**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 
| **ý** |   | **Quarterly report pursuant to Section  13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period  ended March 31, 2003** |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
|       |
| **or**     |
|       |   |                                                                                                                                        |
| **o**      |   | **Transition report pursuant to Section  13 or 15(d) of the Securities Exchange Act of 1934**                                               |

 

**Commission filenumber:  0-26994**

 

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**ADVENT SOFTWARE, INC.**

(Exact name of Registrant asspecified in its charter)

 

| **Delaware**                                                    |   | **94-2901952**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction  of incorporation or organization) |   | (IRS Employer Identification  Number) |
|                                                            |   |                                  |
| **301 Brannan  Street, San Francisco, California 94107**        |
| (Address of principal  executive offices and zip code)          |
|                                                            |   |                                  |
| **(415) 543-7696**                                         |
| (Registrant’s telephone  number, including area code)      |

 

----

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes ý  No o

 

Indicate by check mark whether the Registrantis an accelerated file (as defined in Rule 12b-2 of the Exchange Act)

 

Yes ý  No o

 

The number of shares of theRegistrant’s Common Stock outstanding as of April 30, 2003 was****31,977,659**.**

 

 

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**INDEX**

 
| **PART I. FINANCIAL INFORMATION** |
|-----------------------------------|
| **Item 1.**                       | **Financial Statements** |
|                              | Condensed Consolidated Balance Sheets |
|                              | Condensed Consolidated Statements of  Operations |
|                              | Condensed Consolidated Statements of Cash  Flows |
|                              | Notes to the Condensed Consolidated  Financial Statements |
| **Item 2.**                       | **Management’s Discussion and Analysis of  Financial Condition and Results of Operations** |
| **Item 3.**                       | **Quantitative and Qualitative Disclosures  About Market Risk** |
| **Item 4.**                       | **Controls  and Procedures** |
| **PART II. OTHER INFORMATION**    |
| **Item 1.**                       | **Legal Proceedings** |
| **Item 2.**                       | **Changes in Securities and Use of Proceeds** |
| **Item 3.**                       | **Defaults Upon Senior Securities** |
| **Item 4.**                       | **Submission of Matters to a Vote of Security  Holders** |
| **Item 5.**                       | **Other Information** |
| **Item 6.**                       | **Exhibits and Reports on Form 8-K** |
| **Signatures**                    |

 

2

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**PART I. FINANCIALINFORMATION**

 

**Item 1. Financial Statements**

 

**ADVENTSOFTWARE, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

(In thousands)

 
|                                             |   | **March 31,  2003** |    | **December 31,  2002** |   |
|--------------------------------------------------|--------|---------------------|---------|------------------------|--------|
|                                             |   | **(unaudited)**     |    |
|                                             |   |                |    |                   |   |
| **ASSETS**                                       |   |                |    |                   |   |
| Current  assets:                                 |   |                |    |                   |   |
| Cash and  cash equivalents                       |   | $                   | 83,329  |                   | $      | 78,906 |   |
| Short-term  marketable securities                |   | 80,036              |    | 94,923                 |   |
| Accounts  receivable, net                        |   | 20,953              |    | 21,470                 |   |
| Prepaid  expenses and other                      |   | 9,237               |    | 8,947                  |   |
| Income  taxes receivable                         |   | —              |    | 6,289                  |   |
| Deferred  income taxes                           |   | 4,740               |    | 4,714                  |   |
| Total  current assets                            |   | 198,295             |    | 215,249                |   |
| Property  and equipment, net                     |   | 27,318              |    | 28,001                 |   |
| Goodwill                                         |   | 67,678              |    | 67,349                 |   |
| Intangibles,  net                                |   | 37,811              |    | 41,157                 |   |
| Other  assets, net                               |   | 79,320              |    | 80,980                 |   |
| Total  assets                                    |   | $                   | 410,422 |                   | $      | 432,736 |   |
|                                             |   |                |    |                   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**    |   |                |    |                   |   |
| Current  liabilities:                            |   |                |    |                   |   |
| Accounts  payable                                |   | $                   | 2,626   |                   | $      | 2,637 |   |
| Accrued  liabilities                             |   | 16,492              |    | 13,530                 |   |
| Deferred  revenues                               |   | 32,951              |    | 31,918                 |   |
| Income  taxes payable                            |   | 3,475               |    | 5,817                  |   |
| Total  current liabilities                       |   | 55,544              |    | 53,902                 |   |
| Long-term  liabilities                           |   | 2,173               |    | 5,479                  |   |
| Total  liabilities                               |   | 57,717              |    | 59,381                 |   |
| Stockholders’  equity:                      |   |                |    |                   |   |
| Common  stock                                    |   | 320                 |    | 329                    |   |
| Additional  paid-in capital                      |   | 289,114             |    | 302,649                |   |
| Retained  earnings                               |   | 59,905              |    | 67,385                 |   |
| Cumulative  other comprehensive income           |   | 3,366               |    | 2,992                  |   |
| Total  stockholders’ equity                 |   | 352,705             |    | 373,355                |   |
| Total  liabilities and stockholders’ equity |   | $                   | 410,422 |                   | $      | 432,736 |   |

 

The accompanying notes are anintegral part of these condensed consolidated financial statements.

 

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**ADVENTSOFTWARE, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

(In thousands, except per sharedata)

 
|                                              |   | **Three Months Ended  March 31,** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|
|                                              |   | **2003**                          |   | **2002** |   |
|                                              |   | **(unaudited)**                   |   |
|                                              |   |                              |   |   |   |
| **Revenues:**                                     |   |                              |   |   |   |
| License  and development fees                     |   | $                                 | 8,128  |   | $ | 23,010 |   |
| Maintenance  and other recurring                  |   | 21,874                            |   | 21,508 |   |
| Professional  services and other                  |   | 3,042                             |   | 4,679 |   |
| Net  revenues                                     |   | 33,044                            |   | 49,197 |   |
| **Cost of revenues:**                             |   |                              |   |   |   |
| License  and development fees                     |   | 1,554                             |   | 1,782 |   |
| Maintenance  and other recurring                  |   | 6,759                             |   | 5,301 |   |
| Professional  services and other                  |   | 1,943                             |   | 1,585 |   |
| Total  cost of revenues                           |   | 10,256                            |   | 8,668 |   |
| Gross  margin                                     |   | 22,788                            |   | 40,529 |   |
| **Operating expenses:**                           |   |                              |   |   |   |
| Sales  and marketing                              |   | 13,452                            |   | 15,370 |   |
| Product  development                              |   | 8,855                             |   | 9,091 |   |
| General  and administrative                       |   | 5,312                             |   | 4,788 |   |
| Amortization  of intangibles                      |   | 3,359                             |   | 1,867 |   |
| Restructuring  expense                            |   | 3,489                             |   | — |   |
| Total  operating expenses                         |   | 34,467                            |   | 31,116 |   |
| Income  (loss) from operations                    |   | (11,679                           | )      | 9,413 |   |
| Interest  income and other expense, net           |   | 172                               |   | 1,661 |   |
| Income  (loss) before income taxes                |   | (11,507                           | )      | 11,074 |   |
| Provision  for (benefit from) income taxes        |   | (4,027                            | )      | 3,765 |   |
| **Net income (loss)**                             |   | $                                 | (7,480 | ) | $ | 7,309 |   |
|                                              |   |                              |   |   |   |
| **Other comprehensive income (loss), net of tax** |   |                              |   |   |   |
| Unrealized  gain (loss) on marketable securities  |   | (51)                              |   | (439 | ) |
| Foreign  currency translation adjustments         |   | (425                              | )      | (9 | ) |
| Comprehensive  income (loss)                      |   | $                                 | (7,956 | ) | $ | 6,861 |   |
|                                              |   |                              |   |   |   |
| **Net income (loss) per share data:**             |   |                              |   |   |   |
| *Basic:*                                          |   |                              |   |   |   |
| Net  income (loss) per share                      |   | $                                 | (0.23  | ) | $ | 0.21 |   |
| Shares  used in per share calculations            |   | 32,390                            |   | 34,357 |   |
| *Diluted:*                                        |   |                              |   |   |   |
| Net  income (loss) per share                      |   | $                                 | (0.23  | ) | $ | 0.20 |   |
| Shares  used in per share calculations            |   | 32,390                            |   | 37,222 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

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**ADVENTSOFTWARE, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

(In thousands)

 
|                                                                                      |   | **Three Months Ended  March 31,** |   |
|-------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                      |   | **2003**                          |   | **2002** |   |
|                                                                                      |   | **(unaudited)**                   |   |
|                                                                                      |   |                              |   |   |   |
| **Cash flows from operating activities:**                                                 |   |                              |   |   |   |
| Net  income (loss)                                                                        |   | $                                 | (7,480 | ) | $ | 7,309 |   |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities: |   |                              |   |   |   |
| Non-cash  stock compensation                                                              |   | —                            |   | 75 |   |
| Depreciation  and amortization                                                            |   | 5,504                             |   | 3,738 |   |
| Non-cash  restructuring charge                                                            |   | 410                               |   | — |   |
| Provision  for doubtful accounts                                                          |   | 102                               |   | 1,264 |   |
| Other  than temporary loss on investments                                                 |   | 500                               |   | 900 |   |
| Realized  (gain) loss on investments                                                      |   | 69                                |   | (246 | ) |
| Deferred  income taxes                                                                    |   | (22                               | )      | (245 | ) |
| Other                                                                                     |   | 23                                |   | (483 | ) |
| Cash  provided by (used in) operating assets and liabilities:                             |   |                              |   |   |   |
| Accounts  receivable                                                                      |   | 421                               |   | 1,000 |   |
| Prepaid  and other current assets                                                         |   | 757                               |   | 480 |   |
| Income  taxes receivable                                                                  |   | 6,289                             |   | — |   |
| Accounts  payable                                                                         |   | (50                               | )      | 932 |   |
| Accrued  liabilities                                                                      |   | (317                              | )      | (206 | ) |
| Deferred  revenues                                                                        |   | 1,027                             |   | (3,570 | ) |
| Income  taxes payable                                                                     |   | (2,349                            | )      | (228 | ) |
| Net cash  provided by operating activities                                                |   | 4,884                             |   | 10,720 |   |
| **Cash flows provided by (used in) investing activities:**                                |   |                              |   |   |   |
| Net cash  used in acquisitions including payments of net assumed liabilities              |   | —                            |   | (59,963 | ) |
| Acquisition  of fixed assets                                                              |   | (1,876                            | )      | (1,455 | ) |
| Purchases  of other investments                                                           |   | —                            |   | (7,819 | ) |
| Proceeds  from sales of other investments                                                 |   | —                            |   | 1,831 |   |
| Purchase  of short-term marketable securities                                             |   | (32,711                           | )      | (41,088 | ) |
| Sales  and maturities of short-term marketable securities                                 |   | 47,566                            |   | 30,848 |   |
| Deposits  and other                                                                       |   | —                            |   | (3,779 | ) |
| Net cash  provided by (used in) investing activities                                      |   | 12,979                            |   | (81,425 | ) |
| **Cash flows provided by (used in) financing activities:**                                |   |                              |   |   |   |
| Proceeds  from issuance and exercise of warrants                                          |   | —                            |   | 2 |   |
| Common  stock repurchased                                                                 |   | (14,308                           | )      | — |   |
| Proceeds  from issuance of common stock                                                   |   | 764                               |   | 7,896 |   |
| Repayment  of capital leases                                                              |   | (61                               | )      | — |   |
| Net cash  provided by (used in) financing activities                                      |   | (13,605                           | )      | 7,898 |   |
| Effect  of exchange rate changes on cash and cash equivalents                             |   | 165                               |   | (68 | ) |
| **Net increase (decrease) in cash and cash equivalents**                                  |   | 4,423                             |   | (62,875 | ) |
| **Cash and cash equivalents at beginning of period**                                      |   | 78,906                            |   | 166,794 |   |
| **Cash and cash equivalents at end of period**                                            |   | $                                 | 83,329 |   | $ | 103,919 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

5

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**ADVENTSOFTWARE, INC.**

**NOTES TO THECONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**1.  Basis of Presentation**

 

The condensed consolidatedfinancial statements include the accounts of Advent Software, Inc.(“Advent”) and its wholly owned subsidiaries. All significant intercompanybalances and transactions have been eliminated.

 

We have prepared the condensedconsolidated financial statements in accordance with the rules and regulationsof the Securities and Exchange Commission (“SEC”) applicable to interimfinancial information. Certain information and footnote disclosures included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been omitted in theseinterim statements pursuant to such SEC rules and regulations. We recommendthat these interim financial statements be read in conjunction with the auditedfinancial statements and related notes included in our 2002 Annual Report onForm 10-K filed with the SEC. Interim results are not necessarilyindicative of the results to be expected for the full year and we make norepresentation thereto.

 

In our opinion, the condensedconsolidated financial statements include all adjustments necessary to presentfairly the financial position and results of operations for each interim periodshown. All such adjustments occur in the ordinary course of business and are ofa normal, recurring nature.

 

**2. AccountingPolicies**

 

**Use of estimates **The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. These estimatesare based on information available as of the date of the financial statements.Actual results could differ from those estimates.

 

**Revenue recognition and allowance for doubtful accounts **We licenseapplication software products and offer annual maintenance programs whichprovide for technical support and updates to our software products.  We offer professional services thatprimarily include consulting, implementation management, integrationmanagement, custom report writing and training. We offer other recurringrevenue products and services that are subscription-based and transaction-basedthat primarily include interfacing and downloading of securities informationfrom third party providers.  Developmentagreements generally provide for the development of technologies and productsthat are expected to become part of our product or product offerings in thefuture.

 

We recognize revenue from the license ofsoftware when persuasive evidence of an arrangement exists, the product hasbeen delivered, the fee is fixed and determinable and collection of theresulting receivable is reasonably assured. We use a signed license agreementas evidence of an arrangement. Sales through our distributors are evidenced bya master agreement governing the relationship together with binding order formsand signed contracts from the distributor’s customers. Delivery occurs whenproduct is delivered to a common carrier F.O.B shipping point. Our arrangementsdo not generally include acceptance provisions, but if acceptance provisionsare provided, delivery occurs upon acceptance. We assess whether the fee isfixed and determinable based on the payment terms associated with thetransaction and, if applicable, the customer’s collection history.  We assess whether collection of the fee isreasonably assured based on a number of factors, including past transactionhistory with the customer and the credit-worthiness of the customer. Ourarrangements for software licenses are sold with maintenance and, often times,professional services and other products and services. We allocate revenue todelivered components, normally the license component of the arrangement, usingthe residual value method based on objective evidence of the fair value of theundelivered elements, which is specific to us. Fair values for the maintenanceservice for our software licenses are based upon renewal rates stated in thecontracts or, in limited cases, separate sales of renewals to other customers.  We recognize revenue for maintenanceservices ratably over the contract term. Fair value for the professionalservices and other products and services is based upon separate sales by us ofthese services to other customers.  Ourprofessional services, which include consulting, implementation management,integration management, custom report writing and training, are generally

 

6

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billed based on hourly rates plus travel and lodging related expensereimbursements. Our professional services and other revenue also includesrevenue from our semi-annual conferences, which is generated primarily fromattendance fees.  We recognize revenueas these professional services are performed. Other recurring revenues, which are subscription and transaction based,include interfacing and downloading of securities information from third partyproviders.  Subscription-based revenuesand any related set-up fees are recognized ratably over the period of the contract.  Transaction-based revenues are generallyrecognized when the transactions occur. Revenues for license development projects are recognized using thepercentage-of-completion method of accounting, based on costs incurred to datecompared with the estimated cost of completion.  In June 2002, we began tooffer term licenses as an alternative to the perpetual licenses we havehistorically offered to customers. We recognize revenue for term licensesratably over the period of the contract term. We recognize revenue on perpetuallicenses upon shipment assuming all other revenue recognition criteria havebeen met.

 

We analyze specific accounts receivable,historical bad debts, customer concentrations, customer credit-worthiness,current economic trends and changes in our customer payment terms when evaluatingthe adequacy of the allowance for doubtful accounts.

 

**Accounting forintangible assets**               Intangibleassets are stated at cost less accumulated amortization and include goodwill,completed technology and non-compete and distribution agreements.  Goodwill is the excess of cost over fairvalue of the net assets acquired.  As ofMarch 31, 2003, the estimated lives of goodwill acquired prior to July 1, 2001and all acquired intangibles is as follows:

 
| Completed technology         |   | 3 to 7 years |
|------------------------------|--------|--------------|
| Agreements                   |   | 5 to 7 years |
| Customer base and trade name |   | 3 to 7 years |

 

We review intangible assets,including goodwill, whenever events or changes in circumstances indicate thatthe carrying amount of these assets may have been impaired. In addition, inaccordance with Statement of Financial Accounting Standards (“SFAS”)No. 142, “Goodwill and Other Intangible Assets”, we test goodwill annuallyfor impairment using a two-step process. The first step of the goodwillimpairment test, used to identify potential impairment, compares the fair valueof a reporting unit with its carrying amount, including goodwill. If the fairvalue of a reporting unit exceeds its carrying amount, goodwill of thereporting unit is considered not impaired, thus the second step of theimpairment test is unnecessary. The second step of the goodwill impairmenttest, used to measure the amount of impairment loss, compares the implied fairvalue of the reporting unit goodwill with the carrying amount of that goodwill.If the carrying amount of reporting unit goodwill exceeds the implied fairvalue of that goodwill, an impairment loss shall be recognized in an amountequal to that excess. The implied fair value of goodwill shall be determined byallocating the fair value of a reporting unit to all of the assets andliabilities of that unit (including any unrecognized intangible assets) as ifthe reporting unit had been acquired in a business combination and the fairvalue of the reporting unit was the price paid to acquire the reporting unit.  There was no impairment during the quarterended March 31, 2003.

 

**Accounting for long-lived assets****                **We review property, equipment and other long-livedassets for impairment whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable. Factors we considerimportant which could trigger an impairment review include the following (1)significant underperformance relative to expected historical or projectedfuture operating results; (2) significant changes in the manner of our use ofthe acquired assets or the strategy for our overall business; (3) significantnegative industry or economic trends; (4) significant decline in our stockprice for a sustained period; and (5) our market capitalization relative to netbook value.  Recoverability is measuredby comparison of the assets’ carrying amount to their expected futureundiscounted net cash flows. If such assets are considered to be impaired, theimpairment to be recognized is measured by the amount by which the carrying amountof the asset exceeds its expected future discounted cash flow.

 

We hold minority interests in several privately held companies havingoperations or technology in areas within our strategic focus.  Most of these investments can be consideredin the start-up or developing stages and are classified as “other assets” onour balance sheet. One of these investments is accounted for under the equitymethod of accounting. Our portion of net income and losses for this investmenthas not been significant to date. We record an investment write-down when webelieve an investment has experienced a decline in value that is other thantemporary. Future adverse

 

7

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changesin market conditions or poor operating results of underlying investments couldresult in losses or an inability to recover the carrying value of theinvestments that may not be reflected in an investment’s current carryingvalue, thereby possibly requiring an impairment charge in the future.  We estimate an investment’s current carryingvalue based primarily on market conditions, recent valuation events andoperating results of the underlying investment.

 

**Stock-based compensation **We use the intrinsic value-based method to accountfor all of our stock-based employee compensation plans and have adopted thedisclosure-only alternative of SFAS No. 123 “Accounting for Stock-BasedCompensation”, as amended by SFAS No. 148, “Accounting for Stock-BasedCompensation”.  We are required todisclose the pro forma effects on operating results as if we had elected to usethe fair value approach to account for all our stock-based employeecompensation plans. Stock-based compensation for non-employees is based on thefair value of the related stock or options.

 

The fair value of warrants,options or stock exchanged for services is expensed over the period benefited.The warrants and options are valued using the Black-Scholes option pricingmodel.

 

If compensation had been determined based onthe fair value at the grant date for awards in the quarters ended March 31,2003 and 2002, respectively, consistent with the provisions of SFAS No. 123,our net income (loss) and net income (loss) per share would have been asfollows (in thousands, except per share data):

 
|                                                                                                                                                     |   | **Three  Months Ended March 31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                                                     |   | **2003**                          |   | **2002** |   |
|                                                                                                                                                     |   |                              |   |   |   |
| Net income (loss) – as  reported                                                                                                                    |   | $                                 | (7,480 | ) | $ | 7,309 |   |
| Stock-based employee  compensation expense included in reported net income, net of related tax  effects                                                  |   | —                            |   | 50 |   |
| Total stock based employee  compensation expense determined under fair value based method for all awards  granted since 1996, net of related tax effects |   | (1,594                            | )      | (3,295 | ) |
|                                                                                                                                                     |   |                              |   |   |   |
| Net income (loss) – pro forma                                                                                                                       |   | $                                 | (9,074 | ) | $ | 4,064 |   |
|                                                                                                                                                     |   |                              |   |   |   |
| PER SHARE DATA                                                                                                                                           |   |                              |   |   |   |
| *Basic*                                                                                                                                                  |   |                              |   |   |   |
| Net income (loss) – as  reported                                                                                                                    |   | $                                 | (0.23  | ) | $ | 0.21 |   |
| Net income (loss) – pro forma                                                                                                                       |   | $                                 | (0.28  | ) | $ | 0.12 |   |
| *Diluted*                                                                                                                                                |   |                              |   |   |   |
| Net income (loss) – as  reported                                                                                                                    |   | $                                 | (0.23  | ) | $ | 0.20 |   |
| Net income (loss) – pro forma                                                                                                                       |   | $                                 | (0.28  | ) | $ | 0.11 |   |

 

Such pro forma disclosures may not berepresentative of future compensation costs because options vest over severalyears and additional grants are made each year.

 

The weighted-average fair values of optionsgranted, measured on the grant date using the Black-Scholes model, were $8.25and $30.36 per share for the three months ended March 31, 2003 and 2002,respectively.

 

The fair value of each option grant isestimated on the date of grant using the Black-Scholes valuation model with thefollowing weighted average assumptions:

 
|                    |   | **2003** |   | **2002** |   |
|-------------------------|--------|----------|--------|----------|--------|
| Risk-free interest rate |   | 2.87     | %      | 3.82     | %      |
| Volatility              |   | 73       | %      | 71.8     | %      |
| Expected life           |   | 5 years  |   | 5 years  |   |
| Expected dividends      |   | None     |   | None     |   |
| Average turnover rate   |   | 8        | %      | 8        | %      |

 

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**Guarantees**Financial Accounting Standards Board****(“FASB”) Interpretation No. 45 (“FIN 45”),“Guarantor’s Accounting and Disclosure Requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others” requires that a liability berecorded in the guarantor’s balance sheet upon issuance of a guarantee. Oursoftware license agreements typically indemnify our clients for intellectualproperty infringement claims. We also warrant to our clients that our softwareoperates substantially in accordance with our specifications. Liabilities inconnection with such guarantees have not been material.

 

**Reclassifications**Certain prior yearamounts have been reclassified to conform to current year presentation. Suchreclassifications had no effect on results of operations or stockholders’equity.

 

**3.  Net Income (Loss) Per Share**(in thousands, except per share data)

 
|                                                                                                                        |   | **Three Months  Ended  March 31,** |        |
|-----------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|-------------|
|                                                                                                                        |   | **2003**                           |        | **2002** |   |
|                                                                                                                        |   |                               |        |   |   |
| **Net income (loss)**                                                                                                       |   | $                                  | (7,480      | ) | $ | 7,309 |   |
|                                                                                                                        |   |                               |        |   |   |
| **Reconciliation of shares used in basic and diluted earnings per share  (“EPS”) calculations**                   |   |                               |        |   |   |
|                                                                                                                        |   |                               |        |   |   |
| **Basic**                                                                                                                   |   |                               |        |   |   |
| Weighted  average common shares outstanding                                                                                 |   | 32,390                             |        | 34,357 |   |
| **Basic net income (loss) per share**                                                                                       |   | **$**                              | **(0.23**   | **)** | **$** | **0.21** | ** ** |
|                                                                                                                        |   |                               |        |   |   |
| **Diluted**                                                                                                                 |   |                               |        |   |   |
| Weighted  average common shares outstanding                                                                                 |   | 32,390                             |        | 34,357 |   |
| Dilutive  effect of stock options                                                                                           |   | —                             |        | 2,865 |   |
| Shares  used in diluted net income (loss) per share calculation                                                             |   | 32,390                             |        | 37,222 |   |
| **Diluted net income (loss) per share**                                                                                     |   | **$**                              | **(0.23**   | **)** | **$** | **0.20** | ** ** |
|                                                                                                                        |   |                               |        |   |   |
| *Antidilutive  options outstanding excluded from the computation of EPS*                                                    |   |                               |        |   |   |
| Options  outstanding at March 31, 2003 and 2002, not included in computation of  diluted EPS because they were antidilutive |   | 4,248                              |        | 793 |   |
|                                                                                                                        |   |                               |        |   |   |
| Price  range of anti-dilutive options not used in diluted EPS calculation                                                   |   | $                                  | 0.33-$60.38 |   | $ | 55.80-$60.38 |   |

 

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**4.  Balance Sheet Detail**

 

 

The following is a summary of intangibles (inthousands, except for weighted average amortization periods):

** **
|                   |   | **Weighted-Average  Amortization Period  (Years)** |   | **Gross** |   | **Accumulated  Amortization as of  March 31, 2003** |   | **Net as of  March 31,  2003** |   | **Net as of  December 31,  2002** |   |
|------------------------|--------|----------------------------------------------------|--------|-----------|--------|-----------------------------------------------------|--------|--------------------------------|--------|-----------------------------------|--------|
|                   |   |                                               |   |      |   |                                                |   |                           |   |                              |   |
| Purchased technologies |   | 4.1                                                |   | $         | 22,337 |                                                | $      | (8,529                         | )      | $                                 | 13,808 |   | $ | 15,243 |   |
| Customer relationships |   | 5.0                                                |   | 28,018    |   | (7,938                                              | )      | 20,080                         |   | 21,647                            |   |
| Other intangibles      |   | 5.1                                                |   | 6,526     |   | (2,603                                              | )      | 3,923                          |   | 4,267                             |   |
| Total intangibles      |   |                                               |   | $         | 56,881 |                                                | $      | (19,070                        | )      | $                                 | 37,811 |   | $ | 41,157 |   |

 

The changes in the carryingvalue of intangibles and goodwill for the three months ended March 31, 2003were as follows (in thousands):

** **
|                         |   |         |   | **Intangibles** |   |
|------------------------------|--------|--------------|--------|-----------------|--------|
|                         |   | **Goodwill** |   | **Gross**       |   | **Accumulated  Amortization** |   | **Net** |   |
|                         |   |         |   |            |   |   |   |   |   |
| Balance at December 31, 2002 |   | $            | 67,349 |            | $      | 56,737 |   | $ | (15,580 | ) | $ | 41,157 |   |
| Amortization                 |   | —       |   | —          |   | (3,359 | ) | (3,359 | ) |
| Other adjustments            |   | 329          |   | 144             |   | (131 | ) | 13 |   |
| Balance at March 31, 2003    |   | $            | 67,678 |            | $      | 56,881 |   | $ | (19,070 | ) | $ | 37,811 |   |

 

As of March 31, 2003, theestimated intangibles amortization expense for each calendar year endedDecember 31 is: $13.1 million for 2003; $12.7 million for 2004;$7.8 million for 2005; $4.4 million for 2006; $1.7 million for 2007,$1 million for 2008 and $500,000 thereafter.

 

The following is a summary of other assets,net (in thousands):

** **
|                          |   | **March 31, 2003** |   | **December 31, 2002** |   |
|-------------------------------|--------|--------------------|--------|-----------------------|--------|
|                          |   |               |   |                  |   |
| Deferred  income taxes        |   | $                  | 55,313 |                  | $      | 55,313 |   |
| Long-term  equity investments |   | 10,516             |   | 11,005                |   |
| Other                         |   | 13,491             |   | 14,662                |   |
| Total  other assets, net      |   | $                  | 79,320 |                  | $      | 80,980 |   |

 

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**5. Acquisitions**

 

The following pro formasupplemental information presents selected financial information as though thepurchases of Kinexus, Techfi and Advent Outsource had been completed at thebeginning of the periods being reported on and after giving effect to purchaseaccounting adjustments. The pro forma consolidated net income (loss) amountsinclude certain pro forma adjustments, primarily the amortization ofidentifiable intangible assets, tax provision (benefit) adjustments on proforma pre-tax income (loss) at a statutory tax rate of 41% and the eliminationof interest income on cash used in the acquisition (in thousands, except pershare data):

 

|                                 |   | **Three months ended**         |   |
|--------------------------------------|--------|--------------------------------|--------|
|                                 |   | **March  31,  2003** |   | **March  31,  2002** |   |
|                                 |   |                           |   |   |   |
| Revenue                              |   | $                              | 33,044 |   | $ | 50,784 |   |
| Net  income (loss)                   |   | $                              | (7,480 | ) | $ | 3,424 |   |
| Diluted  net income (loss) per share |   | $                              | (0.23  | ) | $ | 0.09 |   |
| Basic  net income (loss) per share   |   | $                              | (0.23  | ) | $ | 0.10 |   |

 

**6. Restructuring**

 

In response to the continuing economicslowdown, we implemented a restructuring plan in the first quarter of 2003 andrecorded a restructuring expense of approximately $3.5 million in accordancewith SFAS 146, “Accounting for Costs Associated with Exit or DisposalActivities”. The expense consists of $2.1 million related to closing andconsolidating excess office space, primarily in New York and Australia,$979,000 related to the termination of 47 employees located primarily in NewYork and Australia and $410,000 relating to the abandonment and write-off ofcertain equipment, furniture and leasehold improvements. All closed facilitieswere vacated prior to March 31, 2003. The goal of the restructuring plan is toreduce costs and improve operating efficiencies by better aligning ourresources and consolidating duplicative efforts in parts of our business as aresult of integration of our various acquired businesses.

 

The following table sets forth an analysis ofthe components of the restructuring charge and the payments made against theaccrual as of March 31, 2003 (in thousands):

 
|                                                    |   | **Severance  and Benefits** |   | **Facility  Exit Costs** |   | **Property and  Equipment  Abandoned** |   | **Total** |   |
|---------------------------------------------------------|--------|-----------------------------|--------|--------------------------|--------|----------------------------------------|--------|-----------|--------|
| Restructuring expenses                                  |   | $                           | 979    |                     | $      | 2,100                                  |   | $         | 410    |   | $ | 3,489 |   |
| Reversal of deferred rent  related to facilities exited |   | —                      |   | 151                      |   | —                                 |   | 151       |   |
| Cash paid                                               |   | (877                        | )      | (281                     | )      | —                                 |   | (1,158    | )      |
| Non-cash charges                                        |   | —                      |   | —                   |   | (410                                   | )      | (410      | )      |
| Accrued restructuring at  March 31, 2003                |   | $                           | 102    |                     | $      | 1,971                                  |   | $         | — |   | $ | 2,072 |   |

 

The remaining excess facilitycosts are stated at estimated fair value which includes estimated subleaseincome. We expect to pay remaining obligations in connection with vacatedfacilities no later than over the remaining lease terms, which expire onvarious dates through 2008, and remaining obligations related to severance andbenefits in the second quarter of 2003.

 

**7.  Stockholders Equity**

 

In the first quarter of 2003, werepurchased and retired an additional 1,000,000 shares of our Common Stock foran average price of $14.31 per share.

 

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#### **8. Commitments and Contingencies**

 

We lease office space and equipment undernon-cancelable operating lease agreements, which expire at various datesthrough May 2012. Our operating lease commitments as of March 31, 2003 are $53million for the years 2003 through 2012, cumulatively.

 

A European distributor, AdventEurope, and its subsidiaries that operate in certain European locations havethe exclusive right to sell our software in Europe, excluding certainlocations, until July 1, 2004 subject to achieving certain revenue levels.During this period the distributor also has the contingent right to require usto purchase any one or any group of their subsidiaries. Our requirement topurchase is contingent upon the distributor achieving specified operatingmargins greater than 20% and specified customer satisfaction criteria. Thebasis for calculating the purchase price would be two times the precedingtwelve months total revenue of the purchased subsidiaries plus potentialadditional consideration equal to 50% of operating margins greater than 20%that are achieved in the two years subsequent to our acquisition. This purchaseprice may be varied by mutual agreement. In addition, we have the right to purchase any one or any group of thedistributor’s subsidiaries under certain conditions. In the event that theserights are exercised by Advent or the distributor, the purchase of thesesubsidiaries would principally result in an increase in intangible assets,goodwill and amortization of intangible assets.

 

From time to time we are subjectto various other legal proceedings, claims and litigation arising in theordinary course of business. We do not expect that the ultimate costs toresolve these matters will have a material adverse effect on our consolidatedfinancial position, results of operations, or cash flows.

 

**9. Subsequent Events**

 

In May of 2003, we purchased allof the common stock of Advent Netherlands BV from our independent Europeandistributor for approximately $8.3 million in cash, approximately $60,000 ofacquisition costs and estimated net liabilities assumed of approximately $2million. In addition, there is also a potential earn-out distribution to theselling members of up to $1.6 million through December 31, 2003 under aformula based on revenue results for the eight months ended December 31, 2003plus 50% of any operating margins which exceed 20% for the year ended December31, 2004. We acquired our Dutch distributor’s operations in order to expand ourdirect ownership of the European channels for products and services.  The acquisition includes distribution rightsin Belgium, The Netherlands and Luxembourg.

 

In April of 2003, we released  $3.4 million of the original $3.8 million ofcontingent consideration held in escrow for protection against undisclosedliabilities in connection with the Kinexus acquisition.  The payment was accounted for as an increaseto goodwill.

 

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**Item 2. ****Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

**SPECIAL NOTEREGARDING FORWARD-LOOKING STATEMENTS**

 

You should read the followingdiscussion in conjunction with our consolidated financial statements andrelated notes.  The following discussioncontains forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933 as amended and Section 21E of the SecuritiesExchange Act of 1934 as amended. Forward-looking statements canbe identified by the use of terminology such as “may”, “will”, “should”,“expect”, “plan” “anticipate”, “believe”, “estimate”, “predict”, “potential”,“continue” or other similar terms and the negative of such terms and include statementsabout our products and expected financial performance**.**Such forward-looking statements are based on our currentplans and expectations and involve known and unknown risks and uncertaintieswhich may cause our actual results or performance to be materially differentfrom any results or performance expressed or implied by such forward-lookingstatements.  Such factors include, butare not limited to, the “Risk Factors” set forth below as well as other risksidentified from time to time in other SEC reports.  You should not place undue reliance on our forward-lookingstatements, as they are not guarantees of future results, levels of activity orperformance and represent our expectations only as of the date they are made.

 

We are a leading provider of EnterpriseInvestment Management solutions that automate and integrate mission-criticalfunctions of investment management organizations through software products,data integration and professional services. Our solutions enable organizations of all sizes to run their businessmore effectively, enhance client service and performance, and improveproductivity and communication throughout the entire organization.

 

**Critical Accounting Policies and Estimates**

 

Our discussion and analysis of our financial condition and results ofoperations are based upon our consolidated financial statements, which havebeen prepared in accordance with accounting principles generally accepted inthe United States. The preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities. On an on-going basis, we evaluate our estimates and judgments,including those related to revenue recognition, valuation of long-lived assets,intangible assets and goodwill and income taxes. We base our estimates onhistorical experience and on various other assumptions that we believe to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.

 

**Revenue recognition and allowance fordoubtful accounts** We recognize revenue from thelicense of software when persuasive evidence of an arrangement exists, theproduct has been delivered, the fee is fixed and determinable and collection ofthe resulting receivable is reasonably assured. We use a signed licenseagreement as evidence of an arrangement. Sales through our distributors areevidenced by a master agreement governing the relationship together withbinding order forms and signed contracts from the distributor’s customers.Delivery occurs when product is delivered to a common carrier F.O.B shippingpoint. Our arrangements do not generally include acceptance provisions, yet ifacceptance provisions are provided, delivery occurs upon acceptance. We assesswhether the fee is fixed and determinable based on the payment terms associatedwith the transaction and, if applicable, the customer’s collection history.. Weassess whether collection of the fee is reasonably assured based on a number offactors, including past transaction history with the customer and thecredit-worthiness of the customer. Our arrangements for software licenses aresold with maintenance and, often times, professional services and otherproducts and services. We allocate revenue to delivered components, normallythe license component of the arrangement, using the residual value method basedon objective evidence of the fair value of the undelivered elements, which isspecific to us. Fair values for the maintenance service for our softwarelicenses are based upon renewal rates stated in the contracts or, in limitedcases, separate sales of renewals to other customers. We recognize revenue formaintenance services ratably over the contract term.  Fair value for the professional services and other products and servicesis based upon separate sales by us of these services to other

 

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customers. Our professional services, which include consulting,implementation management, integration management, custom report writing andtraining, are generally billed based on hourly rates plus travel and lodgingrelated expense reimbursements. Our professional services and other revenuealso includes revenue from our semi-annual conferences, which is generatedprimarily from attendance fees.  Werecognize revenue as these professional services are performed.  Other recurring revenues, which aresubscription and transaction based, include interfacing and downloading ofsecurities information from third party providers.  Subscription-based revenues and any related set-up fees arerecognized ratably over the period of the contract.  Transaction-based revenues are generally recognized when thetransactions occur.  Revenues forlicense development projects are recognized using the percentage-of-completionmethod of accounting based on costs incurred to date compared with theestimated cost of completion.  In June 2002, we began to offer term licensesas an alternative to the perpetual licenses we have historically offered tocustomers. We recognize revenue for term licenses ratably over the period ofthe contract term. We recognize revenue on perpetual licenses upon shipmentassuming all other revenue recognition criteria have been met. Looking forward,it is too early to predict any trends or adoption rates with respect tocustomer preferences related to term or perpetual licensing and through March31, 2003, the majority of our software license revenues were from perpetuallicenses.

 

We analyze specific accounts receivable,historical bad debts, customer concentrations, customer credit-worthiness,current economic trends and changes in our customer payment terms whenevaluating the adequacy of the allowance for doubtful accounts.

 

**Accounting for intangible assets****              **We review intangible assets, including goodwill,whenever events or changes in circumstances indicate that the carrying amountof these assets may have been impaired. In addition, in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwilland Other Intangible Assets”, we test goodwill annually for impairment using atwo-step process. The first step of the goodwill impairment test, used toidentify potential impairment, compares the fair value of a reporting unit withits carrying amount, including goodwill. If the fair value of a reporting unitexceeds its carrying amount, goodwill of the reporting unit is considered notimpaired, thus the second step of the impairment test is unnecessary. Thesecond step of the goodwill impairment test, used to measure the amount ofimpairment loss, compares the implied fair value of reporting unit goodwillwith the carrying amount of that goodwill. If the carrying amount of thereporting unit goodwill exceeds the implied fair value of that goodwill, animpairment loss shall be recognized in an amount equal to that excess. Theimplied fair value of goodwill shall be determined by allocating the fair valueof a reporting unit to all of the assets and liabilities of that unit(including any unrecognized intangible assets) as if the reporting unit hadbeen acquired in a business combination and the fair value of the reportingunit was the price paid to acquire the reporting unit.  We consider ourselves to be a singlereporting unit and therefore any impairment is measured based upon the fairvalue of the business as a whole. There was no impairment during the quarterended March 31, 2003.

 

**Accounting for long-lived assets****                **We review property, equipment and other long-livedassets for impairment whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable. Factors we considerimportant which could trigger an impairment review include the following (1)significant underperformance relative to expected historical or projected futureoperating results; (2) significant changes in the manner of our use of theacquired assets or the strategy for our overall business; (3) significantnegative industry or economic trends; (4) significant decline in our stockprice for a sustained period; and (5) our market capitalization relative to netbook value.  Recoverability is measuredby comparison of the assets’ carrying amount to their expected futureundiscounted net cash flows. If such assets are considered to be impaired, theimpairment to be recognized is measured by the amount by which the carryingamount of the asset exceeds its expected future discounted cash flow.

 

We hold minority interests in several privately held companies havingoperations or technology in areas within our strategic focus.  Most of these investments can be consideredin the start-up or developing stages and are classified as “other assets” onour balance sheet. One of these investments is accounted for under the equitymethod of accounting. Our portion of net income and losses for this investmenthas not been significant to date. We record an investment write-down when webelieve an investment has experienced a decline in value that is other thantemporary. Future adverse changes in market conditions or poor operatingresults of underlying investments could result in losses or an inability torecover the carrying value of the investments that may not be reflected in aninvestment’s current carrying value, thereby possibly requiring an impairmentcharge in the future.  We estimate aninvestment’s current carrying value based primarily on market conditions,recent valuation events and operating results of the underlying investment.

 

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# **Income taxes**–Income tax expense includes U.S. and international income taxes. Weaccount for income taxes under the asset and liability method.  Deferred tax assets and liabilities arerecognized principally for the expected tax consequences of events that havebeen recognized in the financial statements or tax returns for temporarydifferences between the tax basis of the assets and liabilities and theirreported amounts.  A valuation allowanceis then established to reduce the net deferred tax asset if it is more likelythan not that the related tax benefit will not be realized..  Significant factors considered by managementin its determination of the probability of the realization include:  1) our historical operating results; 2)expectations of future earnings; and 3) the length of time over which thedifferences will be paid

 

# **Overview**

 

***Distributor Relationship***

 

We rely on a number of strategicalliances to help us achieve market acceptance of our products and to leverageour development, sales, and marketing resources. In 1998 we established onesuch relationship with a company in Scandinavia to distribute our productsthroughout Scandinavia. In the third quarter of 1999, this distributor formedAdvent Europe. Advent Europe and its subsidiaries have the exclusive right todistribute our software in Europe, excluding certain locations, untilJuly 1, 2004 subject to achieving certain revenue levels. Incorporated inThe Netherlands, Advent Europe is an independent entity and is not financiallybacked by us and is entirely capitalized by independent third party investors.It makes tax and language modifications to Advent Office to fit the variousneeds of the local jurisdictions and then markets and licenses the AdventOffice suite and related services. All transactions between Advent Europe andus are transacted in U.S. dollars and are arms length transactions. Revenuefrom sales to this distributor is recognized when the distributor submits asigned contract, the product has been delivered, the fee is fixed anddeterminable, and collection of the resulting receivable is reasonably assured.Our revenues from this distributor in each of the two years endedDecember 31, 2002 and 2001 and in the quarter ended March 31, 2003, wereless than 3% of our total net revenue.

 

Through July 1, 2004, subject toachieving certain revenue levels, Advent Europe also has the contingent rightto require us to purchase any one or any group of their subsidiaries. Ourrequirement to purchase is contingent upon the distributor achieving specifiedoperating margins in excess of 20% and specified customer satisfactioncriteria. The basis for calculating the purchaseprice would be two times the preceding twelve months total revenue of thepurchased subsidiary plus potential additional consideration equal to 50% ofoperating margins that exceed 20% that are achieved in the two years subsequentto our acquisition. This purchase price may be varied by mutual agreement.  In addition, we have the right to purchaseany one or any group of Advent Europe’s subsidiaries under certain conditions.In the event these rights are exercised by us or Advent Europe, the purchase ofthese subsidiaries would principally result in an increase in intangibleassets, goodwill and amortization of intangible assets. In November 2001,we acquired three of Advent Europe’s companies located in Norway, Sweden, andDenmark and in September 2002, we acquired all of the common stock ofAdvent Hellas, Advent Europe’s Greek subsidiary.

 

***Acquisitions***

 

In May of 2003, we purchased allof the common stock of Advent Netherlands BV from our independent Europeandistributor for approximately $8.3 million in cash, approximately $60,000 inacquisition costs and estimated net liabilities assumed of approximately $2million. In addition, there is also a potential earn-out distribution to theselling members of up to $1.6 million through December 31, 2003 under aformula based on revenue results for the eight months ended December 31, 2003plus 50% of any operating margins which exceed 20% for the year ended December 31,2004.  We acquired our Dutchdistributor's operations in order to expand our direct ownership of theEuropean channels for products and services. The acquisition includes distribution rights in Belgium, The Netherlandsand Luxembourg.

 

In April of 2003, we released$3.4 million of the original $3.8 million of contingent consideration held inescrow for protection against undisclosed liabilities in connection with theKinexus acquisition.  The payment wasaccounted for as an increase to goodwill.

 

***Repurchase of Common Stock***

 

In the first quarter of 2003, werepurchased and retired 1,000,000 shares of our Common Stock for an averageprice of  $14.31 per share.

 

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***Restructuring***

 

In response to the continuing economicslowdown, we implemented a restructuring plan in the first quarter of 2003 andrecorded a restructuring expense of approximately $3.5 million in accordancewith SFAS 146, “Accounting for Costs Associated with Exit or DisposalActivities . The expense consists of $2.1 million related to closing andconsolidating excess office space, primarily in New York and Australia,$979,000 related to the termination of 47 employees located primarily in NewYork and Australia and $410,000 relating to the abandonment and write-off ofcertain equipment, furniture and leasehold improvements. All closed facilitieswere vacated prior to March 31, 2003. The goal of the restructuring plan is toreduce costs and improve operating efficiencies by better aligning our resourcesand consolidating duplicative efforts in parts of our business as a result ofintegration of our various acquired businesses.

 

The following table sets forth an analysis ofthe components of the restructuring charge and the payments made against theaccrual as of March 31, 2003 (in thousands):

** **
|                                                    |   | **Severance  and  Benefits** |   | **Facility Exit  Costs** |   | **Property and  Equipment  Abandoned** |   | **Total** |   |
|---------------------------------------------------------|--------|------------------------------|--------|--------------------------|--------|----------------------------------------|--------|-----------|--------|
| Restructuring  expense                                  |   | $                            | 979    |                     | $      | 2,100                                  |   | $         | 410    |   | $ | 3,489 |   |
| Reversal of deferred rent  related to facilities exited |   | —                       |   | 151                      |   | —                                 |   | 151       |   |
| Cash  paid                                              |   | (877                         | )      | (281                     | )      | —                                 |   | (1,158    | )      |
| Non-cash  charges                                       |   | —                       |   | —                   |   | (410                                   | )      | (410      | )      |
| Accrued  restructuring at March 31, 2003                |   | $                            | 102    |                     | $      | 1,971                                  |   | $         | — |   | $ | 2,072 |   |

 

The remaining excess facilitycosts are stated at estimated fair value which includes estimated subleaseincome. We expect to pay remaining obligations in connection with vacatedfacilities no later than over the remaining lease terms, which expire onvarious dates through 2008, and the remaining obligations related to severanceand benefits in the second quarter of 2003.

 

***Results of Operations***

 

# **REVENUES**

 

Our net revenues are made up of threecomponents: license and development fees; maintenance and other recurring; andprofessional services and other. License revenues are derived from thelicensing of software products while development fees are derived fromdevelopment contracts that we have entered into with other companies, includingcustomers and development partners. Maintenance and other recurring revenues are derived from maintenancefees charged in the initial licensing year, renewals of annual maintenanceservices in subsequent years and recurring revenues derived from oursubscription-based and transaction-based services. Professional services andother revenues include fees for consulting, implementation and integrationmanagement, custom report writing, training services and semi-annualconferences.

 

Net revenues for the three months ended March31, 2003, decreased 33% to $33 million compared with net revenues of $49.2million for the same period in 2002. This decrease primarily resulted from adecline in license and development fees. The target clients for our productsinclude a range of financial services organizations that manage investmentportfolios, including investment advisors, brokerage firms, banks and hedgefunds. In addition, we target corporations, public funds, universities andnon-profit organizations, which also manage investment portfolios and have thesame needs. Axys and its related products and services accounted for themajority of net revenues in the three months ended March 31, 2003 and 2002. Thesuccess of many of our clients is intrinsically linked to the health of thefinancial markets. We believe that the demand for our products was negativelyaffected by the current economic environment, political climate and downturnsin the financial markets, and by pending and proposed regulatory activity inthe financial services market. These factors have resulted in reduced revenuegrowth across the industry, longer sales cycles, deferral

 

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and delay of information technology projects and generally reducedexpenditure for software related services. We expect a continued difficultenvironment for the near term.

 

Each of the major revenue categories hashistorically varied as a percentage of net revenues and we expect thisvariability to continue in future periods. This variability is partially due to the timing of the introduction ofnew products, the relative size and timing of individual licenses, as well asthe size of the implementation, the resulting proportion of the maintenance andprofessional services components of these license transactions and the amountof client use of pricing and related data.

 

*License Revenue and Development Fees*.  License and development fees revenue for thethree months ended March 31, 2003, decreased 65% to $8.1 million compared withlicense and development fees revenue of $23 million for the same period in2002. This decrease in license and development fees was primarily due todecreased sales of the Advent Office suite of products compared to the sameperiod in 2002 and a decline in the number of large license transactions. Salesof these products decreased principally due to the impact of current economicconditions on our clients. License and development fee revenues as a percentageof net revenues were 25% for the three months ended March 31, 2003 and 47% forthe same period in 2002. The decrease in license and development fees revenueas a percentage of total revenue is primarily due to the decline in licenserevenue compared to the same quarter in 2002 while maintenance and otherrecurring revenues continue to increase. We typically license our products on aper server, per user basis with the price per customer varying based on theselection of the products licensed, the number of site installations and thenumber of authorized users.  We earndevelopment fees when we provide product solutions, which are not part of ourstandard product offering.  For thethree months ended March 31, 2003 and 2002, revenue from development fees hasbeen less than 8% of total license and development fees revenue**.**

 

*Maintenance and Other Recurring Revenues*.Maintenance and other recurring revenues for the three months ended March 31,2003, increased 2% to $21.9 million, compared with $21.5 million for the sameperiod in 2002. The increase in maintenance and other recurring revenuescompared to the same quarter in 2002 was primarily attributed to increasedrevenue from our acquisition of Techfi Corporation in July 2002 and AdventOutsource in November of 2002, increased revenues associated with AdventCustodial Data services and other data feed revenue sources and increaseddemand for pricing data and other data services associated with our WealthManagement Solutions.  These increaseswere partially offset by decreases in maintenance revenue related to a smallnumber of customers, who either cancelled contracts or who have downgradedtheir maintenance service level and a decrease in recurring revenue caused by asignificant customer moving from a non-standard pricing model to a standardpricing model.  Maintenance and other recurring revenues as a percentage of netrevenues for the three months ended March 31, 2003, were 66% compared with 44%,for the same period in 2002. The increase in maintenance and other recurringrevenues as a percentage of related revenue is primarily due to the decrease inlicense revenue compared to the same quarter in 2002.

 

*Professional Services and Other Revenues*.  Professional services and other revenuesdecreased 35% to $3 million for the three months ended March 31, 2003, comparedto $4.7 million for the same period in 2002. This decrease was due to a declinein demand resulting from the impact of current economic conditions on ourclients. The reduction in large license transactions previously noted had asignificant impact on our professional services revenue, as these largetransactions typically involve significant professional services projects.Professional services and other revenues, as a percentage of net revenues didnot fluctuate significantly and was approximately 9% for the three months endedMarch 31, 2003 and 2002.

### ** **

### **COST OF REVENUES**

 

Our cost of revenues is made up of threecomponents: cost of license and development fees; cost of maintenance and otherrecurring; and cost of professional services and other. Our cost of revenuesfor the three months ended March 31, 2003, increased 18% to $10.3 millioncompared with $8.7 million for the same period in 2002.  This increase was primarily due to theacquisitions of Techfi, Kinexus and Advent Outsource during 2002.

 

*Cost of License and Development Fees*.  Cost of license and development fees revenueconsists primarily of royalties and other fees paid to third parties, the fixeddirect labor involved in producing and distributing our software,

 

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labor costs associated with generating development fees and cost ofproduct media including duplication, manuals and packaging materials.  Cost of license and development feesrevenues decreased 13% to $1.6 million, compared with $1.8 million for the sameperiod in 2002. The decrease in cost of license and development fees is directlyrelated to a decrease in payments to third parties resulting from a change inproduct mix  Cost of license anddevelopment fees as a percentage of the related revenues for the three monthsended March 31, 2003, was 19% compared with 8% for the same period in 2002. Theincrease as a percentage of related revenue is primarily due to the decrease inrevenues compared to the relatively fixed costs associated with our productdistribution and, to a lesser extent, product mix.

 

*Cost of Maintenance and Other Recurring*.  Cost of maintenance and other recurringrevenues is primarily comprised of the direct costs of providing technicalsupport and other services for recurring revenues, the  costs associated with product updates androyalties paid to third party subscription-based and transaction-basedvendors.  Cost of maintenance and otherrecurring revenues increased 28% to $6.8 million for the three months endedMarch 31, 2003 compared with $5.3 million for the same period in 2002. Theincrease was primarily due to the acquisition of Techfi, Kinexus and AdventOutsource.  Cost of maintenance andother recurring revenues as a percentage of the related revenues for the threemonths ended March 31, 2003, increased to 31% from 25% for the same period in2002 primarily due to the significant increase in expenses while relatedrevenues were up only slightly.

 

*Cost of Professional Services and Other.*  Cost of professional services revenueprimarily consists of personnel related costs associated with the clientservices and support organization in providing consulting, custom reportwriting and conversions of data from clients’ previous systems. To the extentthat such personnel are not fully utilized in consulting, training, conversionor custom report writing projects, they are used for presales, marketing andengineering activities and the related costs are charged to operatingexpenses.  Also included are directcosts associated with travel expenses. Cost of professional services and otherrevenues increased 23% to $1.9 million, compared with $1.6 million for the sameperiod in 2002 primarily due to the companies acquired during 2002. Cost ofprofessional services as a percentage of related revenues for the three monthsended March 31, 2003 increased to 64% compared to 34% for the same period in2002 primarily due to a decline in net revenues compared to the same quarter in2002 while expenses increased.

 

### **OPERATING EXPENSES**

 

*Sales and Marketing*.  Sales and marketing expenses consist primarily of the costs ofpersonnel involved in the sales and marketing process, sales commissions,advertising and promotional materials, sales facilities expense, trade shows,and seminars.  Our sales and marketingexpenses for the three months ended March 31, 2003, decreased 12% to $13.5 millioncompared with $15.4 million for the same period in 2002. The decrease inexpense was primarily due to lower program marketing expenses for the existingbusiness, and a decrease in commissions and bonuses expense partially offset byhigher costs due to the businesses acquired during 2002. Sales and marketingexpenses, as a percentage of net revenues, increased to 41% for the threemonths ended March 31, 2003 compared with 31% for the same period in 2002primarily due to the decrease in net revenues compared to the same quarter in2002.

 

*Product Development*.  Product development expenses consist primarily of salary andbenefits for our development staff as well as contractors' fees and other costsassociated with the enhancements of existing products and services anddevelopment of new products and services. Costs associated with product updatesare included in cost of maintenance and other recurring revenue.  Product development expenses for the threemonths ended March 31, 2003 decreased 3% to $8.9 million compared with $9.1million for the same period in 2002. This decrease was primarily due to lowerusage of outside consultants. Product development expenses, as a percentage ofnet revenues, increased  to 27% for thethree months ended March 31, 2003 compared with 18% for the same period in 2002primarily due to the decrease in net revenues compared to the same quarter in2002.

 

*General and Administrative*.  General and administrative expenses consistprimarily of personnel costs for finance, administration, operations andgeneral management, as well as legal and accounting expenses. General andadministrative expenses increased 11% to $5.3 million for the three monthsended March 31, 2003 compared with $4.8 million for the same period in 2002.  The increase is primarily due to increasednumber of personnel and related costs required to support the acquisitions ofKinexus, Techfi, Advent Outsource and Advent Hellas. General and administrativeexpenses, as a percentage of net revenues, increased to 16% for

 

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the three months ended March 31, 2003 from 10% for the same period in2002 primarily due to the decrease in net revenues compared to the same quarterin 2002.

 

*Amortization of Intangibles.*  We record goodwill and other intangiblesbased on the application of established valuation techniques using ourestimates of market potential, product introductions, technology trends, andother relevant cash flow assumptions. We periodically assess our estimatesrelated to the valuation model to determine if goodwill and other intangibleassets acquired have been impaired.  Noimpairment charge was necessary during the three months ended March 31, 2003and 2002.  Amortization of otherintangibles increased to $3.4 million for the three months ended March 31, 2003compared with $1.9 million for the same period in 2002 due to the acquisitionsof Kinexus, Techfi, Advent Outsource and Advent Hellas during 2002.

 

##### ***RESTRUCTURINGEXPENSE***

 

##### ***In response to the continuing economic slowdown, we implemented arestructuring plan in the first quarter of 2003 and recorded a restructuringexpense of approximately $3.5 million.*** The expense consists of $2.1 million relatedto closing and consolidating excess office space, primarily in New York andAustralia, $979,000 related to the termination of 47 employees locatedprimarily in New York and Australia and $410,000 relating to the abandonmentand write-off of certain equipment, furniture and leasehold improvements.

##### *** ***

### **INTEREST INCOME AND OTHER EXPENSE, NET**

 

Interest income and other expense, netconsists primarily of interest income, other-than-temporary losses on ourinvestments in privately held companies, realized gains and losses onshort-term investments and miscellaneous non-operating income and expenseitems. Interest income and other expense, net was approximately $172,000 in thethree months ended March 31, 2003, compared with an interest income and otherexpense, net of $1.7 million for the same period in 2002. This decrease isprimarily due to lower interest rates and lower average invested balances inthe first quarter of 2003 compared to the same period in 2002.

 

### **PROVISION FOR (BENEFITS FROM) INCOME TAXES**

 

For the three months ended March 31, 2003, werecorded a tax benefit of $4 million based on our pre tax loss using aneffective tax rate of 35%, which is our anticipated effective tax rate for thefiscal year 2003. The actual effective tax rate for the entire fiscal yearcould vary substantially depending upon actual results achieved. We had aneffective tax rate of 17.1% for our fiscal year 2002. Our effective tax rate in2002 differed from the statutory rate of 35% due to capital losses incurredduring fiscal 2002, valuation allowances established in 2002 related toacquired companies and our utilization of tax credits.

 

### **LIQUIDITY AND CAPITAL RESOURCES**

 

Our cash, cash equivalents and short-termmarketable securities of $163.4 million at March 31, 2003, decreased  $10.4 million from $173.8 million atDecember 31, 2002. The decrease wasprimarily due to $14.3 million paid for the repurchase of our common stock andapproximately $4 million paid in connection with the exit from one of our NewYork facility leases, partially offset by the receipt of an $8 million incometax refund.

 

The net cash of $4.9 million provided byoperating activities for the three months ended March 31, 2003, was primarilydue to the decrease in income taxes receivable and an increase in accrualsresulting from the restructuring.  Theincrease in cash was partially offset by a small net loss, after excludingnon-cash items such as depreciation and amortization, a decrease in incometaxes payable resulting from the recognition of a tax benefit for the sameperiod and a reduction of the loss on lease accruals after the exit from one ofour New York facility leases. The net cash of $13 million provided by investingactivities for the three months ended March 31, 2003, is primarily due to netcash provided from investments in short-term marketable securities, offset in partby the acquisition of fixed assets. The net cash of $13.6 million used infinancing activities for the three months ended March 31, 2003, was primarilyfor the repurchase of our

 

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own Common Stock partially offset by proceeds from stock optionexercises.

 

At March 31, 2003, we had $142.8 million inworking capital, down from $161.3 million at December 31, 2002.  Our significant capital commitments are our operating lease commitments through 2012 ofapproximately $53 million. Operating lease commitments decreased significantlyfrom December 31, 2002 primarily due to the exit of a lease for vacant facilitylocated in downtown Manhattan within a few blocks of the World Trade Center,which had been accrued for as part of our acquisition of Kinexus, and the exitof certain leases in connection with the restructuring implemented in the firstquarter of 2003. In May 2003, we utilized approximately $8.3 million of ourworking capital for the acquisition of Advent Netherlands BV.

 

At March 31, 2003, we did not have any relationships with unconsolidatedentities or financial partnerships, such as entities often referred to asstructured finance or special purpose entities, which would have beenestablished for the purpose of facilitating off-balance sheet arrangements orother contractually narrow or limited purposes. As such, we are not materiallyexposed to any financing, liquidity, market or credit risk that could arise ifwe had engaged in such relationships.

 

Our principal source of liquidity is ouroperating cash flows, which is dependent upon continued market acceptance ofour products and services.  We believethat our available sources of funds and anticipated cash flows from operationswill be adequate to finance current operations and anticipated capitalexpenditures for at least the next twelve months.

 

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***RiskFactors***

 

*Investorsshould carefully consider the risks described below before making an investmentdecision. In addition, these risks are not the only ones we face. Additionalrisks we are not presently aware of or that we currently believe are immaterialmay also impair our business operations. Our business could be harmed by any ofthese risks. The trading price of our common stock could decline due to any ofthese risks.*

 

**Our Operating ResultsFluctuate Significantly and We May Not Be Able to Maintain Our HistoricalGrowth Rates.**

 

Licenses into multi-user networkedenvironments have increased both in individual size and number, and the timingand size of individual license transactions are becoming increasingly importantfactors in quarterly operating results. The sales cycles for these transactionsare often lengthy and unpredictable. We may not be successful in closing largelicense transactions such as these on a timely basis or at all. Accordingly,because revenues from large licenses may increase as a portion of our netrevenues, the timing of such licenses could cause additional variability in ourquarterly operating results. Software product backlog at the beginning of anyquarter typically represents only a small portion of that quarter’s expectedrevenues. Our expense levels are based in significant part on our expectationsof future revenues and therefore are relatively fixed in the short term. Due tothe fixed nature of these expenses combined with the relatively high grossmargin historically achieved on products and services, an unanticipated declinein net revenues in any particular quarter is likely to disproportionatelyadversely affect our operating results. We have often recognized a substantialportion of each quarter’s license revenues in the last month, weeks or evendays of that quarter. As a result, the magnitude of quarterly fluctuations inrevenue or earnings may not be evident until late in or after the close of aparticular quarter and a disruption late in the quarter may have adisproportionately large negative impact on our quarterly results. Thesefactors impacted our results in the second, third and fourth quarters of fiscal2002 and in the first quarter of 2003 and may continue to impact our results.Additionally, in June 2002, we announced that we would begin to offer termlicenses as an alternative to the perpetual licenses we have previously sold.Although we believe that this will give us more predictable revenue over time,it may potentially decrease revenues in the short-term as some clients make theshift from perpetual to term and as a result we recognize less revenue at thebeginning of the contract.

 

Because of the above factors, webelieve that period-to-period comparisons of our operating results are notnecessarily meaningful and that these comparisons cannot be relied upon asindicators of future performance.

 

**Information We Provide to Investors isAccurate Only as of the Date We Disseminate it.**

 

From time to time, we may publiclydisseminate forward- looking information or guidance in compliance withRegulation FD promulgated by the Securities and Exchange Commission. Thisinformation or guidance represents our outlook only as of the date wedisseminate it.

 

**Our Stock Price hasFluctuated Significantly Since Our Initial Public Offering inNovember 1995.**

 

Like many companies in thetechnology and emerging growth sector, our stock price may be subject to widefluctuations, particularly during times of high market volatility. If netrevenues or earnings in any quarter fail to meet the investment community’sexpectations, our stock price is likely to decline. In addition, our stockprice may be affected by trends in the financial services sector and by broadermarket trends unrelated to our performance.

 

**Our Sales Cycle isLong and We Have Limited Ability to Forecast the Timing and Amount of SpecificSales.**

 

Because the purchase of oursoftware products often requires significant, executive-level investment andsystems architecture decisions by prospective customers, we must generallyengage in a relatively lengthy sales effort. These transactions may be delayedduring the customer decision process because we must provide a significantlevel of education to prospective customers regarding the use and benefit ofour products. As a result, the sales cycle associated with the purchase of oursoftware products is typically between two and twelve months depending upon thesize of the client, and it can be considerably longer, and is subject to anumber of significant risks over which we have little or no control, includingcustomers’ budgeting constraints and internal selection procedures, amongothers. As a result of a lengthy and unpredictable

 

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sales cycle, we have limited ability toforecast the timing and amount of specific sales. The timing of largeindividual sales is especially difficult to forecast. Therefore there can be noassurance that we will be successful in closing large license transactions on atimely basis or at all. In addition, customers may postpone their purchases ofour existing products or product enhancements in advance of the anticipatedintroduction of new products or product enhancements by us or our competitorsor due to economic conditions. Because our expenses are generally relativelyfixed in the near term, any shortfall from anticipated revenues could result ina significant variation in our operating results from quarter to quarter.

 

**We Depend Heavily onOur Product, Axys.**

 

Historically, we derived amajority of our net revenues from the licensing of Axys, part of our AdventOffice suite, and related applications and services. In addition, many of ourother applications, such as Moxy, Qube and various data interfaces weredesigned to operate with Axys to provide an integrated solution. As a result,we believe that a majority of our net revenues, for the foreseeable future willdepend upon continued market acceptance of Axys, enhancements or upgrades toAxys and related products and services. As our clients include a range oforganizations including asset managers, investment advisors, brokerage firms,hedge funds, family offices, banks and trusts and others, the degree ofcontinued market acceptance will also depend on the number of firms within eachof the categories and the degree to which Axys previously penetrated thosefirms.

 

**We Depend upon FinancialMarkets.**

 

The target clients for ourproducts include a range of organizations that manage investment portfolios,including investment advisors, brokerage firms, banks and hedge funds. Inaddition, we target corporations, public funds, universities and non-profitorganizations, which also manage investment portfolios and have many of thesame needs. The success of many of our clients is intrinsically linked to thehealth of the financial markets. We believe that demand for our products couldbe disproportionately affected by fluctuations, disruptions, instability ordownturns in the financial markets which may cause clients and potentialclients to exit the industry or delay, cancel or reduce any plannedexpenditures for investment management systems and software products. Inaddition, a slowdown in formation of new investment firms or a decline in thegrowth of assets under management would cause a decline in demand for ourproducts. We believe that the economic downturn in the financial markets negativelyimpacted the demand for our products in the second, third and fourth quartersof fiscal 2002, and the first quarter of 2003, and that a continuing downturncould have a material adverse effect on our business and results of operations.

 

**Difficulties inIntegrating Our Acquisitions Could Adversely Impact Our Business and We FaceRisks Associated With Potential Acquisitions, Investments or Divestitures.**

 

In 2002, we completed theacquisition of Kinexus Corporation, Techfi Corporation, our Greek distributorAdvent Hellas and Advent Outsource Data Management, LLC and in May of 2003 wepurchased our Dutch distributor, Advent Netherlands BV. The number ofacquisitions recently completed was unprecedented.

 

The complex process ofintegrating Kinexus and our other acquisitions has required and will continueto require significant resources, particularly in light of our relativeinexperience in integrating acquisitions. Integrating these acquisitions hasbeen and will continue to be time consuming, expensive and disruptive to ourbusiness. This integration process has strained our managerial controls, andhas resulted in the diversion of management and financial resources from ourcore business objectives. Failure to achieve the anticipated benefits of these acquisitionsor to successfully integrate the operations of these entities could harm ourbusiness, results of operations and cash flows. We may not realize the benefitswe anticipate from these acquisitions because of the following significantchallenges:

 

•                                          expected synergy benefits from these acquisitions,such as lower costs or increased revenues, may not be realized or may berealized more slowly than anticipated, particularly with regard to costsassociated with a reduction in headcount and facilities;

 

•                                          potentially incompatible cultural differencesbetween the companies;

 

•                                          incorporating these companies’ technologies andproducts into our current and future product lines;

 

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•                                          geographic dispersion of operations and thecomplexities of international operations;

 

•                                          integrating the technical teams of these companieswith our engineering organizations;

 

•                                          generating market demand for an expanded productline;

 

•                                          integrating the products of these companies withour business, because we do not have distribution, manufacturing, marketing orsupport experience for these products;

 

•                                          the difficulty of leveraging our combinedtechnologies and capabilities across all product lines and customer bases; and

 

•                                          our inability to retain previous customers oremployees of these entities.

 

We have incurred and expect tocontinue to incur significant costs and commit significant management time inintegrating the operations, technology, development programs, products, informationsystems, customers and personnel of these acquisitions. These costs have beenand will likely continue to be substantial and include costs for:

 

•                                          integrating and reorganizing operations, includingcombining teams, facilities and processes in various functional areas;

 

•                                          identifying duplicative or redundant resources andfacilities, developing plans for resource consolidation and implementing thoseplans;

 

•                                          fees and expenses of professionals and consultantsinvolved in completing the integration process;

 

•                                          settling existing liabilities of these companies;

 

•                                          uncovering through our audit process new issuesreflected on the companies’ financial statements;

 

•                                          costs associated with vacating, subleasing andclosing facilities;

 

•                                          employee relocation, redeployment or severancecosts;

 

•                                          integrating technology and products; and

 

•                                          other transaction costs associated with theacquisition, including financial advisor, attorney, accountant and exchangeagent fees.

 

We may make additionalacquisitions of complementary companies, products or technologies in thefuture, which would further exacerbate these issues. In addition, wecontinually evaluate the performance of all our products and product lines andmay sell or discontinue current products or product lines. Failure to achievethe anticipated benefits of any future acquisition or divestiture could alsoharm our business, results of operations and cash flows. Furthermore, we mayhave to incur debt, write-off investments, infrastructure costs or other assets,incur severance liabilities, write-off impaired goodwill or other intangibleassets or issue equity securities to pay for any future acquisitions. Theissuance of equity securities could dilute our existing stockholders’ownership. Finally, we may not identify suitable businesses to acquire ornegotiate acceptable terms for acquisitions.

 

**Difficulties We MayEncounter Managing a Substantially Larger Business Could Adversely Affect OurOperating Results.**

 

Our business has grown in recent yearsthrough both internal expansion and acquisitions, and that growth along withany continued growth may cause a significant strain on our infrastructure,internal systems and managerial resources. For example, during 2002, weacquired Kinexus Corporation, Techfi Corporation, our Greek distributor andAdvent Outsource

 

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Data Management, LLC and in May of 2003 we purchased our Dutch distributor, Advent Netherlands,BV.  To manage our growth effectively,we must continue to improve our infrastructure, including operating andadministrative systems and controls, and continue managing headcount, capitaland processes in an efficient manner. Our productivity and the quality of ourproducts may be adversely affected if we do not integrate and train our newemployees quickly and effectively and coordinate among our executive,engineering, finance, marketing, sales, operations and customer supportorganizations, all of which add to the complexity of our organization andincrease our operating expenses. In addition, our revenues may not grow at asufficient rate to absorb the costs associated with a larger overall headcount.Integrating our recent acquisitions will complicate these tasks.

 

**Writing OffInvestments Could Harm Our Results of Operations.**

 

In addition, we have madeinvestments in privately held companies, which we classify as “other assets” onour balance sheet. The value of these investments is influenced by manyfactors, including the operating effectiveness of these companies, the overallhealth of these companies’ industries, the strength of the private equitymarkets and general market conditions. Due to these and other factors, we havepreviously determined, and may in the future determine, that the value of theseinvestments is impaired, which has caused and would cause us to write down thestated value of these investments such as the write-off of our investments inEncompys and MyCFO during 2002. Furthermore, we cannot be sure that futureinvestment, license, fixed asset or other asset write-downs will not happen,particularly if the current economic downturn continues. If future write-downsdo occur, they could harm our business and results of operations.

 

**General EconomicConditions May Reduce Our Revenues.**

 

We believe that the market forlarge investment management software systems may be negatively impacted by anumber of factors, including reductions in capital expenditures by largecustomers; poor performance of major financial markets, and increasingcompetition. Those factors may, in turn, give rise to a number of markettrends, which we experienced in the second, third and fourth quarters of fiscal2002, and in the first quarter of 2003, that may slow revenue growth across theindustry, including longer sales cycles, deferral or delay of informationtechnology projects and generally reduced expenditures for software and relatedservices, and increased price competition. If the current economic slowdowncontinues, the presence of these factors in the market for large investmentmanagement software systems will likely materially adversely affect ourbusiness and results of operations.

 

**BusinessInterruptions Could Adversely Affect Our Business.**

 

Our operations are exposed tointerruption by fire, earthquake, power loss, telecommunications failure, andother events beyond our control. Additionally, we are vulnerable tointerruption caused by political and terrorist incidents. For example, ourfacilities in New York were temporarily closed due to the September 11,2001 terrorist attacks. Immediately after the terrorist attacks, our clientswho were located in the World Trade Center area were concentrating on disasterrecovery rather than licensing additional software components, while thegrounding of transportation impeded our ability to deliver professionalservices at client sites. Additionally, during the temporary closure of theU.S. stock markets, our clients did not use our market data services. Suchinterruptions could affect our ability to sell and deliver products andservices and other critical functions of our business and could seriously harmus. Further, such attacks could cause instability in the financial markets uponwhich we depend.

 

**We Are Continuing toExpand Our Internet-Based Solutions, such as Advent TrustedNetwork andWealthLine.**

 

To take advantage of theinternet, we are continuing to develop solutions to bring internet-basedproducts and services to our clients. As we develop these new products andservices, we have entered, and will continue to enter, into developmentagreements and other agreements with information providers, clients or othercompanies in order to accelerate the delivery of new products and services,such as our relationship with Microsoft for WealthLine. We may not be successfulin marketing our internet services or in developing other internet services ormaintaining these relationships. Internet-based products contain certain uniquetechnical challenges, such as scalability and latency requirements, that we maynot be successful in solving, and if we cannot successfully overcome suchchallenges our products may fail. Additionally, we may not be successful inbeing able to replace our current technology with new technology. Our failureto do so could seriously

 

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harm our business. In addition, we cannotassure you that there will not be disruptions in internet services beyond ourcontrol or that of our third party vendors. Any such disruptions could harm ourbusiness.

 

**Security Risks andConcerns May Deter the Use of the Internet for Conducting Business.**

 

A significant barrier tocommerce and communications over public networks is the secure transmission ofconfidential information. Advances in computer capabilities, new discoveries inthe field of cryptography or other events or developments could result incompromises or breaches of our security systems or those of other web sites toprotect proprietary information. If any well-publicized compromises of securitywere to occur, it could have the effect of substantially reducing the use ofthe internet for commerce and communications. Anyone who circumvents oursecurity measures could misappropriate proprietary information or causeinterruptions in our services or operations. The internet is a public network,and data is sent over this network from many sources. In the past, computerviruses, software programs that disable or impair computers, have beendistributed and have rapidly spread over the internet. Computer viruses could beintroduced into our systems or those of our customers or other third parties,which could disrupt or make it inaccessible to customers. We may be required toexpend significant capital and other resources to protect against the threat ofsecurity breaches or to alleviate problems caused by breaches. To the extentthat our activities may involve the storage and transmission of proprietaryinformation, security breaches could expose us to a risk of loss or litigationand possible liability. Our security measures may be inadequate to preventsecurity breaches, and our business would be harmed if our security werebreached.

 

**We Face Risks Relatedto Our New Business Areas.**

 

We have expanded in recentperiods into a number of new business areas to foster long-term growthincluding international operations, strategic alliances, and AdventTrustedNetwork. These areas are still relatively new to our product developmentand sales personnel. New business areas require significant management time andresources prior to generating significant revenues and may divert managementfrom our core business. There is no assurance that we will compete effectivelyor will generate significant revenues in these areas. The success of ourability to develop and market new internet based products and services, such asAdvent TrustedNetwork and WealthLine, is difficult to predict because itrepresents a new area of business for our entire industry. While ourtraditional offerings are marketed to investment managers and advisors, certainof our new offerings are also targeted for use by our clients’ customers. Wemay have difficulty creating demand from our client’s customers as we market tothem indirectly through our clients. Revenue growth may suffer if we cannotcreate demand among our clients’ customers. Also, we have recently entered intonew markets through our acquisitions, and we may not be successful in competingin those areas. Additionally, to help manage our growth, we will need tocontinually improve our operational, financial, management and informationsystems and controls.

 

**We Expect Our Grossand Operating Margins May Fluctuate Over Time.**

 

We expect that our gross andoperating margins may fluctuate from period to period as we continue tointroduce new products, change our professional services organization andassociated revenue, continue to hire and acquire additional personnel andincrease other expenses to support our business. Because these expenses arerelatively fixed in the short term, a fluctuation in revenue could lead tooperating results differing from expectations.

 

**We Must Continue toIntroduce New Products and Product Enhancements.**

 

The market for our products ischaracterized by rapid technological change, changes in customer demands andevolving industry standards. As a result, our future success will continue todepend upon our ability to develop new products or product enhancements thataddress the future needs of our target markets and to respond to these changingstandards and practices. We may not be successful in developing, introducingand marketing new products or product enhancements on a timely and costeffective basis, or at all, and our new products and product enhancements maynot adequately meet the requirements of the marketplace or achieve marketacceptance. Delays in the commencement of commercial shipments of new productsor enhancements may result in client dissatisfaction and delay or loss ofproduct revenues. If we are unable, for technological or other reasons, todevelop and introduce new products or enhancements of existing products in atimely manner in response to changing market conditions or client requirements,or if new products or new versions of existing products do not achieve marketacceptance, our business would be seriously harmed. In addition, our ability todevelop new

 

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products and product enhancements isdependent upon the products of other software vendors, including certain systemsoftware vendors, such as Microsoft Corporation, database vendors anddevelopment tool vendors. If the products of such vendors have design defectsor flaws, or if such products are unexpectedly delayed in their introduction,our business could be seriously harmed. Our software products are complex andmay contain undetected defects or errors when first introduced or as newversions are released. Although we have not experienced adverse effectsresulting from any software errors, we cannot be sure that, despite testing byus and our clients, defects or errors will not be found in new products aftercommencement of commercial shipments, resulting in loss of or delay in marketacceptance, which could seriously harm our business.

 

**If Our Relationshipwith Interactive Data Corporation Is Terminated, Our Business May Be Harmed.**

 

Many of our clients use ourproprietary interface to electronically retrieve pricing and other data fromInteractive Data Corporation. Interactive Data Corporation pays us a commissionbased on their revenues from providing this data to our clients. Our softwareproducts have been customized to be compatible with their system and thissoftware would need to be redesigned if their services were unavailable for anyreason. Termination of our agreement with Interactive Data Corporation wouldrequire at least two years notice by either us or them, or 90 days in thecase of material breach. If our relationship with Interactive Data Corporationwere terminated or their services were unavailable to our clients for anyreason, replacing these services could be costly and time consuming.

 

**We Face IntenseCompetition.**

 

The market for investmentmanagement software is intensely competitive and highly fragmented is subjectto rapid change and is extremely sensitive to new product introductions andmarketing efforts by industry participants. Our competitors include providersof software and related services as well as providers of timeshare services,and include some of the following vendors: Financial Models Company, Inc., CheckFreeCorporation Schwab Performance Technologies, StatementOne,Inc., Eagle, a subsidiary of Mellon Financial, Thomson Financial, Macgregor Financial Technologies, Charles River Development, Reuters Group PLC, BloombergTradebrook, LLC, Siebel Systems, Inc. and Sungard Data Systems, Inc.  We experience significant competition fromproprietary systems.

 

Our competitors vary in size,scope of services offered and platforms supported. In addition, we competeindirectly with existing and potential clients, many of whom develop their ownsoftware for their particular needs and therefore may be reluctant to licensesoftware products offered by independent vendors like Advent. Many of ourcompetitors have longer operating histories and greater financial, technical,sales and marketing resources than we do. In addition, we also face competitionfrom potential new entrants into our market that may develop innovativetechnologies or business models. We cannot guarantee that we will be able tocompete successfully against current and future competitors or that competitivepressures will not result in price reductions, reduced operating margins andloss of market share, any one of which could seriously harm our business.

 

**We Face Challenges inExpanding Our International Operations.**

 

We market and sell our productsin the United States and, to a lesser extent, internationally. InNovember 1998, we purchased an independent distributor in Australia, whichmarkets and licenses our products in Australia. In addition, we entered into adistributor relationship in 1999 with Advent Europe, an independent distributorof our products in selected European markets. In November 2001, weacquired the Norwegian, Swedish, and Danish companies of this independentdistributor, in September 2002, we purchased their Greek subsidiary and inMay 2003, we purchased their Dutch subsidiary. In order to further expand ourinternational operations, we will need to continue to establish additionallocations, acquire other businesses or enter into additional distributionrelationships in other parts of the world. The expansion of our existinginternational operations and entry into additional international markets willrequire significant management attention and financial resources. We cannot becertain that establishing new business in other countries will produce thedesired levels of revenue. We currently have limited experience in developinglocalized versions of our products and marketing and distributing our productsinternationally. In addition, international operations are subject to otherinherent risks, including:

 

•                                          The impact of recessions in economies outside theUnited States;

 

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•                                          Greater difficulty in accounts receivablecollection and longer collection periods;

 

•                                          Unexpected changes in regulatory requirements;

 

•                                          Difficulties in successfully adapting our productsto the language, regulatory and technology standards of other countries;

 

•                                          Difficulties and costs of staffing and managingforeign operations;

 

•                                          Reduced protection for intellectual propertyrights in some countries;

 

•                                          Potentially adverse tax consequences; and

 

•                                          Political and economic instability.

 

The revenues, expenses, assetsand liabilities of our international subsidiaries are primarily denominated inlocal currencies. We have not historically undertaken foreign exchange hedgingtransactions to cover potential foreign currency exposure. Future fluctuationsin currency exchange rates may adversely affect revenues from internationalsales and the U.S. dollar value of our foreign subsidiaries’ revenues,expenses, assets and liabilities. Our international revenues from ourdistributors are generally denominated in local foreign currencies.

 

**Undetected SoftwareErrors or Failures Found in New Products May Result in Loss of or Delay inMarket Acceptance of Our Products That Could Seriously Harm Our Business.**

 

Our products may containundetected software errors or failures when first introduced or as new versionsare released. Despite testing by us and by current and potential customers,errors may not be found in new products until after commencement of commercialshipments, resulting in loss of or a delay in market acceptance, which couldseriously harm our business.

 

**If We Are Unable toProtect Our Intellectual Property We May Be Subject to Increased CompetitionThat Could Seriously Harm Our Business.**

 

Our success dependssignificantly upon our proprietary technology. We currently rely on acombination of copyright and trademark laws, trade secrets, confidentialityprocedures and contractual provisions to protect our proprietary rights. Wehave registered trademarks for many of our products and services and willcontinue to evaluate the registration of additional trademarks as appropriate.We generally enter into confidentiality agreements with our employees and withour resellers and customers. We seek to protect our software, documentation andother written materials under trade secret and copyright laws, which affordonly limited protection. Despite these efforts, it may be possible forunauthorized third parties to copy certain portions of our products or toreverse engineer or otherwise obtain and use our proprietary information. We donot have any patents, and existing copyright laws afford only limitedprotection. In addition, we cannot be certain that others will not developsubstantially equivalent or superseding proprietary technology, or thatequivalent products will not be marketed in competition with our products,thereby substantially reducing the value of our proprietary rights. We cannotbe sure that we will develop proprietary products or technologies that arepatentable, that any patent, if issued, would provide us with any competitiveadvantages or would not be challenged by third parties, or that the patents ofothers will not adversely affect our ability to do business. Litigation may benecessary to protect our proprietary technology. This litigation may betime-consuming and expensive. Despite our efforts to protect our proprietaryrights, unauthorized parties may attempt to copy aspects of our products or toobtain and use information that we regard as proprietary. In addition, the lawsof some foreign countries do not protect proprietary rights to as great anextent as do the laws of the United States. We cannot be sure that our means ofprotecting our proprietary rights will be adequate or that our competitors willnot independently develop similar technology, duplicate our products or designaround any patent that may be issued to us or other intellectual propertyrights of ours.

 

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**We Must Retain KeyEmployees and Recruit Qualified Technical and Sales Personnel.**

 

We believe that our success will depend onthe continued employment of our senior management and key technical personnel,none of whom has an employment agreement with us.  Additionally, our continued success depends, in part, on ourability to identify, attract, motivate and retain qualified technical, salesand other personnel. Because our future success is dependent on our ability tocontinue to enhance and introduce new products, we are particularly dependenton our ability to identify, attract, motivate and retain qualified engineerswith the requisite education, backgrounds and industry experience. Competitionfor qualified engineers, particularly in Northern California and the SanFrancisco Bay Area, is intense. The loss of the services of a significantnumber of our engineers or sales people could be disruptive to our developmentefforts or business relationships and could seriously harm our business. We mayalso be required to create additional performance and retention incentives inorder to retain our employees, including the granting of additional stock optionsto employees at current prices or issuing incentive cash bonuses. Suchincentives may either dilute our existing stockholder base or result inunforeseen operating expenses, which may cause our stock price to fall.

 

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# **Item 3. Quantitative and Qualitative Disclosures About Market Risk**

 

We are exposed to financialmarket risks, including changes in foreign currency exchange rates and interestrates. Much of our revenue and capital spending is transacted in U.S. dollars.However, since the acquisitions of Advent Australia, Advent Denmark, AdventNorway, Advent Sweden, Advent Hellas, and most recently, Advent Netherlands BV,whose revenues and capital spending are transacted in local country currencies,we have greater exposure to foreign currency fluctuations. Results ofoperations from Advent Australia, Advent Denmark, Advent Norway, Advent Sweden,Advent Hellas and Advent Netherlands BV are not material to our operatingresults; therefore, we believe that foreign currency exchange rates should notmaterially adversely affect our overall financial position, results ofoperations or cash flows.

 

We believe that the fair valueof our investment portfolio or related income would not be significantlyimpacted by increases or decreases in interest rates due mainly to theshort-term nature of our investment portfolio. However, immediate sharpincreases in interest rates could have a material adverse affect on the fairvalue of our investment portfolio. Conversely, immediate sharp declines ininterest rates could seriously harm interest earnings of our investmentportfolio.

 

The table below presentsprincipal amounts by expected maturity (in U.S. dollars) and related weightedaverage interest rates by year of maturity for our investment portfolio (inthousands):

 
|                                           |   | **Estimated Fair Value at March  31, 2003** |   |
|------------------------------------------------|--------|---------------------------------------------|--------|
|                                           |   | **Maturing in**                             |   |
|                                           |   | **2003**                                    |   | **2004** |   | **2005** |   | **2006** |   | **Total** |   |
|                                           |   |                                        |   |   |   |   |   |   |   |   |   |
| Federal  Instruments                           |   | $                                           | 5,561  |   | $ | 5,053 |   | $ | 8,010 |   | $ | — |   | $ | 18,624 |   |
| Weighted  Average Interest Rate                |   | 2.52                                        | %      | 3.02 | % | 2.30 | % |   |   |   |   |
| Commercial  Paper & Short-Term Obligations |   | 51,359                                      |   | 1,125 |   | — |   | — |   | 52,484 |   |
| Weighted  Average Interest Rate                |   | 1.37                                        | %      | 1.35 | % |   |   |   |   |   |   |
| Corporate  Notes & Bonds                   |   | 12,685                                      |   | 9,090 |   | 8,366 |   | 1,088 |   | 31,229 |   |
| Weighted  Average Interest Rate                |   | 6.33                                        | %      | 6.45 | % | 4.70 | % | 5.88 | % |   |   |
| Municipal  Notes & Bonds                   |   | 7,323                                       |   | 17,383 |   | 1,493 |   | — |   | 26,199 |   |
| Weighted  Average Interest Rate                |   | 4.18                                        | %      | 4.18 | % | 5.21 | % |   |   |   |   |
| Corporate  Equity Securities                   |   | 276                                         |   | — |   | — |   | — |   | 276 |   |
|                                           |   |                                        |   |   |   |   |   |   |   |   |   |
| Total  Portfolio                               |   | $                                           | 77,204 |   | $ | 32,651 |   | $ | 17,869 |   | $ | 1,088 |   | $ | 128,812 |   |

 

At March 31, 2003, cash, cash equivalents andshort-term marketable securities totaled approximately $163.4 million,which is comprised of the $128.8 million in our investment portfolio, presentedabove, and $34.6 million in other cash and cash equivalents.

 

We also invested in several privately heldcompanies, most of which can still be considered in the start-up or developmentstages and are classified as “other assets” on our balance sheet. In 2002 wepurchased approximately 15% of the outstanding stock of LatentZero Limited(“LatentZero”), a privately held company located in England.  Our investment in LatentZero totaledapproximately $7 million and is accounted for under the equity method ofaccounting because the Chairman of our Board of Directors is a member ofLatentZero’s Board of Directors. Our portion of the net income or losses forthis investment has not been significant to date. At March 31, 2003 our netinvestments in privately held companies including LatentZero were approximately$10.5 million. These investments are inherently risky as the market for thetechnologies or products they have under development are typically in the earlystages and may never materialize. The value of these investments is influencedby many factors, including the operating effectiveness of these companies, theoverall health of the companies’ industries, the strength of the private equitymarkets and general market conditions. We could lose our entire initial investmentin these companies.

 

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**Item 4. Controls and Procedures**

 

**Evaluation ofdisclosure controls and procedures.**

 

Within 90 days prior to thefiling date of this Quarterly Report on Form 10-Q (the “Evaluation Date”),we evaluated, under the supervision of our chief executive officer and ourchief financial officer, the effectiveness of our disclosure controls andprocedures. Based on this evaluation, our chief executive officer and chieffinancial officer concluded that our disclosure controls and procedures areeffective to ensure that information we are required to disclose in reportsthat we file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms.

 

**Changes in internalcontrols.**

 

Our review of our internalcontrols was made within the context of the relevant professional auditingstandards defining “internal controls,” “significant deficiencies,” and“material weaknesses.” “Internal controls” are processes designed to providereasonable assurance that our transactions are properly authorized, our assetsare safeguarded against unauthorized or improper use, and our transactions areproperly recorded and reported, all to permit the preparation of our financialstatements in conformity with generally accepted accounting principles.“Significant deficiencies” are referred to as “reportable conditions,” orcontrol issues that could have a significant adverse effect on the ability torecord, process, summarize and report financial data in the financialstatements. A “material weakness” is a particularly serious reportablecondition where the internal control does not reduce to a relatively low levelthe risk that misstatements caused by error or fraud may occur in amounts thatwould be material in relation to the financial statements and not be detectedwithin a timely period by employees in the normal course of performing their assignedfunctions. As part of our internal controls procedures, we also address other,less significant control matters that we or our auditors identify, and wedetermine what revision or improvement to make, if any, in accordance with ouron-going procedures.

 

Subsequent to the EvaluationDate, there were no significant changes in our internal controls or in otherfactors that could significantly affect our internal controls, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 

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**PART II.  OTHER INFORMATION**

 

**Item 1.****           Legal Proceedings**

 

From time to time we are involved inlitigation incidental to the conduct of our business. We are not party to anylawsuit or proceeding that, in our opinion, is likely to seriously harm ourbusiness.

 

**Item 2.****           Changes in Securities and Use of Proceeds**

 

None.

 

**Item 3.****           Defaults Upon Senior Securities**

 

None

 

**Item 4.****           Submission of Matters to a Vote of SecurityHolders**

 

None

 

**Item 5.****           Other Information**

 

None.

 

**Item 6.****           Exhibits and Reports On Form 8-K**

 

(a)                                  Exhibits

 

99.1  Certification of Chief Executive Officer andChief Financial Officer

 

(b)                                 Reports on Form 8-K

 

Pursuant to the requirement ofItem 12 of Form 8-K, the Company filed reports on Form 8-K on April 3, 2003 andApril 15, 2003 containing the Company’s press releases for their anticipatedand actual results, respectively, for the three months ended March 31, 2003.

 

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**SIGNATURES**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|   | ADVENT SOFTWARE, INC. |
|--------|-----------------------|
|   |                  |   |
|   | Dated: May 13, 2003   | By: | /s/ Graham V. Smith |
|   |                  | Graham V. Smith*Executive Vice President,  Chief Financial Officer**and Secretary  (Principal Financial Officer, Principal Accounting Officer)* |
|        |                       |  |  |

 

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I, Graham V. Smith, certify that:

 

1.                                       I have reviewed this quarterly report onForm 10-Q of Advent Software, Inc.;

 

2.                                       Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairly presentin all material respects the financial condition, results of operations andcash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4.                                       The registrant’s other certifying officer and I amresponsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrantand have:

 

a)                                      designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b)                                     evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior tothe filing date of this quarterly report (the “Evaluation Date”); and

 

c)                                      presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officer and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):

 

a)                                      all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)                                     any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.                                       The registrant’s other certifying officer and I haveindicated in this quarterly report whether there were significant changes ininternal controls or in other factors that could significantly affect internalcontrols subsequent to the date of our most recent evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 

Date: May 13, 2003

 

 
|   |  /s/ Graham V. Smith                                                         |
|--------|-----------------------------------------------------------------------------------|
|   | Graham V. Smith*Executive Vice President,  Chief Financial Officer and Secretary* |

 

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I, Peter M. Caswell, certify that:

 

1.                                       I have reviewed this quarterly report onForm 10-Q of Advent Software, Inc.;

 

2.                                       Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4.                                       The registrant’s other certifying officer and I amresponsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrantand have:

 

a)                                      designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b)                                     evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior tothe filing date of this quarterly report (the “Evaluation Date”); and

 

c)                                      presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officer and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):

 

a)                                      all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)                                     any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.                                       The registrant’s other certifying officer and Ihave indicated in this quarterly report whether there were significant changesin internal controls or in other factors that could significantly affectinternal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

Date: May 13, 2003

 

 
|   |  /s/  Peter M. Caswell              |
|--------|------------------------------------------|
|   | Peter M. Caswell                         |
|   | *Chief Executive  Officer and President* |

 

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