 1,712 3,471 3,403 7,189 Amortization of acquired intangibles....... 380 831 910 1,668 Restructuring and other charges............ - - - 2,163 ------------ ------------- ------------ ------------- Total operating expenses................ 14,087 20,293 27,131 39,274 ------------ ------------- ------------ ------------- Operating income (loss)....................... (2,507) (1,492) (1,756) (6,695) Other income (expense), net................... (380) (122) (908) (49) ------------ ------------- ------------ ------------- Income (loss) before income taxes............. (2,887) (1,614) (2,664) (6,744) Provision for (benefit from) income taxes................................ - (450) 26 (2,063) ------------ ------------- ------------ ------------- Net income (loss)............................. $ (2,887) $ (1,164) $ (2,690) $ (4,681) ============ ============= ============ ============= Net income (loss) per common share: Basic ..................................... $ (0.38) $ (0.16) $ (0.36) $ (0.62) ============ ============= ============ ============= Diluted.................................... $ (0.38) $ (0.16) $ (0.36) (0.62) ============ ============= ============ ============= Shares used in computing per share amounts: Basic ..................................... 7,568 7,505 7,568 7,505 Diluted.................................... 7,568 7,505 7,568 7,505
The accompanying notes are an integral part of these consolidated financial statements. Page 4 FRONTSTEP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED DECEMBER 31, 2001 2000 ---- ---- (UNAUDITED) RESTATED CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss).............................................................. $ (2,690) $ (4,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation............................................................. 1,648 2,189 Amortization............................................................. 3,022 3,658 Deferred income taxes.................................................... (154) (1,085) Changes in operating assets and liabilities: Accounts receivable................................................... 3,797 (6,890) Prepaid expenses and other assets..................................... 48 (854) Accounts payable and accrued expenses................................. (1,655) 384 Deferred revenue...................................................... (1,206) 209 Income taxes payable/receivable....................................... 1,064 (366) ------------- ------------- Net cash provided by (used in) operating activities............................ 3,874 (7,436) CASH FLOW FROM INVESTING ACTIVITIES: Purchases of property and equipment............................................ (212) (2,806) Additions to capitalized software.............................................. (3,169) (2,593) ------------- ------------- Net cash used in investing activities.......................................... (3,381) (5,399) CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net.................................... - 58 Proceeds from long-term obligations............................................ 38,443 28,735 Payments on long-term obligations.............................................. (33,477) (26,557) ------------- ------------- Net cash provided by financing activities...................................... 4,966 2,236 Effect of exchange rate changes on cash........................................ (360) 62 ------------- ------------- Net increase (decrease) in cash and cash equivalents........................... 5,099 (10,537) Cash and cash equivalents at beginning of period............................... 1,512 11,868 ------------- ------------- Cash and cash equivalents at end of period..................................... $ 6,611 $ 1,331 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. Page 5 FRONTSTEP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 (UNAUDITED) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Description of Business. Frontstep, Inc. and its subsidiaries ("Frontstep" or the "Company"), is a leading global provider of business software and services for mid-sized manufacturing, distribution and other companies, including business units of larger companies. The Company offers a comprehensive suite of integrated, collaborative network-centric software and services that (1) support the traditional back office management and resources of an enterprise ("ERP"), (2) support customer relationship management ("CRM") and other front office business activities and (3) support an enterprise's supply chain management activities. Founded in 1979, Frontstep is headquartered in Columbus, Ohio. The Company has more than 4,400 customers that it serves from 28 sales and service offices in North America, Europe and the Pacific Rim, as well as through independent software and support business partners worldwide. The accompanying unaudited consolidated financial statements presented herein have been prepared by the Company and reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair presentation of financial results for the three and six months ended December 31, 2001 and 2000, in accordance with generally accepted accounting principles for interim financial reporting and pursuant to Article 10 of Regulation S-X. Certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These interim consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 2001 ("Annual Report"). The results of operations for the three and six months ended December 31, 2001 are not necessarily indicative of the results to be expected for a full year. Comprehensive Income. The only item in addition to net income that is included in comprehensive income is the foreign currency translation adjustment. Comprehensive income (loss) for the three and six months ended December 31, 2001 and 2000 is as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------ ------------ 2001 2000 2001 2000 ---- ---- ---- ---- RESTATED RESTATED Net income (loss)................................ $ (2,887) $ (1,164) $ (2,690) $ (4,681) Foreign currency translation adjustment.......... (162) (19) (1) (272) ---------- --------- --------- --------- Comprehensive income (loss)...................... $ (3,049) $ (1,183) $ (2,691) $ (4,953) ========== ========= ========= =========
Minority Interest. In June 1998, Frontstep Computer Systems (Singapore) Pte. Ltd., a wholly-owned subsidiary of the Company, sold previously unissued shares of common stock (representing a 13.3% interest in that subsidiary) for $2,000,000. No gain or loss was recognized on the sale of the subsidiary stock. The Company and the minority interest investor also entered into a put option agreement which provides that during a six month period commencing September 1, 2001, the minority interest investor has the right to put its shares in the subsidiary to the Company at a formula price as provided in the put agreement, not to be less than $2,000,000. The minority interest in the subsidiary will be adjusted to its expected redemption value each year as a credit or charge to income until the put is exercised or the redemption period expires. As of December 31, 2001 the Company has reclassed $1,060,000 from minority interest to current maturity of long-term debt because the minority interest investor had exercised a portion of its put option rights. The company and minority interest investor are currently negotiating the final terms of payment of amount due. However, the Company anticipates the payment will be due with accrued interest by September 1, 2002. The minority interest investor has not elected to exercise the remaining put option. Page 6 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 2 - RESTATEMENT The Company is restating its financial statements for the six-months ended December 31, 2001 (the "Restatement"). The Restatement is being made to correct the previously reported financial results due to an isolated error in third-party software used by the Company which affected the timing of recognition of revenue from renewals of the Company's maintenance and support contracts during those reported periods. The Company uses certain third-party software to calculate and account for revenues from renewals of its maintenance and support services contracts. The error, which was isolated and occurred only in a certain specific process, caused affected billing records to accelerate the timing of recognition of revenue, and consequently understate the amount of deferred revenue to be recognized in subsequent periods. Due to the limited number of records affected, the error was difficult to detect. After detection by Company personnel in July 2002, the third-party software provider identified the nature of the error and assisted the Company in determining which maintenance and support records had been affected. The error was associated with a specific version of the software and affected only the period from July 2000 to March 2002. The Company had already installed a newer version of the software which properly accounts for revenue recognition in the specific affected process. For the six months ended December 31, 2001, this restatement will reduce revenue by $135,000 or 0.3% of the previously reported revenue of $48,433,000. This decrease in revenue will increase the reported net loss for the six-month period by $135,000 or 5.3% of the previously reported net loss of $2,555,000. The balance sheet account entitled deferred revenue will increase as of December 31, 2001 by $1,346,000 or 8.0% from the previously reported balance of $16,878,000. For the year ended June 30, 2001, this restatement reduced revenue by $1,210,000 or 1.0% of the previously reported revenue of $118,286,000. This decrease in revenue will increase the reported net loss for the year by $1,210,000 or 4.9% of the previously reported net loss of $24,854,000. The balance sheet account entitled Deferred revenue will increase as of June 30, 2001 by $1,210,000 or 6.3% from the previously reported balance of $19,067,000. The correction of the error by reporting period is presented in the table and accompanying financial statements below (in thousands):
- ------------------------------------------ ---------------- -------------- --------------- -------------- -------------- TOTAL REVENUE ADJUSTMENT TOTAL NET INCOME NET INCOME AS PREVIOUSLY OF REVENUE REVENUE, AS (LOSS), AS (LOSS), AS REPORTED ADJUSTED PREVIOUSLY ADJUSTED REPORTED REPORTING PERIOD - ------------------------------------------ ---------------- -------------- --------------- -------------- -------------- Quarter ended September 30, 2000 $28,033 $32 $28,065 $(3,549) $(3,517) - ------------------------------------------ ---------------- -------------- --------------- -------------- -------------- Quarter ended December 31, 2000 $34,063 $(207) $33,856 $(957) $(1,164) - ------------------------------------------ ---------------- -------------- --------------- -------------- -------------- Quarter ended March 31, 2001 $27,172 $(838) $26,334 $(15,348) $(16,186) - ------------------------------------------ ---------------- -------------- --------------- -------------- -------------- Quarter ended June 30, 2001 $29,018 $(197) $28,821 $(5,000) $(5,197) - ------------------------------------------ ---------------- -------------- --------------- -------------- -------------- Year ended June 30, 2001 $118,286 $(1,210) $117,076 $(24,854) $(26,064) - ------------------------------------------ ---------------- -------------- --------------- -------------- -------------- Quarter ended September 30, 2001 $24,918 $53 $24,971 $144 $197 - ------------------------------------------ ---------------- -------------- --------------- -------------- -------------- Quarter ended December 31, 2001 $23,515 $(188) $23,327 $(2,699) $(2,887) - ------------------------------------------ ---------------- -------------- --------------- -------------- -------------- Six-months ended December 31, 2001 $48,433 $(135) $48,298 $(2,555) $(2,690) - ------------------------------------------ ---------------- -------------- --------------- -------------- --------------
Page 7 FRONTSTEP, INC. QUARTER ENDED DECEMBER 31, 2001 (all numbers in 000's except per share data)
Three Months Ended Six Months Ended December 31, December 31, ------------------------------ ------------------------------ 2001 2001 2001 2001 --------------- --------------- --------------- --------------- As Reported As Restated As Reported As Restated --------------- --------------- --------------- --------------- Revenue: License fees $ 9,366 9,366 18,695 18,695 Services 5,197 5,197 11,383 11,383 Maintenance and support 8,952 8,764 18,355 18,220 --------------- --------------- --------------- --------------- Total revenue 23,515 23,327 48,433 48,298 Cost of revenue: License fees 4,421 4,421 8,671 8,671 Service, maintenance and support 7,326 7,326 14,252 14,252 --------------- --------------- --------------- --------------- Cost of revenue 11,747 11,747 22,923 22,923 --------------- --------------- --------------- --------------- Gross margin 11,768 11,580 25,510 25,375 Operating expenses: Selling, general and administrative 11,995 11,995 22,818 22,818 Research and product development 1,712 1,712 3,403 3,403 Amortization of intangibles 380 380 910 910 Restructuring and other charges -- -- -- -- --------------- --------------- --------------- --------------- Total operating expenses 14,087 14,087 27,131 27,131 --------------- --------------- --------------- --------------- Operating income (loss) (2,319) (2,507) (1,621) (1,756) Other income (expense), net (380) (380) (908) (908) --------------- --------------- --------------- --------------- Income (loss) before income taxes (2,699) (2,887) (2,529) (2,664) Provision for income taxes -- -- 26 26 --------------- --------------- --------------- --------------- Net income (loss) $ (2,699) (2,887) (2,555) (2,690) =============== =============== =============== =============== Shares outstanding 7,568 7,568 7,568 7,568 =============== =============== =============== =============== EPS $ (0.36) (0.38) (0.34) (0.36) =============== =============== =============== ===============
Page 8 FRONTSTEP, INC. CONSOLIDATED BALANCE SHEET (in thousands) DECEMBER 31, DECEMBER 31, 2001 2001 ------------------------------------ AS PREVIOUSLY AS RESTATED REPORTED ---------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 6,611 $ 6,611 Trade accounts receivable, net 27,135 27,135 Prepaid expenses 4,255 4,255 Income tax receivable -- -- Deferred income taxes 2,026 2,026 Inventories 685 685 Other current assets 373 373 ---------------- --------------- 41,085 41,085 Capitalized software, net 15,329 15,329 Intangibles, net 7,902 7,902 Equipment and improvements, net 6,219 6,219 Deposits and other assets 1,506 1,506 ---------------- --------------- Total assets $ 72,041 $ 72,041 ================ =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 13,810 $ 13,810 Deferred revenue 18,224 16,878 Current portion of long-term obligations 7,061 7,061 ---------------- --------------- 39,095 37,749 Noncurrent liabilities: Long-term obligations 9,387 9,387 Deferred income taxes 2,737 2,737 Other 188 188 ---------------- --------------- 12,312 12,312 Minority interest 1,045 1,045 Shareholders' equity: Preferred stock 10,865 10,865 Common stock 79 79 Additional paid-in capital 38,746 38,746 Common stock in treasury, at cost (1,320) (1,320) Retained earnings (deficit) (25,462) (24,116) Accumulated other comprehensive loss (3,319) (3,319) ---------------- --------------- 19,589 20,935 ---------------- --------------- Total liabilities and shareholders' equity $ 72,041 $ 72,041 ================ =============== Page 9 FRONTSTEP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, -------------------------- -------------------------- 2001 2001 2000 2000 ------------ ------------ ------------ ------------ As Previously As Previously As Restated Reported As Restated Reported ------------ ------------ ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES:Net income (loss) $ (2,690) $(2,555) $ (4,681) $(4,506) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 1,648 1,648 2,189 2,189 Amortization 3,022 3,022 3,658 3,658 Restructuring and other charges -- -- -- -- Deferred income taxes (154) (154) (1,085) (1,085) Write-off of capitalized software -- -- -- -- Changes in operating assets and liabilities, net of restructuring and other charges: Accounts receivable 3,797 3,797 (6,890) (6,890) Prepaid expenses and other assets 48 48 (854) (854) Accounts payable and accrued expenses (1,655) (1,655) 384 384 Deferred revenue (1,206) (1,341) 209 34 Income taxes payable/receivable 1,064 1,064 (366) (366) ------------ ------------ ------------ ------------ Net cash used in operating activities 3,874 3,874 (7,436) (7,436) CASH FLOW FROM INVESTING ACTIVITIES: Purchases of property and equipment (212) (212) (2,806) (2,806) Additions to capitalized software (3,169) (3,169) (2,593) (2,593) ------------ ------------ ------------ ------------ Net cash used in investing activities (3,381) (3,381) (5,399) (5,399) CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net -- -- 58 58 Proceeds from long-term obligations 38,443 38,443 28,735 28,735 Payments on long-term obligations (33,477) (33,477) (26,557) (26,557) ------------ ------------ ------------ ------------ Net cash provided by financing activities 4,966 4,966 2,236 2,236 Effect of exchange rate changes on cash (360) (360) 62 62 ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 5,099 5,099 (10,537) (10,537) Cash and cash equivalents at beginning of period 1,512 1,512 11,868 11,868 ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ 6,611 $ 6,611 $ 1,331 $ 1,331 ============ ============ ============ ============
Page 10 NOTE 3 - LONG-TERM DEBT In July 2001, the Company executed a new credit facility (the "Credit Facility") with Foothill Capital Corporation ("Foothill"). The Credit Facility includes a $15,000,000, three-year term note and a $10,000,000 revolving credit facility. Availability under the Credit Facility is based on and secured by qualifying accounts receivable originating within the United States and Canada. The revolving credit facility bears interest either at the Federal Funds rate plus 1.5%, or at the Eurodollar market rate plus 3.0%. The term note bears interest at the rate of 10.5% plus 1.5% per annum added to principal. The term note is payable in monthly installments commencing October 1, 2001. The Credit Facility is subject to customary terms and conditions and includes financial covenants for maintenance of a minimum tangible net worth, a minimum level of earnings before interest, taxes, depreciation and amortization and a maximum ratio of debt to earnings before interest, taxes, depreciation and amortization. The proceeds from the Credit Facility were used to repay, in full, the Company's revolving credit facility with PNC Bank, National Association. On November 9, 2001, the Company and Foothill amended the Credit Facility to allow for temporary increased borrowing capacity through January 31, 2002. Also as part of the amendment, all financial covenants were modified to give account to the current economic conditions affecting the Company. The modification of the financial covenants is effective starting as of September 29, 2001. In connection with the Credit Facility, Foothill was granted a warrant to purchase 550,000 of the Company's common shares priced at the current market price as of the close of the deal ($3.36 per share), which expire in July 2006. The warrant is subject to certain anti-dilution provisions as defined in the warrant agreement. The relative fair value of the warrant, $1,276,000, was recorded as a debt discount and is being amortized as interest expense over the three-year term of the Credit Facility. As of December 31, 2001, the unamortized balance of the debt discount was $1,063,000. In connection with the grant of the warrants to Foothill as discussed above, and pursuant to the contractual terms of the warrant agreement associated with the preferred stock private placement that occurred in fiscal 2000, the exercise price of the 453,546 existing warrants to purchase the Company's common stock with an original exercise price of $15.00 per share was adjusted to $3.36 per share. Because this change in price was due to contractual provisions already in place at the inception of the arrangement, there is no impact on the Company's financial statements. As of December 31, 2001, the Company was not in compliance with certain financial covenants under the Credit Facility as a result of its reported losses for the three months ended December 31, 2001. The noncompliance does not relate to any payment due under the Credit Facility. Subsequent to that date, Foothill has agreed to amend the Credit Facility to waive the conditions of noncompliance as of December 31, 2001 and to reset the related financial covenants for the remainder of the Credit Facility term. To support the Company's operating needs, Foothill also has agreed to provide the Company with certain additional borrowing availability on a temporary basis until July 15, 2002 and to defer principal payments due under the primary term note for a six-month period commencing in January 2002. The Company and Foothill have completed the amendment to the Credit Facility to reflect this agreement. NOTE 4 - RESTRUCTURING AND OTHER CHARGES Fiscal 2001 Restructuring. In April 2001, the Company announced a broad restructuring plan to reduce operating costs by reducing its worldwide workforce by approximately 20%, or 162 employees, all of which were direct employees involved in all aspects of the Company's business, both domestic and international; discontinuing certain product development and other non-essential activities, including terminating activities related to its SyteCentre product and exiting certain license agreements; and closing certain office facilities in Arizona, California, Canada and Asia. As a result of this restructuring plan, the Company recorded pre-tax restructuring charges of $580,000 and $3,660,000 in the three months ended March 31, 2001 and June 30, 2001, respectively. These restructuring charges are Page 11 recorded as a separate line in the consolidated statements of operations. The Company's restructuring plan consisted of the following significant items: |X| Employee separation costs of $2,182,000 - The Company reduced its workforce by approximately 20%, or 162 employees. These costs consist primarily of severance for these employees. |X| Contract termination liabilities - $900,000- The Company elected to discontinue its SyteCentre ERP product to focus resources on the Company's primary ERP product, SyteLine. The Company also discontinued its ASP hosting solution and its internet procurement software due to sluggish demand and unprofitable operations. As a result, the Company provided $900,000 to cover anticipated liabilities to customers currently using the discontinued products and services. |X| Facility closure costs - $1,158,000 - The Company recorded $1,158,000 of costs associated with closing certain offices in Arizona, California, Canada and Asia. For those leases with non-cancelable lease terms, the Company assumed that subleases would be obtained after a one-year period. The following table displays a rollforward of the accruals established for the restructuring and other charges from June 30, 2001 to September 30, 2001 (in thousands):
ACCRUAL AT AMOUNTS USED AMOUNTS ACCRUAL AT JUNE 30, 2001 IN FISCAL 2002 REALLOCATED IN DECEMBER 31, FISCAL 2002 2001 ---------------- --------------- ----------------- ----------------- Employee separation costs $ 412 $ 528 $ 723 $ 607 Exit costs: Facility closure costs 878 187 (248) 443 Contract termination 780 215 (475) 90 liabilities ---------------- --------------- ----------------- ---------------- Total $ 2,070 $ 930 $ 0 $ 1,140 ================ =============== ================= ================
The amounts used of $930,000 and $2,170,000 in fiscal 2002 and 2001, respectively, reflects cash payments of $3,020,000 and non-cash charges of $80,000. The remaining accrual of $1,140,000, which is included in accounts payable and accrued expenses in the Consolidated Balance Sheets, represents cash payments expected to be made over the course of the remaining contracts through 2004. In relation to this restructuring plan, the Company wrote-off certain accounts receivable amounting to $6,840,000 in the quarter ended March 31, 2001, which is presented in the Statement of Operations in Operating expenses: Selling, general and administrative. Also, in relation to the restructuring plan, the Company wrote-off other non-performing assets amounting to $1,913,000 in the quarter ended March 31, 2001, which is presented in the Statement of Operations in Cost of revenue: License fees. The accounts receivable write-offs were recorded to reflect accounts deemed to be uncollectible due to economic and other situations that occurred subsequent to the recording of the sales related to those receivables. The non-performing assets are no longer in use and were completely written off. Fiscal 2000 Restructuring. In July 2000, the Company announced several structural changes to discontinue certain business operations, write off non-performing assets which are no longer in use and to restructure the Company to better focus on its core business strategy. These changes included divesting the Company's FieldPro subsidiary, terminating the operations of its e-Mongoose, Inc. subsidiary, consolidating the Company's product development organizations and restructuring the Company's sales channels. In connection with this announcement, the Company recorded a non-recurring charge of $429,000, pre-tax, in the three months ended June 30, 2000 and an additional non-recurring charge of $2,163,000, pre-tax, in the three months ended September 30, 2000. The aggregate pre-tax charge of $2,592,000 included non-cash charges of $429,000 related primarily to the sale of Visual Applications Software, Inc. and $2,163,000 to reduce the Company's headcount. The headcount reduction included approximately Page 12 90 employees associated with the operations discussed above and others terminated as part of the restructuring. All severance payments were paid during the year ended June 30, 2001 and no accruals remained for these costs as of June 30, 2001. NOTE 5 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31, ----------- ------------ 2001 2000 2001 2000 ---- ---- ---- ---- RESTATED RESTATED Numerator for basic and diluted income (loss) per share - net income (loss)..................... $ (2,887) $ (1,164) $ (2,690) $ (4,681) ========== ========= =========== ========= Denominator for basic income (loss) per share - weighted average common shares outstanding 7,568 7,505 7,568 7,505 Effect of dilutive warrants.......................... - - - - ---------- --------- ----------- --------- Denominator for diluted income (loss) per share - adjusted weighted average common shares and assumed conversions............................... 7,568 7,505 7,568 7,505 ========== ========= =========== ========= Basic net income (loss) per share.................... $ (0.38) $ (0.16) $ (0.36) $ (0.62) ========== ========= =========== ========= Diluted net income (loss) per share.................. $ (0.38) $ (0.16) $ (0.36) $ (0.62) ========== ========= =========== =========
During the three and six months ended December 31, 2001, 1,622,293 common equivalent shares in stock options and 2,137,412 common equivalent shares in warrants, convertible and preferred stock were outstanding. However, such options were not included in the computation of diluted net income per share because the Company reported a net loss for the period and, therefore, the effect would be antidilutive. During the three and six months ended December 31, 2000, common equivalent shares in stock options and warrants were outstanding. However, such options were not included in the computation of diluted net income per share because the Company reported a net loss for the period and, therefore, the effect would be antidilutive. NOTE 6 - INTANGIBLE ASSETS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. The Company has adopted the provisions of SFAS No. 142 effective on July 1, 2001. As of December 31, 2001, the Company had unamortized intangible assets consisting only of goodwill of $7,902,000. The Company's amortizable intangible assets include only purchased software. The gross carrying amount of purchased software as of December 31, 2001 was $2,696,000 and accumulated amortization of purchased software was $1,949,000. In accordance with the provisions of SFAS No. 142, the Company performed the appropriate transitional impairment tests and determined that there is no transitional impairment loss as of July 1, 2001. Also in accordance with the provisions of SFAS No. 142, the Company reassessed the useful lives of all purchased software and determined that no adjustments were necessary. Page 13 The following table illustrates what reported net income (loss) and net income (loss) per share would have been in the periods presented exclusive of amortization expense recognized in those periods related to goodwill (in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31, ----------- ------------ 2001 2000 2001 2000 ---- ---- ---- ---- RESTATED RESTATED Net income (loss).................................... $ (2,887) $ (1,164) $ (2,690) $ (4,681) Goodwill amortization................................ - 289 - 577 ---------- --------- ----------- --------- Adjusted net income (loss)........................... $ (2,887) (875) $ (2,690) $ (4,104) ========== ========= =========== ========= Basic and diluted net income (loss) per share: Net income (loss)................................. $ (0.38) (0.16) $ (0.36) $ (0.62) Goodwill amortization............................. - 0.04 - 0.08 ---------- --------- ----------- --------- Adjusted net income (loss)........................ $ (0.38) (0.12) $ (0.36) $ (0.54) =========== ========= =========== =========
NOTE 7 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company designs, develops, markets and supports business software and services for mid-sized manufacturing, distribution and other companies, including business units of larger companies. The Company operates exclusively in this market and, therefore, only reports on one primary segment. Summarized financial information attributable to each of the Company's geographic areas is shown in the following table (in thousands):
NORTH ASIA/ AMERICA EUROPE PACIFIC ------- ------ ------- THREE MONTHS ENDED DECEMBER 31, 2001 - RESTATED Total revenue.................................................... $ 16,696 $ 4,263 $ 2,368 Operating income before amortization of intangibles.............. (2,269) 312 (170) Operating income................................................. (2,702) 365 (170) THREE MONTHS ENDED DECEMBER 31, 2000 - RESTATED Total revenue.................................................... $ 27,197 $ 3,615 $ 3,044 Operating income (loss) before amortization of intangibles and special charges............................................ (219) 158 (600) Operating income (loss).......................................... (920) 44 (616) SIX MONTHS ENDED DECEMBER 31, 2001 - RESTATED Total revenue.................................................... $ 35,489 $ 7,816 $ 4,993 Operating income before amortization of intangibles.............. (1,273) 507 (80) Operating income................................................. (2,140) 464 (80) SIX MONTHS ENDED DECEMBER 31, 2000 - RESTATED Total revenue.................................................... $ 48,835 $ 6,923 $ 6,163 Operating income (loss) before amortization of intangibles and special charges............................................ (2,514) 283 (633) Operating income (loss).......................................... (6,078) 49 (666)
Page 14 NOTE 8 - VOLUNTARY STOCK OPTION EXCHANGE PROGRAM On October 30, 2001, the Company offered the participants of its Non-Qualified Stock Option Plan for Key Employees and its 1999 Non-Qualified Stock Option Plan for Key Employees (collectively, "the Plans") the opportunity to participate in a voluntary stock option exchange program. The program generally allowed a participant to return options held at that time to the Company in exchange for new options to be granted at a future date at least six months and one day after the date of cancellation of the old options by the Company. As of the date of the offer, options to purchase 1,586,054 shares of the Company were outstanding pursuant to the Plans. The offer expired on December 7, 2001 and options to purchase 366,111 common shares were returned to the Company and cancelled. Subject to the terms and conditions of the offer, the Company expects to grant options to purchase 341,111 common shares on or about June 11, 2002 with an exercise price per share equal to the market price per share of the Company's common shares on the date of grant. The new options will have other terms and conditions substantially the same as the old options. The exchange program is not expected to result in any additional compensation charges or variable plan accounting. NOTE 9 - SUBSEQUENT EVENTS On February 12, 2002, the Company's Board of Directors approved an agreement in principle pursuant to which holders of its Series A Convertible Participating Preferred Stock and certain members of the Company's Board, including the Company's founder, would provide $4.5 to $5.0 million to the Company for working capital needs in exchange for convertible notes (the "Convertible Notes") with a term expiring May 2004. The Convertible Notes would be entitled to conversion features similar to the Series A preferred shares of the Company, based on a conversion price equal to 80% of the market value of the Company's common stock at closing. The Convertible Notes would be subordinated to Foothill and would bear interest at 10%. Also under the terms of the offering, $1.5 million in the form of a "Bridge Note" would be provided to the Company upon execution of a definitive agreement and would be due August 31, 2002 or would be exchanged for Convertible Notes. The Company would issue 600,000 warrants to the Bridge Note holders with an exercise price of $0.01 per share. Under the terms of the agreement, the conversion price for the Company's Series A Convertible Participating Preferred Shares would be reset from $12.00 per share to $6.00 per share and all other anti-dilution rights with respect to the agreement would be waived. The completion of the offer is subject to, among other things, shareholder approval which the Company expects to obtain before June 30, 2002. The Company expects to record non-recurring, non-cash charges in each of the March and June quarters when the warrants and the Convertible Notes are issued to reflect the difference between the market price of the Company's common stock and the price of these equity instruments at the date of issuance. Page 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current beliefs, plans, objectives and expectations of the Company's management. The words "expect," "anticipate," "intend," "plan," "believe," "estimate," "would" and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Such risks and uncertainties are set forth herein and in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. The Company undertakes no obligation to revise or update or publicly release the results of any revision or update to these forward-looking statements. Readers should carefully review the risk factors set forth in each of the Company's reports or documents filed from time to time with the Securities and Exchange Commission. The following information should be read in conjunction with the unaudited Consolidated Financial Statements and related notes included elsewhere in this Form 10-Q. The following information should also be read in conjunction with the Company's audited Consolidated Financial Statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended June 30, 2001, as contained in the Annual Report. OVERVIEW The Company is a leading provider of integrated ERP software and services for mid-market manufacturing and distribution companies and business units of larger companies. RESTATEMENT. The Company is restating its financial statements for the six-months ended December 31, 2001 (the "Restatement"). The Restatement is being made to correct the previously reported financial results due to an isolated error in third-party software used by the Company which affected the timing of recognition of revenue from renewals of the Company's maintenance and support contracts during those reported periods. The financial results reported in this Form 10-Q have been restated to reflect the correction of this error. See Note 2 to the Financial Statements included herein. The following discussion reflects effects of reclassifications and restatements. Current Financial Results and Events. After nearly two years of difficult economic and market conditions, during which the Company undertook significant efforts to enhance its product capabilities, the Company reported positive financial results for the quarter ended September 30, 2001. The Company reported operating income of $0.8 million and net income of $0.2 million for the September 2001 quarter. In spite of the negative impact of the tragic events of September 11, 2001, the Company believes it was able to achieve these positive results primarily due to the cost reductions initiated in April 2001 and the careful management of the Company's costs since that time. Throughout the quarter ended December 31, 2001 (the "current fiscal quarter" or "fiscal 2002 quarter"), the Company believed that it was on track to continue to be profitable and to maintain a positive cash flow, both as a result of the cost savings achieved and a belief that our customers and potential customers would not continue to defer their buying decisions as they did in the September 2001 quarter. We had previously indicated that further economic slowdown and lessening of demand or a continuation of the uncertainty created by the war against terrorism could have a negative impact on the Company. In fact, these factors did impact our results for the current quarter and we did not achieve our revenue expectations, primarily due to continued delays by our customers and potential customers in making critical buying decisions, particularly those in North America. As a result, we reported an operating loss of $2.5 million and a net loss of $2.9 million. Shortly after the end of the current quarter, we announced that we would further reduce our operating costs by $5.0 to $7.0 million through reductions in personnel, facilities and other related costs. We expect to complete these cost reduction actions, now estimated at more than $8 million, during the March 2002 quarter which will allow us to return to Page 16 profitability and positive cash flows in the June 2002 quarter. The country has been in a recession since early in calendar 2001. It is not yet clear whether this recession will continue, whether there will be a further slowdown of the economy or whether a gradual improvement of the economy will occur. Differing conditions will alter the Company's beliefs about its financial results in the coming quarters and there can be no assurance that the Company will return to profitability and positive cash flows. Prior Financial Results and Events. Since the second quarter of fiscal 2000, the Company has experienced changing market conditions resulting from a recession in many manufacturing industries and a lessening of demand for ERP systems. Well before these market changes began to affect results of operations, the Company began to enhance its product offerings beyond traditional ERP systems to participate in higher growth market segments. These enhancements included a comprehensive suite of integrated software and services that (1) support the management and resources of an enterprise, (2) support customer relationship management and other front office business activities and (3) support an enterprise's supply chain management activities. In the March 2001 quarter, customers and potential customers appeared to react to the slowing economy by electing to defer their buying decisions. As a result, the Company, the information technology industry in general and many other enterprise software providers began to experience significant reductions in revenues and incurred net losses for the March and June 2001 quarters as compared to an expectation of continued improvements in financial results from increased demand for their products. In April 2001, the Company announced a broad restructuring plan to reduce operating costs by reducing its worldwide workforce by approximately 20%, or 162 employees, all of which were direct employees involved in all aspects of the Company's business, both domestic and international; discontinuing certain product development and other non-essential activities, including terminating activities related to its SyteCentre product and exiting certain license agreements; and closing certain office facilities in Arizona, California, Canada and Asia. As a result of this restructuring plan, the Company recorded pre-tax restructuring charges of $580,000 and $3,660,000 in the three months ended March 31, 2001 and June 30, 2001, respectively. These restructuring charges are recorded as a separate line in the consolidated statements of operations. In July 2000, the Company announced several structural changes to discontinue certain business operations, write off non-performing assets which are no longer in use and to restructure the Company to better focus on its core business strategy. These changes included divesting the Company's FieldPro subsidiary, terminating the operations of its e-Mongoose, Inc. subsidiary, consolidating the Company's product development organizations and restructuring the Company's sales channels. In connection with this announcement, the Company recorded a non-recurring charge of $429,000, pre-tax, in the three months ended June 30, 2000 and an additional non-recurring charge of $2,163,000, pre-tax, in the three months ended September 30, 2000. The aggregate pre-tax charge of $2,592,000 included non-cash charges of $429,000 related primarily to the sale of Visual Applications Software, Inc. and $2,163,000 to reduce the Company's headcount. The headcount reduction included approximately 90 employees associated with the operations discussed above and others terminated as part of the restructuring. All severance payments were paid during the year ended June 30, 2001 and no accruals remain for these costs as of June 30, 2001. GENERAL The Company's total revenue is derived primarily from licensing software, providing related services, including installation, implementation, training, consulting and systems integration and providing maintenance and support on an annual basis. Revenue is accounted for in accordance with Statement of Position 97-2, Software Revenue Recognition, as amended and interpreted from time to time. Revenue is derived principally from the sale of internally produced software products and maintenance and support agreements from software sales. The Company licenses software generally under non-cancelable license agreements and provides product support services and periodic updates including training, installation, consulting and maintenance. License fees revenue is generally recognized when a non-cancelable license agreement has been signed, the software product has been shipped, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable. For customer license agreements, which meet these recognition Page 17 criteria, the portion of the fees related to software licenses, which is determined using the residual method, will generally be recognized in the current period, while the portion of the fees related to services is recognized as the services are performed. The amount allocated to services revenues is based on the Company's standard rate per hour. Revenue from maintenance and support agreements, which is determined based on renewal rates, is billed periodically, deferred and recognized ratably over the life of the agreements. In the event revenue is contingent upon customer acceptance criteria, the Company defers that revenue until the contingencies are resolved. Cost of license fees revenue includes royalties, amortization of capitalized software development costs and software delivery expenses. Cost of service, maintenance and support revenue includes the personnel and related overhead costs for implementation, training and customer support services, together with fees paid to third parties for subcontracted services. Selling, general and administrative expenses consist of personnel, facilities and related overhead costs, together with other operating costs of the Company, including advertising and marketing costs. Research and development expenses include personnel and related overhead costs for product development, enhancement, upgrades, quality assurance and testing. The amount of such expenses is dependent on the nature and status of the development process for the Company's products. Development costs capitalized in a given period are dependent upon the nature and status of the development process. Upon general release of a product, related capitalized costs are amortized over three to five years and recorded as license fees cost of revenue. Page 18 RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2000 Revenue. Total revenue decreased $10.6 million, or 31.3%, to $23.3 million in the current fiscal quarter from $33.9 million in the three months ended December 31, 2000 (the "prior year fiscal quarter" or "fiscal 2001 quarter"). The total revenue mix is shown in the table below (in thousands, except percentage data):
THREE MONTHS ENDED DECEMBER 31, ------------------------------- 2001 2000 ---- ---- RESTATED RESTATED License fees revenue....................... $ 9,366 40.1% $ 17,185 50.8% Service revenue............................ 5,197 22.3% 8,041 23.8% Maintenance and support revenue............ 8,764 37.6% 8,630 25.5% ----------- ---------- ------------ ---------- Total revenue.................... $ 23,327 100.0% $ 33,856 100.0% =========== ========== ============ ==========
License fees revenue decreased 45.5% in the fiscal 2002 quarter from the fiscal 2001 quarter. The Company believes that the decrease in license fees revenue in the fiscal 2002 quarter is industry wide and due to the current economic climate that is causing the Company's customers and potential customers to defer their buying decisions related to large capital investments, particularly information technology investments. The Company expects that license fees revenues will remain stable for the remainder of the fiscal year and will not begin to significantly grow again until the current economic climate improves and demand for our product improves as a result. Service revenue decreased 35.4% in the fiscal 2002 quarter from the fiscal 2001 quarter. The decrease is primarily the result of sluggish license fees revenue experienced by the Company in the last year. Service revenues in particular are directly dependent on new license purchases by new and existing customers. The Company expects that service revenues will remain stable in the short-term and will improve in the quarters that follow increased license fee revenues. Maintenance and support revenue increased 1.6% in the fiscal 2002 quarter from the fiscal 2001 quarter. Maintenance and support contracts and the related revenue from these contracts have been steadily improving over the last few years as the base of customers under such programs has continued to grow. The Company expects such revenues to remain stable in the short-term. Cost of Revenue. Total cost of revenue as a percentage of total revenue increased to 50.4% for the fiscal 2002 quarter from 44.5% for the fiscal 2001 quarter. Cost of license fees revenue decreased $1.1 million, or 19.5%, to $4.4 million in the fiscal 2002 quarter from $5.5 million in the fiscal 2001 quarter and as a percentage of license fees revenue, increased to 47.2% in the fiscal 2002 quarter from 31.9% in the fiscal 2001 quarter. The percentage increase is primarily attributable to discounting as a result of weakened demand and lower license fees revenue affecting certain fixed and related costs. Cost of service, maintenance and support revenue decreased $2.2 million, or 23.4%, to $7.3 million in the fiscal 2002 quarter from $9.6 million in the fiscal 2001 quarter and as a percentage of service and maintenance and support revenue, decreased to 52.5% in the fiscal 2002 quarter from 57.4% in the fiscal 2001 quarter. The decrease is attributable to the continued growth of maintenance and support revenues which have higher margins than services revenues as a percentage of the total of service and maintenance and support revenue. This is offset by lower margins in the quarter on service revenue as a result of lower service revenues affecting certain fixed costs of service revenues. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $4.0 million, or 25.0%, to $12.0 million in the fiscal 2002 quarter from $16.0 million in the fiscal 2001 quarter. Such expenses as a percentage of total revenue increased to 51.4% in the fiscal 2002 quarter from 47.2% in the fiscal 2001 quarter. The decrease in costs is attributable to the restructuring that was undertaken during the June 2001 quarter. The Page 19 Company expects that these costs will decrease as a percentage of total revenue when total revenue increases since many of these costs are fixed in nature. Research and Development. Total research and development costs, including amounts capitalized, decreased $1.4 million or 29.2% to $3.3 million for the fiscal 2002 quarter from $4.7 million for the fiscal 2001 quarter and increased as a percentage of total revenue to 14.2% in the fiscal 2002 quarter from 13.8% in the fiscal 2001 quarter. Although total research and development spending decreased from the fiscal 2001 quarter, the Company is continuing to spend a substantial portion of total revenue on the development of its expanded product offerings and product capabilities and development of future releases of the Company's ERP software. The Company believes that these investments are critical to the success and market acceptance of its new product offerings and total suite of integrated collaborative business systems. The Company capitalized research and development costs of $1.6 million during the fiscal 2002 quarter and $1.2 million during the fiscal 2001 quarter. Provision for (Benefit from) Income Taxes. The provision for (benefit from) income taxes for the fiscal 2002 and 2001 quarters reflects an effective tax rate of 0% and 32%, respectively. The effective tax rate in both periods differs from the expected corporate tax rate primarily due to valuation allowances recorded against the deferred tax assets related to net operating losses incurred domestically and foreign losses incurred in countries where no tax benefits will be received for the losses. SIX MONTHS ENDED DECEMBER 31, 2001 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2000 Revenue. Total revenue decreased $13.6 million, or 22.0%, to $48.3 million in the six months ended December 31, 2001 (the "current fiscal six month period") from $61.9 million in the six months ended December 31, 2000 (the "prior fiscal six month period"). The total revenue mix is shown in the table below (in thousands, except percentage data):
SIX MONTHS ENDED DECEMBER 31, ----------------------------- 2001 2000 ---- ---- RESTATED RESTATED License fees revenue....................... $ 18,695 38.7% $ 29,066 47.0% Service revenue............................ 11,383 23.6% 15,994 25.8% Maintenance and support revenue............ 18,220 37.7% 16,861 27.2% ----------- ---------- ------------ ---------- Total revenue.................... $ 48,298 100.0% $ 61,921 100.0% =========== ========== ============ ==========
License fees revenue decreased 35.7% in the current fiscal six month period from the prior fiscal six month period. The Company believes that the decrease in license fees revenue in fiscal 2002 is industry wide and due to the current economic climate that is causing the Company's customers and potential customers to defer their buying decisions related to large capital investments, particularly information technology investments. The Company expects that license fees revenues will remain stable for the remainder of the fiscal year and will not begin to significantly grow again until the current economic climate improves and demand for our product improves as a result. The Company believes that such improved demand for ERP systems is directly related to the completeness and integration of the Company's entire product offering, including e-business applications. Service revenue decreased 28.8% in the current fiscal six month period from the prior fiscal six month period. The decrease is primarily the result of sluggish license fees revenue experienced by the Company in the last year. Service revenues in particular are directly dependent on new license purchases by new and existing customers. The Company expects that service revenues will remain stable over the next several months and will improve in the quarters that follow increased license fee revenues. Maintenance and support revenue increased 8.1% in the current fiscal six month period from the prior fiscal six month period. Maintenance and support contracts and the related revenue from these contracts have been steadily improving over the last few years as the base of customers under such programs has continued to grow. The Company expects such revenues to remain stable over the coming year. Page 20 Cost of Revenue. Total cost of revenue as a percentage of total revenue remained steady at 47.5% for both the current fiscal six month period and the prior fiscal six month period. Cost of license fees revenue decreased $1.3 million, or 12.7%, to $8.7 million in the current fiscal six month period from $9.9 million in the prior fiscal six month period and as a percentage of license fees revenue, increased to 46.4% in the current fiscal six month period from 34.2% in the prior fiscal six month period. The percentage increase is primarily attributable to an increase in the number of third party product vendors included in the Company's new product offerings, discounting and lower license fees revenue affecting certain fixed and related costs. Cost of service, maintenance and support revenue decreased $5.2 million, or 26.6%, to $14.3 million in the current fiscal six month period from $19.4 million in the prior fiscal six month period and as a percentage of service, maintenance and support revenue, decreased to 48.1% in the current fiscal six month period from 59.1% in the prior fiscal six month period. The decrease is attributable to the continued growth of maintenance and support revenues which have higher margins than services revenues as a percentage of the total of service and maintenance and support revenue. This is offset by lower margins on service revenue as a result of lower service revenues affecting certain fixed costs of service revenues. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $5.4 million, or 19.2%, to $22.8 million in the current fiscal six month period from $28.3 million in the prior fiscal six month period. Such expenses as a percentage of total revenue increased to 47.2% in the current fiscal six month period from 45.6% in the prior fiscal six month period. Strict cost savings measures were put in place to reduce overall selling, general and administrative expenses. However, reduced revenue levels account for the percentage increase in selling, general and administrative expenses in the current fiscal six month period. Research and Development. Total research and development expenses, including amounts capitalized, decreased $3.2 million or 32.8%, to $6.8 million for the current fiscal six month period from $9.8 million for the prior fiscal six month period and decreased as a percentage of total revenues to 13.6% in the current fiscal six month period from 15.8% in the prior fiscal six month period. This decrease is due to a reduction in headcount from the fiscal year 2001 restructuring. The Company is continuing to spend a substantial portion of total revenues on the development of its e-business software products and capabilities, development of future releases of the Company's ERP software and development of interfaces with third-party software products. The Company believes that these investments are critical to the success and market acceptance of its new e-business offerings and the total suite of integrated collaborative business systems. The Company capitalized research and development costs of $3.2 million during the current fiscal six month period and $2.6 million during the prior fiscal six month period. Restructuring and Other Charges. The restructuring program undertaken by the Company in July 2000 and its related costs are discussed above. Provision (Benefit) for Income Taxes. The provision (benefit) for income taxes for the current and prior fiscal six month periods reflects an effective tax rate of 0% and 31%, respectively. The effective tax rate in the current fiscal six month period differs from the expected corporate tax rate primarily due to valuation allowances recorded against the deferred tax assets related to net operating losses incurred domestically and foreign losses incurred in countries where no tax benefits will be received for the losses. QUARTERLY RESULTS The Company's results of operations have fluctuated on a quarterly basis. The Company's expenses, with the principal exception of sales commissions and certain components of cost of revenue, are generally fixed and do not vary with revenue. As a result, any shortfall of actual revenue in a given quarter would adversely affect net earnings for that quarter. Page 21 LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2001, the Company had cash and cash equivalents of $6.6 million and working capital of $3.3 million. During the current fiscal year, the Company had net cash provided by operating activities of $3.9 million, including the restructuring and other charges described above. The Company purchased $0.2 million of property and equipment and used $3.2 million in relation to capitalized software. Net cash provided by financing activities for the current fiscal year was $5.0 million. Gross borrowings on term note A were $13.9 million at December 31, 2001. Gross borrowings on term note B were $2.5 million at December 31, 2001. There were no borrowings on the revolving credit facility as of December 31, 2001. In July 2001, the Company executed the Credit Facility with Foothill. The Credit Facility includes a $15.0 million, three-year term note ("Term Note A") and a $10.0 million revolving credit facility. Availability under the Credit Facility is based on and secured by qualifying accounts receivable originating within the United States and Canada. The revolving credit facility bears interest either at the Federal Funds rate plus 1.5%, or at the Eurodollar market rate plus 3.0%. The term note bears interest at the rate of 10.5% plus 1.5% per annum added to principal. The term note is payable in monthly installments commencing October 1, 2001. The Credit Facility is subject to customary terms and conditions and includes financial covenants for maintenance of a minimum tangible net worth, a minimum level of earnings before interest, taxes, depreciation and amortization and a maximum ratio of debt to earnings before interest, taxes, depreciation and amortization. The proceeds from the Credit Facility were used to repay, in full, the Company's revolving credit facility with PNC Bank, National Association. On November 9, 2001, the Company and Foothill amended the Credit Facility to allow for temporary increased borrowing capacity of $2.5 million in term notes (Term Note B) through January 31, 2002. Also as part of the amendment, all financial covenants were modified to give account to the current economic conditions affecting the Company. The modification of the financial covenant was made effective starting as of September 29, 2001. As of December 31, 2001, the Company was not in compliance with certain financial covenants under the Credit Facility as a result of its reported losses for the three months ended December 31, 2001. The noncompliance does not relate to any payment due under the Credit Facility. Subsequent to that date, Foothill has agreed to amend the Credit Facility to waive the conditions of noncompliance as of December 31, 2001 and to reset the related financial covenants for the remainder of the Credit Facility term. To support the Company's operating needs, Foothill also has agreed to provide the Company with certain additional borrowing availability on a temporary basis until July 15, 2002 and to defer principal payments due under the primary term note for a six-month period commencing in January 2002. The Company and Foothill have completed the amendment to the Credit Facility to reflect this agreement. On February 12, 2002, the Company's Board of Directors approved an agreement in principle pursuant to which holders of its Series A Convertible Participating Preferred Stock and certain members of the Company's Board, including the Company's founder, would provide $4.5 to $5.0 million to the Company for working capital needs in exchange for convertible notes (the "Convertible Notes") with a term expiring May 2004. The Convertible Notes would be entitled to conversion features similar to the Series A preferred shares of the Company, based on a conversion price equal to 80% of the market value of the Company's common stock at closing. The Convertible Notes would be subordinated to Foothill and would bear interest at 10%. Also under the terms of the offering, $1.5 million in the form of a "Bridge Note" would be provided to the Company upon execution of a definitive agreement and would be due August 31, 2002 or would be exchanged for Convertible Notes. The Company would issue 600,000 warrants to the Bridge Note holders with an exercise price of $0.01 per share. Under the terms of the agreement, the conversion price for the Company's Series A Convertible Participating Preferred Shares would be reset from $12.00 per share to $6.00 per share and all other anti-dilution rights with respect to the agreement would be waived. The completion of the offer is subject to, among other things, shareholder approval which the Company expects to obtain before June 30, 2002. While we have had difficulty in recent months meeting operating needs and debt obligations, primarily as a result of economic conditions in the industry and related shortfall in revenues for the quarter ended December 31, 2001, we believe that the additional borrowing availability under the Credit Facility, the infusion of $1.5 million Bridge Note under the proposed offering of Convertible Notes in March and the completion of the Convertible Note offering upon shareholder approval will be sufficient to meet the Company's debt obligations and operating needs in the coming twelve months. While we believe we will obtain shareholder approval for the Convertible Notes, there can be no assurance, Page 22 however, that the Company will obtain such approval. We will be investigating alternative sources of debt or equity in the interim period and expect that, if such shareholder approval is not obtained, other sources to meet our working capital needs will be identified and pursued. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Foreign Exchange. Frontstep's revenues originating outside of North America were 28.4% and 19.7% of total revenue for the current and prior year fiscal quarters, respectively and 26.5% and 21.1% for the current and prior fiscal six month periods, respectively. By geographic region, revenues originating in Europe were 18% and 11% of total revenue for the current and prior year fiscal quarters, respectively and 16% and 11% for the current and prior fiscal six month periods, respectively. Revenues originating in Asia Pacific were 10% and 9% of total revenue for both the current and prior year fiscal quarters, respectively and 10% for the both the current and prior fiscal six month periods. International sales are made mostly from the Company's foreign sales subsidiaries in the local countries and are typically denominated in the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. The Company's exposure to foreign exchange rate fluctuations arises in part from intercompany accounts in which costs of software, including certain development costs, incurred in the United States are charged to the Company's foreign sales subsidiaries. These intercompany accounts are typically denominated in the functional currency of the foreign subsidiary in order to centralize foreign exchange risk with the parent company in the United States. The Company is also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. Foreign currency gains and losses will continue to result from fluctuations in the value of the currencies in which the Company conducts its operations as compared to the U.S. dollar and future operating results will be affected by gains and losses from foreign currency exposure. The Company does not currently hedge against losses arising from its foreign currency exposure. The Company has considered the potential impact of a 10% adverse change in foreign exchange rates and it believes that such a change would not have a material impact on financial results or financial condition in the coming fiscal year. Interest Rates. The Company invests its surplus cash in financial instruments such as short-term marketable securities and interest-bearing time deposits. The Company also incurs interest at variable rates, dependent upon the prime rate or LIBOR rate that may be in effect from time to time. The Company has considered the potential impact of an adverse change in interest rates of one hundred basis points and it believes that such a change would not have a material impact on financial results or financial condition in the coming fiscal year. Page 23 PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is subject to legal proceedings and claims which arise in the normal course of business. While the outcome of these matters cannot be predicted with certainty, management does not believe the outcome of any of these legal matters will have a material adverse effect on the Company's business, financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. (a) As of December 31, 2001, the Company was not in compliance with certain covenants under the Credit Facility, particularly covenants requiring the maintenance of minimum levels of net worth and cumulative EBITDA, as a result of its reported losses. The noncompliance does not relate to any payment due under the Credit Facility. The Company's bank has waived this noncompliance for the period ended December 31, 2001. Subsequent to that date the Company and its bank have amended the Credit Facility to waive the conditions of noncompliance as of December 31, 2001, to reset the related financial covenants and to adjust certain other provisions of the agreement to provide temporary additional borrowing availability. (b) Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The Company held its annual meeting of the shareholders on November 7, 2001 (the "Meeting"). (b) No response required. (c) The only matters voted on at the Meeting were (i) the uncontested election of directors, (ii) an amendment to the Company's Employee Stock Purchase Plan to increase the aggregate number of shares available for issuance under the plan to 400,000, and (iii) an amendment to the Company's 1999 Non-Qualified Stock Option Plan for Key Employees to increase the aggregate number of shares that may be issued upon exercise of options granted under the plan to 900,000. Of the 7,562,193 shares represented in person or by proxy at the meeting, the number of shares voted for and the number of shares as to which the authority to vote was withheld in the election of directors were as follows with respect to each director nominee: NAME VOTES "FOR" AUTHORITY TO VOTE WITHHEDL Lawrence J. Fox 7,196,004 366,189 Stephen A. Sasser 7,220,376 341,817 Duke W. Thomas 7,197,506 364,687 James A. Rutherford 7,223,340 338,853 Roger D. Blackwell 7,225,016 337,177 Guy de Chazal 7,217,116 345,077 Barry Goldsmith 7,218,566 343,627 Page 24 The manner in which the votes were cast with respect to the proposed amendment to the Employee Stock Purchase Plan was as follows: SHARES VOTES SHARES VOTED ABSTENTIONS BROKER "FOR" "AGAINST" NON-VOTES 3,802,026 325,284 9,648 None The manner in which the votes were cast with respect to the proposed amendment to the 1999 Non-Qualified Stock Option Plan was as follows: SHARES VOTES SHARES VOTED ABSTENTIONS BROKER "FOR" "AGAINST" NON-VOTES 3,395,396 729,932 12,157 None ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) See Index to Exhibits filed with this Quarterly Report on Form 10-Q following the Signature Page. (b) Reports on Form 8-K. The Company filed a current report on Form 8-K, dated January 10, 2001, to report under Item 5 (Other Events) that the registrant had issued a press release to announce preliminary results for the second quarter of fiscal 2002. The text of the press release is attached as an exhibit to the Form 8-K for further description of the event. Page 25 SIGNATURES 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. FRONTSTEP, INC. Dated: September 28, 2002 By: /s/ Daniel P. Buettin ------------------ ---------------------------- Daniel P. Buettin Vice President, Finance, Chief Financial Officer and Secretary (on behalf of the Registrant and as Principal Financial Officer) Page 26 CERTIFICATIONS I, Stephen A. Sasser, certify that: 1. I have reviewed this report on Form 10-Q/A of Frontstep, Inc.; 2. Based on my knowledge, this 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 report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report. Date: September 28, 2002 By: /s/ STEPHEN A. SASSER ------------------------------------ Stephen A. Sasser President and Chief Executive Officer I, Daniel P. Buettin, certify that: 1. I have reviewed this report on Form 10-Q/A of Frontstep, Inc.; 2. Based on my knowledge, this 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 report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report. Date: September 28, 2002 By: /s/ DANIEL P. BUETTIN ------------------------------------ Daniel P. Buettin Vice President, Finance, Chief Financial Officer And Secretary, Principal Financial and Accounting Officer Page 27 INDEX TO EXHIBITS
Exhibit No. Description Page - ----------- ----------- ---- 3(a)(1) Amended Articles of Incorporation of Incorporated herein by reference to Frontstep, Inc. (f/k/a "Symix Systems, Exhibit 3(a)(1) to the Registrant's Annual Inc.") (the "Company") (as filed with the Report on Form 10-K for the fiscal year Ohio Secretary of State on February 8, ended June 30, 1997 (File No. 0-19024) 1991) 3(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation of the Company Exhibit 3(a)(2) to the Registrant's Annual (as filed with the Ohio Secretary of Report on Form 10-K for the fiscal year State on July 16, 1996) ended June 30, 1997 (File No. 0-19024) 3(a)(3) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation, as amended of Exhibit 3(a)(3) to the Registrant's the Company (as filed with the Ohio Quarterly Report on Form 10-Q for the Secretary of State on May 10, 2000) fiscal quarter ended March 31, 2000 (File No. 0-19024) 3(a)(4) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation, as amended of Exhibit 3(a)(4) to the Registrant's the Company (as filed with the Ohio Quarterly Report on Form 10-Q for the Secretary of State on November 8, 2000) fiscal quarter ended September 30, 2000 (File No. 0-19024) 3(a)(5) Amended Articles of Incorporation, as Incorporated herein by reference to amended of the Company (reflecting Exhibit 3(a)(5) to the Registrant's amendments through November 8, 2000 for Quarterly Report on Form 10-Q for the purposes of Securities and Exchange fiscal quarter ended September 30, 2000 Commission reporting compliance only) (File No. 0-19024) 3(b) Amended Regulations of the Company Incorporated herein by reference to Exhibit 3(b) to the Registrant's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on February 12, 1991 (Registration No. 33-38878) 4(a)(1) Amended Articles of Incorporation of the Incorporated herein by reference to Company (as filed with the Ohio Secretary Exhibit 3(a)(1) to the Registrant's Annual of State on February 8, 1991) Report on Form 10-K for the fiscal year ended June 30, 1997 (File No. 0-19024) 4(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation of the Company Exhibit 3(a)(2) to the Registrant's Annual (as filed with the Ohio Secretary of Report on Form 10-K for the fiscal year State on July 16, 1996) ended June 30, 1997 (File No. 0-19024)
Page 28
Exhibit No. Description Page - ----------- ----------- ---- 4(a)(3) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation, as amended of Exhibit 3(a)(3) to the Registrant's the Company (as filed with the Ohio Quarterly Report on Form 10-Q for the Secretary of State on May 10, 2000) fiscal quarter ended March 31, 2000 (File No. 0-19024) 4(a)(4) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation, as amended of Exhibit 3(a)(4) to the Registrant's the Company (as filed with the Ohio Quarterly Report on Form 10-Q for the Secretary of State on November 8, 2000) fiscal quarter ended September 30, 2000 (File No. 0-19024) 4(a)(5) Amended Articles of Incorporation, as Incorporated herein by reference to amended of the Company (reflecting Exhibit 3(a)(5) to the Registrant's amendments through November 8, 2000 for Quarterly Report on Form 10-Q for the purposes of Securities and Exchange fiscal quarter ended September 30, 2000 Commission reporting compliance only) (File No. 0-19024) 4(b) Amended Regulations of the Company Incorporated herein by reference to Exhibit 3(b) to the Registrant's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on February 12, 1991 (Registration No. 33-38878) 4(c) Share Exchange Agreement, dated January Incorporated herein by reference to 9, 1997 Exhibit 99 to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on January 24, 1997 (File No. 0-19024) 4(d) Investor Rights Agreement, dated as of Incorporated herein by reference to May 10, 2000, among the Company, the Exhibit 4(c) to the Registrant's Quarterly Investors identified therein and Lawrence Report on Form 10-Q for the fiscal quarter J. Fox ended March 31, 2000 (File No. 0-19024) 4(e) Amendment to Investor Rights Agreement Incorporated herein by reference to Exhibit 4(c) to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on August 30, 2000 (File No. 0-19024) 4(f) Warrant for the Purchase of Shares of Incorporated herein by reference to Common Stock of the Registrant issued to Exhibit 4(e) to the Registrant's Annual Morgan Stanley Dean Witter Venture Report on Form 10-K for the fiscal year Partners IV, L.P. and Exhibit A, ended June 30, 2001 (File No. 0-19024) identifying other identical warrants issued to the Investors identified on Exhibit A, for the number of common shares listed on Exhibit A, on the dates indicated
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Exhibit No. Description Page - ----------- ----------- ---- 4(g) Assignment and Assumption Agreement, by Incorporated herein by reference to and between Morgan Stanley Dean Witter Exhibit 4(g) to the Registrant's Quarterly Equity Funding, Inc. and the Originators Report on Form 10-Q for the fiscal quarter Investment Plan, L.P., dated November 24, ended December 31, 2000 (File No. 0-19024) 2000 4(h) Common Share Purchase Warrant, dated July Incorporated herein by reference to 17, 2001, issued to Foothill Capital Exhibit 4(g) to the Registrant's Annual Corporation Report on Form 10-K for the fiscal year ended June 30, 2001 (File No. 0-19024) 4(i) Registration Rights Agreement, dated July Incorporated herein by reference to 17, 2001, by and between the Registrant Exhibit 4(h) to the Registrant's Annual and Foothill Capital Corporation Report on Form 10-K for the fiscal year ended June 30, 2001 (File No. 0-19024) 10(A)*** First Amendment to Loan and Security Previously filed Agreement, by and among the Registrant, Frontstep Solutions Group, Inc., brightwhite solutions, inc. and Frontstep Canada, Inc., as Borrowers, and the Lenders signatory thereto, as Lenders, and Foothill Capital Corporation, as Arranger and Administrative Agent. 99(a) Certifications of Chief Executive Officer and Filed herein Chief Financial Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*** Indicates that the Registrant has omitted from Exhibit 10(a) certain confidential information that it has separately filed with the Securities and Exchange Commission ("SEC"), pursuant to a request for confidential treatment of such information. Page 30 EX-99.A 3 l96369aexv99wa.txt EXHIBIT 99(A) Exhibit 99(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF FRONTSTEP, INC. This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the annual report of Frontstep, Inc. (the "Company") on Form 10-Q/A for the quarterly period ended December 31, 2001, as filed with the Securities and Exchange Commission (the "Report"). The undersigned, in the capacities and on the date indicated below, hereby certifies that, to the best of his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. By: /s/ STEPHEN A. SASSER ------------------------------------- Stephen A. Sasser President and Chief Executive Officer Date: September 28, 2002 ---- CERTIFICATION OF CHIEF FINANCIAL OFFICER OF FRONTSTEP, INC. This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies the annual report of Frontstep, Inc. (the "Company") on Form 10-Q/A for the quarterly period ended December 31, 2001, as filed with the Securities and Exchange Commission (the "Report"). The undersigned, in the capacities and on the date indicated below, hereby certifies that, to the best of his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. By: /s/ DANIEL P. BUETTIN ------------------------------------------ Daniel P. Buettin Vice President, Finance, Chief Financial Officer And Secretary, Principal Financial and Accounting Officer Date: September 28, 2002 ---- -----END PRIVACY-ENHANCED MESSAGE-----