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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]
For the fiscal year ended April 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File Number 0-12456
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AMERICAN SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-1098795
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
470 East Paces Ferry Road, N.E. 30305
Atlanta, Georgia (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code (404) 261-4381
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Shares, $.10 Par Value
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
At July 07, 2000, 18,523,426 Class A Common Shares and 4,082,289 Class B
Common Shares of the registrant were outstanding. The aggregate market value
(based upon the closing price of Class A Common Shares as quoted on the NASDAQ
National Market System at July 07, 2000) of the Class A shares held by
nonaffiliates was approximately $132 million.
DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-K
1. 2000 Proxy Statement into Part III.
2. Form S-1 Registration Statement No. 2-81444 into Part IV.
3. Form S-8 Registration Statement Nos. 333-55214, 333-67533 and 333-86141 into
Part IV.
4. Form 10-K's for fiscal years ended April 30, 1998 and 1999 into Part IV.
5. Form 10-Q's for the quarters ended January 31, 1990, October 31, 1990 and
January 31, 2000 into Part IV.
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Forward-Looking Statements
In addition to the historical information contained herein, the discussion
in this Form 10-K contains certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that involve risks and uncertainties, such as
statements concerning: growth and future operating results; future customer
benefits attributable to the Company's products; developments in the Company's
markets and strategic focus; new products and product enhancements; potential
acquisitions and the integration of acquired businesses, products and
technologies; strategic relationships; and future economic, business and
regulatory conditions. The cautionary statements made in this Form 10-K should
be read as being applicable to all related forward-looking statements whenever
they appear in this Form 10-K. The Company's actual results could differ
materially from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under the section captioned "Risk Factors" in Item
1 of this Form 10-K as well as the cautionary statements and other factors set
forth elsewhere herein.
PART I
ITEM 1. BUSINESS
Company Overview
American Software, Inc. ("American Software" or the "Company"), through its
subsidiaries, develops, markets and supports a portfolio of software and
services that deliver e-business and enterprise management solutions to the
global marketplace. The Company's software and services are designed to bring
business value to traditional and e-businesses by supporting their operations
over intranets, extranets, client/servers or the Internet. The Company launched
its comprehensive suite of e-business solutions in December 1999, positioning
itself as a single source e-business solution.
The Company focuses its e-business solutions in five major product and
services groups: (i) e-intelliprise, a fully web-based Enterprise Resource
Planning (ERP solution which includes both traditional and Flow Manufacturing
capabilities; (ii) e-applications, e-business solutions that focus on web-
enabling a specific task; (iii) e-collaboration, which is Logility Voyager
Solutions(TM); (iv) e-services, comprehensive services to support traditional
and e-business solutions and ( v) e-hosting , Application Infrastructure
Provider (AIP) services for American Software products through the AmQUEST
subsidiary. American Software's products are designed to bring rapid business
value to clients and to support their transition into e-business. The Company
also provides support for its software products, such as software enhancements,
documentation, updates, customer education, consulting, systems integration
services, maintenance and IT hosting.
The e-intelliprise solution is a fully web-based ERP that can be run over
the Internet, intranet, extranet or traditional client/server. This allows any
function within the solution to be easily deployed over the Internet using a
dynamic role-based web page capability. Users no longer require separate
implementations to achieve e-procurement, e-catalog sales, or trading portals
over the Internet. This solution supports e-businesses and traditional
businesses with full front-to-back office integration, which is critical to
successful fulfillment and seamless processing and reporting throughout the
enterprise. e-intelliprise is a fully global system, capable of operating in
multiple languages, logistical organizations, and financial records. e-
intelliprise features industry-leading capabilities such as alert-enabled
business intelligence, WML (wireless markup language) for remote access, and a
trading portal with bid capability.
Flow Manufacturing is a software solution that supports pull-based
manufacturing. Many industry experts believe that Flow Manufacturing will
become a key competitive advantage to companies as e-business increases
consumer expectations for faster deliveries, reduced pricing and more highly
customized products. American Software's e-applications are e-business
solutions that can web-enable specific business functions
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through integration with any existing ERP or legacy system. Currently, e-
applications are available for: procurement, store, bid, expenses, forms,
payables and receivables. These products represent a cost-effective solution
for customers with a focused e-business requirement.
Logility is a leading provider of e-commerce solutions for business-to-
business (B2B) collaborative commerce that optimize internal and external
operating efficiencies of manufacturers, suppliers, distributors, retailers and
other organizations along the value chain. The value chain refers to the
complex network of relationships that organizations maintain with trading
partners to source, manufacture and deliver products to the customer. Our
solutions enable enterprises to significantly improve efficiencies, collaborate
with suppliers and customers, respond to market demands and engage in dynamic
business relationships via the Internet. The Company's Logility Voyager
Solutions consists of an Internet-based, integrated software suite that
provides advanced supply chain management including collaborative planning,
supply chain execution, and integrated logistics capabilities that are designed
to increase revenues, reduce inventory costs, improve forecast accuracy,
decrease order cycle times, optimize production scheduling, streamline
logistics operations, reduce transportation costs and improve customer service
across our customers' value chains and e-commerce trading exchanges.
AmQUEST provides comprehensive IT and networking services to enterprises,
ASPs (Application Service Providers) and NSPs (Network Services Providers).
From its state-of-the-art data center, AmQUEST provides cost-effective support
for mission-critical applications on all major platforms. AmQuest's services
portfolio includes: Managed IT Hosting, Enterprise Monitoring, and Network
Management.
Industry Background
Business is becoming increasingly complex. The e-business revolution is
changing the way companies do business, presenting both opportunities and
challenges. The Internet is an effective vehicle to manage relations with both
customers and suppliers, but these operations must merge with traditional
operations. Enterprises are dealing with new business models, dynamic global
markets, increased competition and higher customer service expectations. To
effectively compete in this marketplace, companies must leverage technology to
deliver competitive advantage and business value. IT solutions must support
traditional and e-business operations and provide decision support.
As companies transform their businesses to compete in the Internet age, e-
business solutions must provide integration to all of the operations within the
enterprise via the ERP system. This front-to-back office integration will
support all areas of the business by improving communications with customers
and suppliers, supporting fulfillment of customer orders, streamlining
administration, reducing cycle times, enhancing planning and providing
consistent information for decision-making. Front-to-back office integration is
critical to fully leverage the business value that the Internet can bring to an
enterprise. By integrating the front office to the back office, enterprises can
also have consistent real-time information that may be used for advanced
decision-support.
Manufacturing organizations will experience increasing pressures, as the
Internet increases customer expectations for quicker deliveries, lower prices
and higher levels of customization. Flow Manufacturing is designed to
streamline the manufacturing process and eliminate waste by building product at
the rate of demand. This enables manufacturers to respond to these increased
customer expectations.
As demands on the enterprise increase, relationships with vendors become
increasingly important. The value chain must create a collaborative environment
where suppliers and buyers work together to assure that the right products are
in the right place at the right time.
The Internet has emerged as a new medium for communicating, exchanging
information and transacting business. The rapid growth of the Internet is
challenging corporate IT organizations with dynamic technology infrastructures,
changing business models, and staffing difficulties.
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Company Products and Services
The Company's product line consists of software and services that operate on
four strategic computer platforms: (1) IBM System/390 Mainframe or compatible,
(2) IBM Midrange--AS/400, (3) UNIX--HP 9000, IBM RS/6000 and other Unix
platforms and (4) Intel-based servers and clients that operate Windows 3.1,
Windows NT. The products are written in various standard programming languages
utilized for business application software, including ANS COBOL, COBOL II,
Micro Focus COBOL, C, C++, Visual Basic and other programming languages, and
many have both on-line and batch capabilities.
The following is a summary of the Company's main software solutions:
ENTERPRISE SOLUTIONS SOFTWARE
The Company's enterprise solutions are comprehensive global solutions that
link critical functions throughout the enterprise. All of the Company's
enterprise solutions support e-business functions.
In December 1999, the Company introduced e-intelliprise, a fully web-based
ERP system (Manufacturing, Logistics and Financials), which can support ERP
functions over the Internet, intranet, extranet or on a client/server basis.
This comprehensive solution provides front-to-back office integration, as well
as alert-enabled business intelligence, portals and wireless (WML)
capabilities. e-intelliprise fully supports an enterprise in approaching the
global "Market of One" by creating dynamic views of information, and employing
multiple language, currency and business rules based on an individual's
profile. This solution is available in a license fee or ASP (Application
Service Provider) pricing model.
Manufacturing Modules
Companies may use e-intelliprise with Traditional Manufacturing and/or Flow
Manufacturing modules. The modules listed below are the solution components
within Traditional Manufacturing:
1. Master Scheduling
2. Material Requirements Planning II (MRP II)
3. Bill of Materials
4. Capacity Planning
5. Production Order Status
6. Route and Work Center Maintenance
7. Shop Floor Control
Logistics Modules
The Company's logistics solution consists of an integrated system of modules
which provide information concerning the status of purchasing activities,
customer orders, inventory position and internal inventory requisition
requirements. These modules perform primarily the following functions:
Inventory Asset Management
. Inventory Asset Control
. Lot Processing
. Receipt & Shipment Management
. Serialized Inventory Processing
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. Replenishment Processing
. Requisition Management
. Inspection
Procurement
. e-Procurement
. Trading Portal
. Auction/reverse auction
. Blanket Purchasing
. Approval Routing
Customer Order Management
. Dynamic creation web order and catalog capabilities by customer type
. Customer Portal
. Order Management
. Pricing & Promotions Management
. Shipping Management
. Billing Management
. Credit Control Processing
. Customer Management
Financial Modules
The Company's comprehensive financial solutions provide functions such as
financial reporting, budgeting, asset management, cash management, credit
management and receivables management. These systems assist in resolving
customers' specific financial control issues faster and more effectively. The
e-intelliprise financial module is fully global, allowing the use and reporting
of multiple currencies, including the Euro Monetary Unit. The specific
applications available are:
General Ledger
. Chart of Accounts Processing
. Budgeting
. Journal Entry Processing
Accounts Payable
. Voucher Entry Processing
. Payment Processing
Treasury
. Bank Reconciliation
. Cash Management
. Netting & Write-Offs
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Accounts Receivable
. Credit Management
. Collections Management
. Cash Receipts Management
. Financial Notices & Dunning Management
. Activity Manager
Key benefits of Enterprise Solutions include the following:
American Software is a single--source solution provider for the Internet
age. The Company's comprehensive e-business solution suite supports the e-
business requirements of most enterprises throughout their adoption of Internet
technology. e-intelliprise is a comprehensive solution to support the
operations of enterprises and provide advanced decision support tools.
Front-to-Back Office Integration is critical to the success of an
enterprise. e-intelliprise provides complete integration of e-business
transactions to the entire ERP system. This assures complete and consistent
flow of information throughout the enterprise and supply chain. Fulfillment
issues that have been experienced by some e-tailers can be resolved through
front-to-back office integration. e-intelliprise is a single solution for
support of traditional and e-business activities.
Rules-based architecture allows different views based upon user role. e-
intelliprise is very flexible due to its rules-based architecture. This allows
the ERP data to be dynamically presented based upon the profile of the user,
providing a powerful and secure information engine.
Deployable over the Internet, Intranet, Extranet or Client/Server. Companies
can deploy e-intelliprise over multiple channels without a separate
implementation. e-intelliprise allows users to dynamically create multiple
secure role-based views of the system. This system flexibility provides greater
business value by extending the information within the ERP securely across to
employees, customers and trading partners, as determined by the enterprise.
Full Global Capabilities. e-intelliprise provides full global support of the
entire ERP with multiple language, currency and books. This allows users to
view information in their native language and currency without impacting the
corporate books.
Alert-enabled Business Intelligence. e-intelliprise includes comprehensive
business intelligence capabilities to provide enterprises with consistent and
easy-to-use information throughout the enterprise. The business intelligence is
based on two technologies: data marts and alerts. e-intelliprise currently
offers three data marts that give views across the supply chain: channel
performance (sales), supplier performance (vendors) and inventory performance.
These data marts provide summary views and highly graphical business
intelligence with the capability to view detail at the transaction level. e-
intelliprise also allows users to receive role-based alerts, which proactively
provide instant notification of KPIs (key performance indicators) via e-mail or
wireless.
e-intelliprise Includes a Trading Partner Portal Supported by Business
Intelligence. The e-intelliprise solution provides a one-to-many trading
portal, which can generate RFPs (Request for Price), distribute them to
selected vendors, accept a bid price, place the order and track it throughout
the system. Because this trading portal is part of the ERP, e-intelliprise's
business intelligence will evaluate a vendor's performance, eliminating a
decision based solely on price. The entire bidding process can be alert-enabled
to shorten the cycle times.
Wireless Communications. e-intelliprise is remotely accessible via wireless
technology (WML). Alerts can be sent to users via wireless to notify them of a
KPI (key performance indicator) who can subsequently
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respond to the alert. Wireless technology allows e-intelliprise to send
critical information to users regardless of their location.
Modular Solution. Companies may purchase one or more modules, which can be
integrated with other enterprise software. They may also purchase an integrated
product suite to handle increased requirements for enterprise management,
processing and transaction volume.
Availability in an ASP (Application Service Provider) Model. All of American
Software's solutions are available in an ASP model, which provides customers
with complete solution functionality on a hosted basis with a cost-effective
monthly per user fee. This eliminates the issues associated with operating a
data center and hiring IT staff and reduces capital expenditures, while the
customer enjoys state-of-the-art IT capabilities and support.
Extensive Functionality. The Company's enterprise solutions meet the demands
of doing business in the Internet age by combining traditional and e-business
functionality into a comprehensive yet flexible system. e-intelliprise offers
full operational and decision support functionality for global enterprises.
Rapid Deployment. The Company's products utilize a modular design and a
flexible rules-based architecture, thereby streamlining implementation and
reducing project time and expenses. American Software has announced a 120-day
implementation program that is appropriate for many customers.
Flow Manufacturing Modules
American Software's Flow Manufacturing solution is designed to operate on a
stand-alone basis, with the e-intelliprise ERP suite or with an ERP suite
provided by another vendor. Flow Manufacturing can be used in conjunction with
traditional manufacturing or can be the sole manufacturing solution provided
throughout an enterprise. Flow Manufacturing represents the industry's most
comprehensive solution designed expressly for companies looking to move
manufacturing to the next level. The solution is comprised of the following
modules:
1. Line Design
2. Kanban Management
3. Demand Smoothing
4. Product Costing
5. Engineering Change
6. Method Sheets
Flow Manufacturing benefits include:
e-business support. To meet e-business demands, many manufacturers are
replacing traditional mass production methods with Flow Manufacturing
techniques. Flow Manufacturing's benefits of reduced cost and reduced lead-time
offer a significantly more appropriate structure for responding to e-business
demands. With Flow Manufacturing, product is built on customer demand. Flow
Manufacturing provides a distinct advantage in an e-business world.
Scaleable Implementation. Flow Manufacturing can be scaled to handle a
single production line up to the requirements of a complex multi-plant, multi-
source manufacturing environment. The solution can also co-exist with
traditional manufacturing so that Flow Manufacturing can be used for some
portions of production and assembly while traditional manufacturing is
maintained for others. This hybrid approach offers manufacturers significant
flexibility.
Integration. Flow Manufacturing can be licensed in conjunction with American
Software's e-intelliprise ERP suite, or it can be licensed to companies that
are using the enterprise solutions of other vendors. Industry-standard data
formats, interfaces and protocols facilitate this flexible integration.
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Rapid Deployment. Flow Manufacturing has a modular design, thereby
streamlining implementation and allowing deployment in a relatively short time
frame. The comprehensive functionality of each module generally permits
customers to implement the solutions with nominal modifications. In addition,
Flow Manufacturing combines sophisticated techniques and tools with an
intuitive, Windows-based interface to reduce training requirements and
implementation tasks.
E-APPLICATIONS
To help companies leverage the full value of their existing ERP and legacy
systems, American Software's advanced e-applications streamline business
processes and create competitive advantage. e-applications provide added value
by extending the reach of the ERP to trading partners, establishing the
groundwork for collaborative trading.
Procurement. This online solution dramatically reduces time and costs
associated with ordering MRO (Maintenance Repair and Operations) by allowing a
company's employees to purchase goods online. It also simplifies and automates
employee purchasing by letting companies place catalogs and product lists from
approved suppliers on a corporate intranet for self-service purchasing. It
provides access to supplier products with all purchasing information contracted
by buyers and suppliers, delivering current information 24 hours a day.
Procurement establishes extranet relationships where access to the supplier's
order processing system is required, providing text and images of the
supplier's products to insure that what is ordered is what is needed.
Store. Using Store, companies can display a product catalog to enable its
customers or sales force to place orders anywhere, around the clock. Via the
Internet or corporate intranets, users have secure and easy access at all times
to the order management system where up-to-date-information, like existing
orders, credit availability, discounts, and promotions and online catalogs can
be viewed.
Bid. With this product's bid/reverse bid capabilities, organizations can
expedite bidding activities by streamlining bidding procedures and processes
via the Internet. Bid functionality allows a business to auction off surplus
material to customers with the highest bid, while reverse bid allows a business
to save costs by soliciting bids for needed materials. After the bid is
completed, an e mail message closes the loop with notifications to all
participants upon bid award.
Expenses. This easy-to-use graphical tool expedites expense processing by
enabling employees to submit, track and receive payment for expenses and
receipts online. It also removes the inefficiencies of conventional expense
processing while cutting administrative costs, especially within virtual
organizations.
Forms. By providing the ability via e-mail to route specific forms like
requisition orders, Forms offers an effective, easy-to-use communication
channel to external partners. Forms provides a secure, self-service link
between non-host users and purchasing, material request, AP, AR, customer order
processing and manufacturing systems. For smaller companies, this solution is
an alternative to expensive, value-added networks for EDI.
Payables. This new accounts payable and requisition orders module
streamlines administrative processes regarding non-PO-related purchases online,
enabling users to cost-effectively transact business from any location. Using
the Internet or internal intranets, Payables provides a secure interface into
an accounts payable system. This paperless method of disbursement enables
customers to cost-effectively transact business anywhere, anytime.
Receivables. This solution web-enables the account receivables process,
shortening cycle times and reducing administrative costs.
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LOGILITY VOYAGER SOLUTIONS AND SERVICES
The Company's Voyager Solutions are provided through Logility, Inc. The
Company currently owns approximately 85% of the common stock of Logility, Inc.,
the remaining 15% being publicly held.
Logility's Voyager Solutions is an Internet-based suite of business-to-
business collaborative commerce solutions that enables end-to-end supply chain
management within and between manufacturers, suppliers, distributors and
retailers to more effectively manage the activities along their respective
value chains and enable collaboration with external trading partners. Logility
also provides collaborative commerce products to expand the number of business
processes that can be executed via intranets, extranets and the Internet.
Logility's services include the i-Community, which facilitates CPFR-based
collaborative commerce within a web-based network of trading partners including
suppliers, manufacturers, retailers and customers. The i-Community is powered
by the Logility Voyager Solutions suite and enables companies to quickly reap
the benefits of collaboration with external trading partners.
The key benefits of the Company's software solutions and services include the
following:
Integrated End-to-End Value Chain Solution. The Company's Logility Voyager
Solutions provides functionality that addresses both the flow of information
and the flow of products throughout the value chain. By synchronizing its
comprehensive planning software products with its transportation and warehouse
management software solutions, the Company's product suite can more efficiently
and accurately coordinate the delivery of products to the customer. This end-
to-end approach allows maximum synchronization of activities along the value
chain.
Advanced Collaborative Planning and Supply Chain Execution
Functionality. The Company's products allow for collaboration among the various
levels within an organization and with external constituents (trading partners)
throughout the value chain. The architecture of Logility Voyager Solutions
enables key constituents to participate in the planning process, including
marketing, sales, manufacturing, procurement, logistics and transportation
personnel, so that the requirements of all groups are factored in to create one
consensus plan. The Company's collaborative planning functionality is further
enhanced with collaborative commerce tools such as the Company's Logility
Voyager XPS(TM) (eXtensible Planning Solution), which leverages Internet
technology to facilitate information sharing directly with trading partners.
Voyager XPS supports the business processes and practices defined in the CPFR
guideline, enabling B2B collaborative commerce via the Internet between two or
more trading partners. Complementing Voyager XPS on the supply chain planning
side is Logility Voyager XES(TM) (eXtensible Execution Solution) on the supply
chain execution side. This solution extends collaboration to transportation and
distribution center management trading partners. Through the Company's i-
Community SM, a collaborative network of trading partners, customers will be
able to exchange information and conduct collaborative planning, forecasting
and replenishment as well as streamline the order fulfillment process through
collaboration with warehouse, transportation and carrier trading partners.
Comprehensive Planning Solution. The Company's planning solution is
comprised of demand, inventory, event, manufacturing, replenishment and
transportation planning modules that balance demand opportunities with supply
constraints through the synchronization of information gathered from value
chain participants. A key component of the Company's planning solution is its
emphasis on addressing the full range of complex demand planning requirements
of its customers, including comprehensive forecasting capabilities that take
into account each user's unique perspective of the value chain.
Robust Supply Chain Execution Solution. The Company's Supply Chain Execution
components of Logility Voyager Solutions support the needs of single or multi-
site operations by systematically balancing logistics strategies, customer
service policies, carrier effectiveness and inventory levels.
Rapid Deployment. The Company's products utilize a modular design, thereby
streamlining implementation and allowing deployment in a relatively short time
frame. The comprehensive functionality of each module generally permits
customers to implement the solutions with nominal modifications. In addition,
the Company's software combines sophisticated techniques and tools with an
intuitive, Windows-based interface to reduce training requirements and
implementation tasks.
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Open, Scaleable, Internet and Client-Server Architecture. Logility's
software has been designed to leverage the Internet to reach remote corporate
users and incorporate external trading partners. The application suite
integrates with existing in-house and third-party software applications and a
variety of operating environments and platforms. The software is scaleable to
manage complex processes involving tens of thousands of products across
multiple sites.
Products
Logility Voyager Solutions is an integrated suite of business-to-business
collaborative commerce solutions designed to synchronize demand opportunities
with supply constraints and logistics operations. The suite is comprised of a
series of Internet-based, integrated modules that provide a robust solution for
value chain management resulting in both external and internal collaboration to
streamline the supply chain. These modules can be implemented individually in
certain cases, as well as in combinations or as a full solution suite.
Logility Voyager Solutions supports multiple communications protocols and is
designed to operate with industry-standard open technologies, including leading
web-based and client-server environments, such as HP9000, IBM RS/6000, AS/400
and Intel-based servers running Windows NT on Oracle and Microsoft SQL Server
7.
The following table summarizes the Company's product line:
Module Features
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Logility Voyager XPS . Collaborative Planning, Forecasting and
Replenishment (CPFR) compliant
. Collaborative planning with trading partners
. Configurable deployment
. Open integration architecture
. Value Chain Workflow
. Universal Exception Builder for managing
exceptions
Logility Voyager XES . Collaborative warehouse and transportation
planning with trading partners
. Configurable deployment
. Open integration architecture
. Value Chain Workflow
. Universal Exception Builder for managing
exceptions
Value Chain Designer(TM) . Strategic distribution network optimization
. Customer assignment
. Facility location
. Balancing customer service levels and cost
. Sourcing selection and capacity planning
Demand Chain Voyager(TM) . Forecast retrieval and modifications via the
Internet and Corporate Intranets
. Tight integration with Demand Planning
. Promotion planning calendars
. Comprehensive security features
. Collaborative planning with trading partners
Manufacturing Planning . Enterprise-wide capacity planning
. Plant-level scheduling
. Supports activity-based costing
. Optimizes sourcing decisions' actual costs
. Interactive simulation
. Real-time, in memory model
. Distributed and remote visual capacity planning
. Remote and collaborative manufacturing
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Module Features
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Replenishment Planning . Supports continuous replenishment strategies
. Constrained, time-phased distribution
requirements planning
. Proactive action messages
. EDI integration
. Available-to-promise methodologies
. Multi-site sourcing and allocation
Transportation Planning . Load Control Center
. Shipment planning and consolidation
. Freight rating and routing
. Carrier selection
Transportation Management . Load tendering
. Shipment confirmation
. Freight audit and payment control
. Shipment documentation and tracking
Warehouse PRO(R) . Object oriented architecture
. User configurable options
. Advanced workflow technology
. Dynamic label and report printing
. Integrated graphical user interface
AMQUEST SERVICES
AmQUEST provides complex managed hosting and network management services for
enterprise applications across a broad array of computing platforms. AmQUEST
provides a complete solution including infrastructure and both operational and
technical support functions to successfully maintain our customers' mission-
critical information systems and other e-commerce and network applications. We
provide our services to enterprises, Application Service Providers (ASPs) and
Network Service Providers (NSPs). Our advanced managed hosting services provide
a single-source, highly scalable, high performance platform for hosted
business, e-commerce and multimedia applications. AmQUEST offers the following
three services:
. Coplex Managed Hosting
. Enterprise Monitoring
. Network Management
Unique Capability to Host and Manage Complex Systems
While many small to medium-sized businesses are currently capable of running
their enterprise software applications on small rack-based servers, as these
companies grow to be much larger, they will require servers that have the power
to handle enormous amounts of data with the ability to process such data
reliably and with ultra-fast speed. Fortune 500 and other multinational
corporations use these high-powered servers for software programs that need to
handle large amounts of data and that are constantly being accessed and
updated.
Our operations center, which combines advanced network capabilities, data
hosting and monitoring, is built to handle these large servers as well as the
traditional, rack-based servers. In addition, and more importantly, the
Company's technical support personnel are trained to operate all types of
servers. This allows us the opportunity to service customers of all sizes and
with many different application requirements. Many corporations utilize both
large, more powerful servers for their enterprise applications and rack-based
servers for their web sites. These customers can rely on us to handle their
entire server and application needs whereas traditional hosting companies could
only handle a portion of these needs.
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Advanced Network Management/Monitoring Capabilities
The Operations Center is monitored 24 hours a day, 365 days per year by
qualified, trained personnel. Our center is equipped with advanced monitoring
tools, back-up power supplies, redundant network architecture as well as
standard security and fire protection measures. AmQUEST's center has been
audited by PricewaterhouseCoopers and has been certified SAS70 compliant. The
Company has entered into an agreement with Level 3 Communications, which will
allow us to utilize Level 3's data centers for the hosting of traditional,
rack-based servers. This strategic alliance provides AmQUEST with the ability
to rapidly expand capacity in a cost-effective manner. Currently AmQUEST has
hosting capabilities in nine U.S. cities. To access the backbone quickly and
most effectively, the Company is currently evaluating growth through expansion
of strategic relationships, acquisitions, and building additional data centers.
AmQUEST has expertise in complete enterprise hosting of both front and back
office systems on every major platform. Over the last eight years, AmQUEST has
demonstrated success in hosting the entire IT infrastructure of over 100
companies. Demand for enterprise hosting services is expected to increase as IT
environments become increasingly complex and as the expansion of the Internet
places additional stress upon corporate IT resources by requiring tighter front
to back office integration of systems.
AmQUEST offers a comprehensive suite of Managed Hosting Solutions that
support complex enterprise systems as well as NT and UNIX servers.
. Security Management
. System Backup
. System Administration
. Reporting
. Disaster Recovery
. Enterprise Monitoring
. Networking Services
AmQUEST has a multi-tiered solution suite to address the monitoring needs of
any organization. The AmQUEST Enterprise Monitoring services are based upon
state-of-the-art technology and methodology, including leading Tivoli solutions
and proprietary software applications that greatly increase the software's
usability and functionality. These cost-effective services can create a world-
class environment by monitoring all servers and applications across the entire
enterprise.
Enterprise Monitoring Services are offered on customized levels.
. Basic Server Monitoring--Health Status
. Enhanced Server Monitoring
. Application Monitoring
. Database Monitoring
. Microsoft IIS Web Monitoring
. Microsoft Exchange Monitoring
. Event Scheduling
AmQUEST offers high quality Network Management services that provide value
both to enterprises and to NSPs. The comprehensive solution suite includes:
. Private Network Management
12
. Frame Relay
. VPNs ( Virtual Private Networks)
. Design and Implementation Support
. Network Operation Center Monitoring
. Security
Strategy
The Company's objective is to become the leading provider of enterprise-wide
solutions to mid-market distributors and manufactures. The Company's strategy
includes the following key elements:
Leverage and Expand Installed Base of Customers. The Company currently
targets businesses in the consumer goods, chemicals and pharmaceuticals, food
and beverage, and oil and gas industries. The Company intends to continue to
leverage its installed base of more than 900 customers to introduce additional
functionality, product upgrades, complementary modules, and application hosting
services. In addition, the Company intends to expand sales to new customers in
its existing vertical markets and to target additional vertical markets over
time.
Continue to Expand Sales and Marketing. The Company intends to continue to
pursue an increased share of the market for value chain management software
solutions by expanding its sales and marketing activities. The Company intends
to continue building a direct sales force that is focused on selected vertical
markets, such as consumer goods manufacturers.
Maintain Technology Leadership. The Company believes that it is a technology
leader in the field of value chain management software solutions and intends to
continue to provide innovative, advanced solutions and services to this market.
The Company believes that it was one of the earliest providers of value chain
planning software solutions on a client-server platform and on Windows NT, and
the first to introduce a value chain planning software solution that operates
over the Internet and provides application hosting services. The Company
intends to continue to develop and introduce new or enhanced products and keep
pace with technological developments and emerging industry standards.
Implement E-Business Strategy. The Company has launched an E-Business
initiative that will enable it to build on current applications while moving to
total Internet-based value chain management. The Company's E-Business strategy
includes three levels of products and services designed to enable the
optimization of the customer's value chain and improve collaboration. In
launching this initiative, the Company intends to do the following:
. Continue to develop and sell e-Intelliprise capabilities that capitalize
on the speed and flexibility of the Internet with the collaborative
planning and logistics capabilities of Intelliprise
. Continue to develop and sell the e-application products that leverage the
Internet to improve processes and communications.
. Continue the growth of our AmQUEST subsidiary by focusing on its web-
based hosting capabilities including operating as an Application Service
Provider (ASP).
Focus on Integrated Planning and Logistics Execution Solution. The Company
believes it is one of the few providers of integrated value chain management
software solutions addressing both demand and supply planning as well as
transportation and warehousing logistics requirements. The Company is focusing
on providing the most comprehensive planning and execution solution aimed at
optimizing operations along the value chain. The Company intends to continue to
focus its development initiatives on enhancing its end-to-end solution and
introducing additional capabilities that complement its integrated solution.
13
Focus on MidMarket. The Company has defined as "MidMarket" those
corporations or divisions of corporations that have annual revenues ranging
from $200 million to $2 billion. Organizations of this size fit the Company's
historical customer profile, and are prime candidates for the purchase and use
of the Company's unique full suite of integrated products.
Increase Penetration of International Markets. In fiscal year ended April
30, 2000, the Company generated 7% of its total revenues from international
sales and has marketing relationships with a number of international
distributors. The Company intends to expand its international presence by
adding additional direct sales personnel to address international markets and
creating additional relationships with distributors in Europe, Latin America
and the Asia/Pacific region.
Expand Strategic Relationships. The Company intends to expand the depth and
number of strategic relationships with leading enterprise software, systems
integrators and e-commerce vendors. The Company has a number of varying
marketing and/or product relationships with ERP vendors, systems integrators
and service organizations, including Arthur Andersen, Clarkston Potomac, IBM,
INSIGHT, Inc., March First, Microsoft, JBA International, Ross Systems,
Tompkins Associates, and WaveBend Solutions (formerly BDO Seidman). In
addition, the Company has developed a network of international agents who
assist in the selling of the Company's products. The Company intends to utilize
these and future relationships with software and service organizations to
enhance its sales and marketing position.
Continue to Focus on Providing High Quality Customer Service. Providing high
quality customer service is a critical element of the Company's strategy. The
Company intends to continue to invest in technology and personnel to
accommodate the needs of its growing customer base.
Customers
The Company primarily targets businesses in the consumer-packaged goods,
chemicals, pharmaceuticals, industrial products and other manufacturing
industries. During fiscal 2000, the Company provided software and services to
approximately 900 customers. No single customer accounted for 10% or greater of
the Company's revenues in the three years ended April 30, 2000. A sample of
companies which have purchased one or more of the Company's products and
services is as follows:
Consumer Chemicals, Oil & Gas, Manufacturing
Packaged Goods Pharmaceuticals and Others
-------------- --------------------- -------------
Bausch & Lomb Beyschlag Centralab Component Appleton Paper
Canandaigua Wine Boots the Chemist Bowman Distribution
ConAgra CITGO Cooper Automotive
Heineken USA Eastman Chemical Co. Crown Crafts, Inc.
McCormick & Company FINA Inc. Harley Davidson
Nestle France Kaiser Foundation HugoBoss
Sara Lee Knit Products Nordic Synthesis AB IBM/Synertech
S.C. Johnson & Sons Norton Chemical Koch Industries
Seagram's Pfizer International Komatsu America
Tiffany's Pharmacia & Upjohn Magneti Marelli
VDK Frozen Foods Sigma-Aldrich Corp. Mayville Metal Products
VF Corporation Solvay Pharmaceuticals, Inc Mercury Marine
Wickes Furniture Warner-Lambert Company Plastics, Inc.
Powerware
Utilities Telecommunications Newell Company
--------- ------------------
Atlanta Gas Light Company Bellsouth Cellular Corp Reynolds Metals
Alabama Gas Corp British Telecom Saks Incorporated
Allegheny Power Corp GTE Siecor
Saudi Consolidated
Electric Sprint Snap On Incorportated
14
Manufacturing
Utilities and Others
--------- -------------
Texas Utilities Sony Electronics
Subaru of America, Inc.
Union Camp
US Ceramic Tile
WestPoint Stevens
Integrated System Design
While the Company's software applications can be used individually, they are
designed to be combined as integrated systems to meet unique customer
requirements. The user may select virtually any combination of modules to form
an integrated solution for a particular business problem. The license fee for
such a solution could range from $7,000 for a single module to in excess of
$3,000,000 for a multi-module, multiple-user solution incorporating the full
range of Company products.
Customers frequently require services beyond those provided by the Company's
standard support/maintenance agreement. To meet those customers' needs, the
Company established a separate professional services division which provides
specialized business and software implementation consulting, custom
programming, on-site installation, system-to-system interfacing and extensive
training. These services, frequently referred to as systems integration
services, are provided for an additional fee normally under a separate
contract, based upon time and materials utilized.
Marketing and Sales
Typically, the Company's customers are medium-sized companies or divisions
of larger companies with substantial data processing budgets.
First-time customers may license a single module or a system composed of
several modules. These customers often license other modules to expand the
range of software available to them, and may also license additional modules or
systems similar to those already licensed for use at additional locations.
The Company sells its products directly to the end-user through its sales
and presales staff of 72 persons located in five areas worldwide: Mid U.S.
(15), Northeast U.S. (10), Southern U.S. (33), Western U.S. (4), and Europe
(10). The presales staff provides consultation, advice and assistance to the
sales executives and the customer in selecting an appropriate configuration of
application software modules to address the user's needs. The Company obtains
sales leads from its advertising in trade publications, participation in
industry trade shows and exhibitions, Company-conducted seminars and
telemarketing activities and referrals from existing customers.
In 2000, the Company continued its program to develop a network of sales
agents to support its sales internationally. These agents, along with a
designated Company-employed country manager, are establishing a national
presence for the Company in targeted countries throughout Latin America, Europe
and the Middle East.
The price for the Company's products typically is determined based upon the
number of modules licensed and the number of servers, users and sites for which
the solution is designed. During fiscal year ended April 30, 2000, license fees
generally ranged from $50,000 to $3.0 million.
15
Licenses
The Company, like many business application software firms, typically enters
into license agreements that grant non-exclusive rights to use its products.
The Company's standard license agreements contain provisions designed to
prevent disclosure and unauthorized use of the Company's software. These
agreements warrant that the Company's products will function in accordance with
the specifications set forth in its product documentation. These licenses
generally limit the use of the software to a specific number of individual
users and servers for a one-time fee. A significant portion of the license fee
is generally payable upon the delivery of product documentation, with the
balance due upon installation.
Services and Support
The Company offers a full range of services that allow its customers to
maximize the benefits of the Company's software products including: project
management, implementation, product education, technical consulting,
programming, system integration, network management and maintenance and
support. The customer receives documentation manuals or imbedded help software,
which describe the system's features and its method of operation. The user is
normally entitled to telephone support for a period of at least six months at
no additional charge. The Company's software products are continually enhanced
and improved to accommodate technological changes and other factors, which may
affect the customer's information requirements. The Company's services are
priced separately, and fees for its services generally are not included in the
price for its software products. To receive maintenance, which includes
enhancements, from the Company after the initial period, customers pay fees,
which are based on the then-current price of the product.
As a part of its support service, the Company provides experienced
application and data processing personnel to answer telephone inquiries on a
24-hours-a-day, seven days-a-week basis, and furnishes consulting support in
implementing and maintaining the systems. In addition, training courses and
documentation materials are available to train personnel and update them on new
system features.
The Company markets its professional and data processing resources as an
application services provider (ASP) providing hosting of customers
applications, which could be the Company's products or third party vendor
products, normally under long-term contract. The Company believes ASP services
represent a growth opportunity by providing customers with an outsourcing IT
solution and creating a basis for predictable long-term recurring revenues.
To complement customer support, the Company and its customers actively
participate in its User Group Association. Established in 1980, the User Group
exchanges ideas and techniques for use of the Company's products and provides a
forum for customers' suggestions for product development and enhancement. User
Group meetings include guest speakers who are recognized authorities in their
areas of expertise.
Research and Development
American Software is committed to the development and acquisition of new
products and to the continued enhancement of its existing products. During
fiscal 2000, 1999, and 1998, the Company expensed approximately $9,675,000,
$11,511,000, and $12,112,000, respectively, for research and development. In
addition, the Company capitalized $10,446,000, $10,902,000, and $8,827,000, in
software development costs during fiscal years 2000, 1999, and 1998,
respectively, in accordance with the Statement of Financial Accounting
Standards No. 86. The Company's new internal product development and
enhancements of existing products include two categories: research and
development expenditures and additions to capitalized computer software
development costs. These combined categories totaled $20,121,000, $22,413,000,
and $20,939,000 in fiscal years 2000, 1999 and 1998, respectively, and
represented 19%, 21%, and 20%, respectively, of total revenues in those years.
The Company believes that its client/server and Internet-based solutions,
which utilize the latest technologies, will be important for its long-term
growth. As of April 30, 2000, the Company employed 179 persons in research,
development and enhancement activities.
16
Competition
The market for enterprise applications is intensely competitive, rapidly
changing and significantly affected by new product offerings and other market
activities. In the application software market, the Company competes directly
with a number of firms, including computer manufacturers, large diversified
computer service companies and independent suppliers of software products.
Approximately six firms that market mainframe application software products and
approximately thirty firms that market midrange and client/server application
software products are significant competitors for one or more of the Company's
products. A number of these competitors have financial, marketing, management
and technical resources substantially greater than those of the Company.
The Company's primary market for its software includes manufacturers and
distributors in consumer package goods, food & beverage, chemicals,
pharmaceuticals, industrial products, and textiles, as well as retailers,
wholesale distributors, health & beauty care, public utilities and public
transportation on IBM mainframe, AS/400, RS/6000, HP 9000, and additional UNIX
platforms, as well as Intel-based servers and clients that operate Windows 3.1,
Windows 95, 98, 2000 and Windows NT.
The Company believes that purchasers of software products are principally
concerned with the range of product modules available, ease of integration,
variety of features, performance, simplicity of use, documentation, technical
support and training. The Company further believes that its software products
and services are competitive in these areas. Price considerations are a key
factor and the Company believes its pricing is competitive. The Company
believes the market trend to open systems, allowing software to operate across
hardware platforms, will increase the number of competitors and intensity of
competition. Management believes that it is necessary for the Company to expend
significant development monies annually to remain competitive in the
marketplace.
Trademarks and Copyrights
The Company seeks to protect its proprietary interest in software products
and trade secrets. It maintains non-disclosure and confidentiality agreements
and other contractual arrangements with customers, consultants, employees, and
others. While the strict enforceability of such agreements cannot be assured,
the Company believes that they provide a deterrent to the use of information
which may be proprietary to the Company, and in the event of any breach of such
agreements, the Company intends to take appropriate legal action. It also
copyrights its programs and software documentation related to these programs.
In addition, certain trademarks of the Company have been registered, and others
have registration applications pending. Management believes that the
competitive position of the Company depends primarily on the technical
competence and creative ability of its personnel and that its business is not
materially dependent on copyright protection or trademarks.
Employees
At April 30, 2000, the Company had 676 full-time employees, including 179 in
product research, development and enhancement, 351 in customer support and
professional services, 102 in marketing, sales and sales support, and 44 in
accounting, facilities and administration. The Company believes that its
continued success will depend in part on its ability to continue to attract and
retain highly skilled technical, marketing and management personnel, who are in
great demand.
The Company has never had a work stoppage and no employees are represented
under collective bargaining arrangements. The Company considers its employee
relations to be excellent.
17
RISK FACTORS
Factors That May Affect Future Results and Market Price of Stock
We have included certain forward-looking statements in the Management's
Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere in this Form 10-K. We may also make oral forward-looking statements
from time to time. Actual results may differ materially from those projected in
any such forward-looking statements due to a number of factors, including those
set forth below and elsewhere in this Form 10-K.
We operate in a dynamic and rapidly changing environment that involves
numerous risks and uncertainties. The following section lists some, but not
all, of these risks and uncertainties that may have a material adverse effect
on our business, financial condition or results of operations. This section
should be read in conjunction with the audited Consolidated Financial
Statements and Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the years ended April 30,
2000, 1999 and 1998 contained elsewhere in this Form 10-K.
We Are Dependent Upon Key Personnel and Need to Hire Additional Personnel in
All Areas.
Our future operating results depend significantly upon the continued service
of a relatively small number of key senior management and technical personnel,
including our Chief Executive Officer, James C. Edenfield. None of our key
personnel are bound by long-term employment agreements. The loss of Mr.
Edenfield or one or more other key individuals could have an adverse effect on
us.
Our future success also depends on our continuing ability to attract and
retain other highly qualified managerial and technical personnel. Competition
for these personnel is intense, and we have, at times experienced difficulty in
recruiting and retaining qualified personnel. We may be unable to retain our
key managerial and technical employees and we may not be successful in
attracting, assimilating and retaining other highly qualified managerial and
technical personnel in the future. The loss of key management and technical
personnel or the inability to attract and retain additional qualified personnel
would have an adverse effect on us.
Our Success Depends Upon Our Ability to Retain and Attract a Sufficient Number
of Qualified Employees.
We believe that our future success will depend in large part upon our
ability to attract, train and retain highly-skilled technical, managerial,
sales and marketing personnel. Although we invest significant resources in
recruiting and retaining employees, competition for personnel in the software
industry is intense, and, at times, we have had difficulty locating highly
qualified candidates within desired geographic locations, or with certain
expertise. If our competitors increase their use of non-compete agreements, the
pool of available sales and technical personnel may further narrow in certain
areas, even if the non-compete agreements ultimately prove to be unenforceable.
We may grant large numbers of stock options to attract and retain personnel,
which could be highly dilutive to our stockholders. Our failure to attract,
train, retain and effectively manage employees could increase our costs, hurt
our development and sales efforts and cause a degradation of our customer
service.
18
We Could Experience Fluctuations in Quarterly Operating Results That Could
Adversely Impact Our Stock Price.
Our revenues and results of operations are difficult to predict and may
fluctuate substantially from quarter to quarter. License revenues in any
quarter depend substantially upon the combined contracting activity of the
American Software group of companies and our ability to recognize revenues in
that quarter in accordance with our revenue recognition policies.
Our contracting activity is difficult to forecast for a variety of reasons,
including the following:
. a significant portion of our license agreements are completed within the
last few weeks of each quarter;
. our sales cycle is relatively long and variable because of the complex
and mission-critical nature of our products;
. the size of our license transactions can vary significantly;
. the possibility of economic downturns that are characterized by decreased
product demand, price erosion, technological shifts, work slowdowns and
layoffs may substantially reduce contracting activity;
. customers may unexpectedly postpone or cancel system replacement or new
system evaluations due to changes in their strategic priorities, project
objectives, budgetary constraints or company management;
. customer evaluations and purchasing processes vary significantly from
company to company, and a customer's internal approval and expenditure
authorization process can be difficult and time consuming, even after
selection of a vendor;
. the number, timing and significance of software product enhancements and
new software product announcements by us and our competitors may affect
purchase decisions.
Several factors may require us to defer recognition of license revenue for a
significant period of time after entering into a license agreement, including:
. whether the license agreement relates to then unavailable software
products;
. whether enterprise transactions include both currently deliverable
software products and software products that are under development or
other undeliverable elements;
. whether the customer demands services that include significant
modifications, customizations or complex interfaces that could delay
product delivery or acceptance;
. whether the transaction involves acceptance criteria that may preclude
revenue recognition or if there are identified product-related issues,
such as known defects; and
. whether the transaction involves payment terms or fees that depend upon
contingencies.
Because of the factors listed above and other specific requirements under
GAAP for software revenue recognition, we must have very precise terms in our
license agreements in order to recognize revenue when we initially deliver
software or perform services. Although we have a standard form of license
agreement that meets the criteria under GAAP for current revenue recognition on
delivered elements, we negotiate and revise these terms and conditions in some
transactions. Negotiation of mutually acceptable terms and conditions can
extend the sales cycle, and sometimes we do not obtain terms and conditions
that permit revenue recognition at the time of delivery or even as work on the
project is completed.
Variances or slowdowns in our prior quarter contracting activity may affect
our consulting, training and maintenance service revenues since these revenues
typically follow license fee revenues. Our ability to maintain or increase
service revenue primarily depends on our ability to increase the number of our
licensing agreements. In addition, our expense levels, operating costs and
hiring plans are based on projections of future revenues and are relatively
fixed. If our actual revenues fall below expectations, our net income is likely
to be disproportionately adversely affected.
19
Our Principal Stockholders May Control Our Management Decisions.
James C. Edenfield and Thomas L. Newberry own 100% of our outstanding Class
B common stock between them, giving them the right to elect a majority of the
Board of Directors. If their respective Class B shares were converted into
Class A shares, current directors and executive officers as a group would
beneficially own approximately 20.1% of our Class A common stock. Mr. Edenfield
and Dr. Newberry currently constitute two of the four members of the Board and,
thus, have significant influence in directing the actions of the Board of
Directors.
A Significant Portion of Our Revenue in any Quarter May be Derived from a
Limited Number of Large, Non-Recurring License Sales.
We expect to continue to experience from time to time large, individual
license sales, which may cause significant variations in quarterly license
fees. We also believe that purchasing our products is relatively discretionary
and generally involves a significant commitment of a customer's capital
resources. Therefore, a downturn in any potential customer's business could
result in order cancellations that could have a significant adverse impact on
our revenue and quarterly results. Moreover, declines in general economic
conditions could precipitate significant reductions in corporate spending for
information technology, which could result in delays or cancellations of orders
for our products.
We Have Recently Expanded Our Technology into Several New Business Areas and
Cannot Be Certain that our Expansion Will Be Successful.
Our future success depends to a large degree on the Internet being accepted
and widely used for commerce. We have recently expanded our technology into a
number of new business areas to foster long-term growth, including electronic
commerce, on-line business services and other products and services that can be
offered over the Internet. These areas are relatively new to our product
development, sales and marketing personnel and we cannot be assured that the
markets for these products will develop or that we will be able to compete
effectively or will generate significant revenues in these new areas. As a
result, our success in this area is difficult to predict.
We Depend on Third-Party Technology that Could Result in Increased Costs or
Delays in the Production and Improvement of Our Products.
We license critical third-party software products that we incorporate into
our own software products. If any of the third-party software vendors were to
change their product offerings or terminate our licenses, we might need to
incur additional development costs to ensure continued performance of our
products. In addition, if the cost of licensing any of these third-party
software products significantly increases, our gross margin levels could
significantly decrease.
We rely on existing partnerships with certain other software vendors who are
also competitors. If these vendors change their business practices in the
future, we may be compelled to find alternative vendors with complementary
software, which may not be available on attractive terms, or may not be as
widely accepted or as effective as the software provided by our existing
vendors.
Recent Accounting Pronouncements Could Adversely Impact Our Profitability by
Delaying Some Revenue Recognition into Future Periods.
Over the past several years, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 97-2, "Software Revenue
Recognition", and SOP 98-9, "Software Revenue Recognition With Respect to
Certain Transactions." These standards address software revenue recognition
matters primarily from a conceptual level and do not include specific
implementation guidance. We believe that we currently comply with SOPs 97-2 and
98-9.
20
The American Institute of Certified Public Accountants has only recently
issued implementation guidelines for these standards and the accounting
profession is still discussing a wide range of potential interpretations. These
implementation guidelines, once finalized, could lead to unanticipated changes
in our current revenue accounting practices that could cause us to recognize
lower profits. As a result, we may change our business practices significantly
in order to continue to recognize a substantial portion of our license revenues
when we deliver our software products. These changes may adversely affect our
business.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") and amended it in March and June 2000. We are required
to adopt the provisions of SAB 101 in our fourth quarter of fiscal 2001. We are
currently reviewing the provisions of SAB 101 and have not fully assessed the
impact of its adoption. While SAB 101 does not supercede the software industry
specific revenue recognition guidance, which we believe we comply with, the SEC
Staff has recently informally indicated its views related to SAB 101 that may
change current interpretations of software revenue recognition requirements.
Such SEC interpretations could result in many software companies, including us,
recording a cumulative effect of a change in accounting principles retroactive
to January 1, 2000.
We May Change Our Pricing Practices, Which Could Impact Operating Margins or
Customer Ordering Patterns.
In the future, we may choose to make changes to our pricing practices. For
example, we may (i) offer additional discounts to customers, (ii) reduce the
number of transactions involving periodic fees based on the number of users of
a product or (iii) change maintenance pricing. Such changes could reduce
margins or inhibit our ability to sell our products.
There is Intense Competition in the Industry, Which Requires Us to Constantly
Create New Products, Improve Our Existing Products and Sell Our Products at
Competitive Prices.
We compete with a variety of software vendors, including Internet
application vendors in the enterprise application software market segment,
vendors in the manufacturing software application market segment, vendors in
the emerging enterprise resource optimization software solutions market
segment, providers of human resource management system software products,
providers of financial management systems software products, application
hosting services vendors and numerous small firms that offer products and
services with new or advanced features. As a result, the market for business
application software and related services has been and continues to be
intensely competitive. Some competitors have become more aggressive with their
payment terms and issuance of contractual implementation terms or guarantees.
We may be unable to continue to compete successfully with new and existing
competitors without lowering prices or offering other favorable terms.
In addition, we believe we must differentiate ourself through different or
more subtle architectural and technological factors.
Some of our competitors may have an advantage over us due to their
significant worldwide presence, longer operating and product development
history, and substantially greater financial, technical and marketing resources
than ours. Furthermore, potential customers may consider outsourcing options,
including data center outsourcing, service bureaus and application service
providers, as viable alternatives to licensing our software products.
21
Services Revenues Carry Lower Gross Margins than License Revenues and an
Overall Increase in Services Revenue as a Percentage of Total Revenues Could
Have an Adverse Impact on Our Business.
Because service revenues have lower gross margins than license revenues, an
increase in the percentage of total revenue represented by service revenues
could have a detrimental impact on our overall gross margins and could
adversely affect operating results. As a result, our gross margins can be
negatively affected based on the percentage of service revenues as a percentage
of total revenue and the mix between services that are provided by our
employees versus services provided by third-party consultants.
Our Recent and Future Acquisitions May Not Be Successful.
We have in the recent past and may continue to acquire or invest in
complementary companies, products and technologies, and enter into joint
ventures and strategic alliances with other companies. Risks commonly
encountered in such transactions include:
. the difficulty of assimilating the operations and personnel of the
combined companies;
. the risk that we may not be able to integrate the acquired technologies
or products with our current products and technologies;
. the potential disruption of our ongoing business;
. the inability to retain key technical and managerial personnel;
. the inability of management to maximize our financial and strategic
position through the successful integration of acquired businesses;
. adverse impact on our annual effective tax rate;
. dilution of existing equity holders caused by capital stock issuances to
the stockholders of acquired companies or to retain employees of the
acquired companies;
. difficulty in maintaining controls, procedures and policies;
. potential adverse impact on our relationships with partner companies or
third-party providers of technology or products;
. the impairment of relationships with employees and customers; and
. issues with product quality, product architecture, legal contingencies,
product development issues, or other significant issues that may not be
detected through our due diligence process.
Recent changes in the law require us to use the purchase method of
accounting in most new business acquisitons. The purchase method of accounting
for business combinations may require large write-offs of any in- process
research and development costs related to companies being acquired, as well as
ongoing amortization costs for goodwill and other intangible assets valued in
the combinations with companies. Such write-offs and ongoing amortization
charges may have a significant negative impact on operating margins and net
income in the quarter of the combination and for several subsequent years. We
may not be successful in overcoming these risks or any other problems
encountered in connection with such transactions.
22
Our International Operations and Sales Subject Us to Risks Associated with
Rapid and Unexpected Growth Outside of the United States.
We continue to invest in an effort to enhance our international operations.
The global reach of our business could cause us to be subject to unexpected,
uncontrollable and rapidly changing events and circumstances in addition to
those experienced in United States locations. Changes in the following factors,
among others, could have an adverse impact on our business and earnings:
. conducting business in currencies other than United States dollars
subjects us to factors such as currency controls and fluctuations in
currency exchange rates;
. we may be unable to hedge some transactions because of uncertainty or the
inability to reasonably estimate our foreign exchange exposure;
. we may hedge some anticipated transactions and transaction exposures, but
could experience losses if exchange rates move in the opposite direction;
. differing foreign technical standards;
. increased cost and development time required to localize our products;
. lack of experience in a particular geographic market;
. regulatory, social, political, labor or economic conditions in a specific
country or region;
. laws, policies and other regulatory requirements affecting trade and
investment including loss or modification of exemptions for taxes and
tariffs, and import and export license requirements;
. exposure to different legal standards; and
. operating costs in many countries are higher than in the United States.
The Euro Creates Uncertainty for Our Product Development and, as a Result,
Could Impact Sales.
Our latest software release contains European Monetary Union, or EMU,
functionality that allows for dual currency reporting and information
management. However, since the Euro will not be the sole legally required
currency in any of the member nations until 2002, it is possible that all
issues related to conversion to EMU have not surfaced yet, and may not have
been adequately addressed. In addition, our products may be used with third-
party products that may or may not be EMU compliant. Although we continue to
take steps to address the impact, if any, of EMU compliance for such third-
party products, failure of any critical technology components to operate
properly under EMU may adversely affect sales or require us to incur
unanticipated expenses to remedy any problems.
Our Continued Growth Depends Upon Our Ability to Build and Maintain
Relationships with Third Parties.
A key aspect of our sales and marketing strategy is to build and maintain
strong working relationships with businesses that we believe play an important
role in the successful marketing of our software products. Our current and
potential customers often rely on third-party system integrators to implement,
deploy and manage client/server and other platform-based applications. We
believe that our marketing and sales efforts are enhanced by the worldwide
presence of these companies. However, these companies, most of which have
significantly greater financial and marketing resources than us, may start, or
in some cases increase, the marketing of business application software in
competition with us, or may otherwise discontinue their relationships with or
support of us. If our partners are unable to recruit and adequately train a
sufficient number of consulting personnel to support the implementation of our
software products, we may lose customers.
23
As we have done in the past, in the future we may enter into various
development or joint business arrangements to develop new software products or
extensions to our existing software products. Under these joint business
arrangements, we may distribute ourself or jointly sell with our business
partners an integrated software product and pay a royalty to the business
partner based on end-user license fees. While we intend to develop business
applications that are integrated with our software products, these software
products may in fact not be integrated or brought to market or the market may
not accept the integrated enterprise solution. As a result, we may not achieve
the revenues that we anticipated at the time we entered into the joint business
arrangement.
Our Software Products and Product Development are Complex, Which Make it
Increasingly Difficult to Innovate, Extend Our Product Offerings, and to Avoid
Costs Related to Correction of Program Errors.
The market for our software products is characterized by rapid technological
change, evolving industry standards, changes in customer requirements and
frequent new product introductions and enhancements. Our future success will
depend in part upon our ability to:
. continue to enhance and expand our core applications;
. continue to provide enterprise solutions;
. continue to successfully integrate third-party products;
. enter new markets; and
. develop and introduce new products that keep pace with technological
developments, including developments related to the Internet, satisfy
increasingly sophisticated customer requirements and achieve market
acceptance. We may not be able to enhance existing products or develop
and introduce new products in a timely manner.
Our software products can be licensed for use with a variety of popular
industry standard relational database management systems. There may be future
or existing relational database management system platforms that achieve
popularity within the business application marketplace and on which we may
desire to offer our applications. These future or existing relational database
management system products may or may not be architecturally compatible with
our software product design. We may not be able to develop software products on
additional platforms with the specifications and within the time frame
necessary for market success.
Despite testing by us and by third parties, our software programs, like all
software programs generally, may contain a number of undetected errors when
they are first introduced or as new releases are subsequently released. This
may result in increased costs to correct such errors and reduced acceptance of
our software products in the marketplace. The effort and expense of developing,
testing and maintaining software product lines will increase with the
increasing number of possible combinations of:
. vendor hardware platforms;
. operating systems and updated versions;
. application software products and updated versions; and
. relational database management system platforms and updated versions.
Developing consistent software product performance characteristics across
all of these combinations could place a significant strain on our development
resources and software product release schedules.
24
We have Limited Protection of Intellectual Property and Proprietary Rights and
May Potentially Infringe Third-Party Intellectual Property Rights.
We consider certain aspects of our internal operations, software and
documentation to be proprietary, and rely on a combination of contract,
copyright, trademark and trade secret laws and other measures to protect this
information. Outstanding applications may not result in issued patents and,
even if issued, the patents may not provide any meaningful competitive
advantage. Existing copyright laws afford only limited protection. We believe
that the rapid pace of technological change in the computer software industry
has made trade secret and copyright protection less significant than factors
such as:
. knowledge, ability and experience of our employees;
. frequent software product enhancements; and
. timeliness and quality of support services.
Our competitors may independently develop technologies that are
substantially equivalent or superior to our technology. Therefore, the laws of
some countries in which our software products are or may be licensed do not
protect our software products and intellectual property rights to the same
extent as the laws of the United States. Defending our rights could be costly.
Third parties may assert infringement claims against us. These assertions
could distract management, require us to enter into royalty arrangements, and
could result in costly and time consuming litigation, including damage awards.
We May Experience Liability Claims Arising Out of the Licensing of Our Software
and Provision of Services.
Our agreements contain provisions designed to limit our exposure to
potential liability claims. However, these provisions could be invalidated by
unfavorable judicial decisions or by federal, state, local or foreign laws or
ordinances. For example, we may not be able to avoid or limit liability for
disputes relating to product performance or the provision of services. If a
claim against us were to be successful, we may be required to incur significant
expense and pay substantial damages. Even if we prevailed, the accompanying
publicity could adversely impact the demand for our software.
Although We Believe That We Have Successfully Addressed Concerns Surrounding
Year 2000 Compliance, There is Still Uncertainty Regarding the Extent that the
Software Industry May Be Affected by Year 2000 Issues.
Our business operations are significantly dependent upon the same
proprietary software products we license to customers. Our management believes
that we successfully addressed Y2K readiness in our proprietary software
products and in third-party software, computer and other equipment used
internally. To date, we have not experienced any business interruptions
associated with Y2K compliance issues. However, some uncertainty still exists
in the software industry concerning the potential effects associated with Y2K
readiness.
Although we currently offer software products that are designed and have
been tested for Year 2000 compliance, there can be no assurance that our
software products contain all necessary date code changes. To date, we are not
aware of any Year 2000 compliance failures involving our customers or
suppliers. However, litigation may still arise from business interruptions
associated with Y2K issues. It is uncertain whether, or to what extent, we may
be involved in any such litigation.
25
Our Stock Price is Volatile and There is a Risk of Litigation.
The trading price of our common stock has in the past and may in the future
be subject to wide fluctuations in response to factors such as the following:
. revenue or results of operations in any quarter failing to meet the
expectations, published or otherwise, of the investment community;
. announcements of technological innovations by us or our competitors;
. new products or the acquisition of significant customers by us or our
competitors;
. developments with respect to our patents, copyrights or other proprietary
rights or those of our competitors;
. changes in recommendations or financial estimates by securities analysts;
. changes in management:
. conditions and trends in the software industry generally;
. the announcement of acquisitions or other significant transactions by us
or our competitors;
. adoption of new accounting standards affecting the software industry; and
. general market conditions and other factors.
Fluctuations in the price of our common stock may expose us to the risk of
securities class action lawsuits. Although no such lawsuits are currently
pending against us and we are not aware that any such lawsuit is threatened to
be filed in the future, there is no assurance that we will not be sued based on
fluctuations in the price of our common stock.
In Addition to Each of the Foregoing Risk Factors, Our Wholly-Owned Subsidiary,
AmQUEST, Inc., May be Negatively Affected by the Following Factors, Which Could
In Turn Affect Our Future Results and Market Price of Our Stock.
. The market for Web site and application hosting and related services has
only recently begun to develop and is evolving rapidly. Although industry
analysts project significant growth for this market, their projections
may not be realized. AmQUEST's future growth, if any, will depend on the
continued trend of businesses outsourcing their Web site and application
hosting and its ability to market its services effectively. There can be
no assurance that the market for AmQUEST's services will grow, that its
services will be adopted or that businesses will use these Internet-based
services to the degree or in the manner that we and AmQuest anticipate.
. The market for hosting Web sites and applications is highly competitive.
There are few substantial barriers to entry and many of AmQUEST's current
competitors have substantially greater financial, technical and marketing
resources, larger customer bases, more data centers, longer operating
histories, greater name recognition and more established relationships in
the industry than AmQUEST possesses. AmQUEST's current and potential
competitors may be able to grow their businesses at a faster pace than
AmQuest or attract AmQUEST's current and potential customers away from
AmQUEST, which could negatively affect AmQUEST's customer base, revenues
and results of operations.
. AmQUEST's Web site and application hosting services are critical to many
of its customers' businesses. Thus, any significant interruption in
AmQUEST's services could result in lost profits or other indirect or
consequential damages to its customers, which could, in turn, expose
AmQUEST or us to lawsuits. Although we believe that we could successfully
defend any such lawsuit, there is no assurance that we or AmQuest would
be successful or that the costs of such litigation would not have a
negative impact on either company.
26
. AmQUEST's business will not grow unless Internet usage grows and Internet
performance remains adequate. The increased use of the Internet for
retrieving, sharing and transferring information among businesses and
consumers has only recently begun to develop. AmQUEST's success will
depend on the continued growth in Internet usage and Web site hosting and
application hosting markets. If the Internet fails to grow or develop,
then AmQUEST's business is unlikely to grow.
. Regulatory and legal uncertainties could have significant costs or
otherwise harm AmQUEST's business. Federal and state law relating to the
liability of on-line and Internet service providers for information
disseminated through their systems remains largely unsettled. It may take
years to determine to what extent, if any, existing laws, such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet. There is no assurance that federal or state laws or regulations
will not negatively affect demand for AmQUEST's services or the way it
conducts its business operations.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in an approximately 100,000
square foot office building owned by the Company at 470 East Paces Ferry Road,
N.E., Atlanta, Georgia.
The Company also leases a two-story, 17,500 square foot building at 443 East
Paces Ferry Road, N.E. Atlanta, Georgia, which is used primarily for financial
administration. This building is owned by a limited partnership of which Thomas
L. Newberry and James C. Edenfield, principal shareholders of the Company, are
the sole partners. The term of the lease expired December 31, 1996, and has
been continued on a quarterly basis with a current base rental rate of $17.00
per square foot, pending negotiation of a new lease.
The Company owns a four-story 42,000 square foot building at 3110 Maple
Drive, N.E, a one-story 1,400 square foot building at 3116 Maple Drive, a one-
story 14,000 square foot building at 3120 Maple Drive, and a two-story 10,000
square foot building at 480 East Paces Ferry Road, each of which is located
near the Company's headquarters. The Company also owns a one-story 4,000 square
foot building at 490 East Paces Ferry, which it leases to a restaurant.
The Company has entered into leases for sales offices located in various
cities in the U. S. and overseas. Normally, these leases are for terms of less
than five years and average 3,000 square feet of leasable space.
The Company owns a variety of electronic and computer equipment, including
two mainframe class computers, consisting of one IBM 9121 732, and one IBM 9221
150, and leases three IBM 9672 RA6, two IBM 2003 2C5, one IBM 9672 RB5, and
nine IBM AS400s. In addition, twenty-eight NT and Unix systems are in service.
All of these systems are used for outsourcing services, network management,
program development and testing, and product demonstration.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the fourth
quarter of the Company's recently completed fiscal year.
27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Trading Market
The Company's Class A Common Shares are listed on the Nasdaq Stock Market--
National Market under the symbol AMSWA. As of July 07, 2000, there were 9,682
holders of record of the Company's Class A Common Shares, some of whom are
holders in nominee name for the benefit of different shareholders, and two
holders of the Company's Class B Common Shares.
Market Price Information
The table below presents the quarterly high and low sales prices for
American Software, Inc. Class A common stock as reported by NASDAQ, for the
Company's last two fiscal years (2000 and 1999).
High Low
---- ---
Fiscal Year 2000
First Quarter.............................................. $ 4 1/2 $2 1/2
Second Quarter............................................. 4 1/4 2 3/8
Third Quarter.............................................. 14 3/4 2 2/3
Fourth Quarter............................................. 24 7/16 5 5/8
High Low
---- ---
Fiscal Year 1999
First Quarter.............................................. $ 8 1/4 $5 3/4
Second Quarter............................................. 5 1/2 1 15/16
Third Quarter.............................................. 3 7/16 2 1/8
Fourth Quarter............................................. 3 1/2 2 13/32
No dividends were paid on the Company's common stock during the past three
fiscal years. The payment of future cash dividends will be at the sole
discretion of the Board of Directors and will depend upon the Company's
profitability, financial condition, cash requirements, future prospects and
other factors deemed relevant by the Board of Directors.
28
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected combined financial data presented below for the years ended
April 30, 2000, 1999, 1998, 1997, and 1996 are derived from the audited
combined financial statements of the Company.
Years Ended April 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(In thousands, except per share amounts)
Combined Statements of
Operations Data:
Revenues
Licenses.............. $ 20,572 $ 19,602 $ 33,548 $ 30,106 $ 24,067
Services.............. 59,740 63,572 50,090 32,595 30,682
Maintenance........... 25,198 26,003 23,834 22,010 22,808
----------- ----------- ----------- ----------- -----------
Total revenues...... 105,510 109,177 107,472 84,711 77,557
----------- ----------- ----------- ----------- -----------
Cost of Revenues:
Licenses.............. 5,177 8,254 8,182 6,754 10,778
Services.............. 45,999 45,344 33,439 27,410 25,367
Maintenance........... 9,750 10,337 7,642 7,972 8,139
----------- ----------- ----------- ----------- -----------
Total cost of
revenues........... 60,926 63,935 49,263 42,136 44,284
----------- ----------- ----------- ----------- -----------
Gross Margin............ 44,584 45,242 58,209 42,575 33,273
Operating expenses:
Research and
development.......... 9,675 11,511 12,112 7,343 4,725
Sales and marketing... 23,985 28,859 25,915 20,811 20,447
General and
administrative....... 13,750 16,307 11,530 12,740 17,272
Charge for asset
impairment........... -- 26,563 -- -- 6,158
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 47,410 83,240 49,557 40,894 48,602
----------- ----------- ----------- ----------- -----------
Operating earnings
(loss)................. (2,826) (37,998) 8,652 1,681 (15,329)
Other income, net....... 1,734 3,415 3,791 1,744 2,569
----------- ----------- ----------- ----------- -----------
Earnings (loss) before
income taxes........... (1,092) (34,583) 12,443 3,425 (12,760)
Income tax expense
(benefit).............. 150 (1,766) 4,648 1,093 (3,011)
----------- ----------- ----------- ----------- -----------
Net earnings (loss)..... $ (1,242) $ (32,817) $ 7,795 $ 2,332 $ (9,749)
=========== =========== =========== =========== ===========
Net earnings (loss) per
common share--Basic.... $ (.06) $ (1.48) $ .34 $ .10 $ (.44)
Diluted................. $ (.06) $ (1.48) $ .32 $ .10 $ (.44)
Weighted average common
shares--Basic.......... 21,721,636 22,230,656 22,667,283 22,353,192 22,261,782
Diluted................. 21,721,636 22,230,656 24,414,515 23,525,532 22,261,782
April 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(In thousands, except per share amounts)
Combined Balance Sheet
Data:
Cash and cash
equivalents............ $ 12,910 $ 21,567 $ 14,466 $ 7,579 $ 3,274
Investments............. $ 31,335 $ 27,297 $ 45,757 $ 16,827 $ 22,880
Working capital......... $ 23,204 $ 34,881 $ 63,263 $ 21,492 $ 21,511
Total assets............ $ 113,047 $ 109,736 $ 142,656 $ 99,509 $ 90,782
Total long term lease
obligation and debt.... $ 907 $ 1,700 $ 776 $ 1,157 $ --
Shareholders' equity.... $ 69,706 $ 67,197 $ 100,810 $ 67,152 $ 64,255
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The discussion and analysis below contains forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, that involve risks and uncertainties,
such as statements of our plans, objectives, expectations and intentions. Such
forward-looking statements generally are accompanied by words such as "plan,"
"estimate," "expect," "believe," "should," "would," "could," "anticipate,"
"may" or other words that convey uncertainty of future events or outcomes. The
forward-looking statements in this discussion and analysis are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The section above entitled "Risk Factors" sets forth certain factors that
could cause our actual future results to differ materially from those
statements.
The Company develops, markets, and supports Internet commerce, enterprise
resource planning ("ERP") and integrated supply chain management solutions. The
product line encompasses integrated business applications such as demand
forecasting, logistics planning, warehouse management, order management,
financials, manufacturing, and transportation solutions. The Company offers
professional services to its customers in support of its products and third
party products. These services include project management, implementation,
product education, technical consulting, programming, system integration,
network management and maintenance and support.
The Company's revenues are derived primarily from three sources: software
licenses, services and maintenance. Software licenses generally are based upon
the number of modules, servers, users and/or sites licensed. The Company
recognizes revenue in accordance with Statement of Position No. 97-2, (Software
Revenue Recognition,) and Statement of Position No. 98-9, (Software Revenue
Recognition with Respect to Certain Transactions.) License revenues in
connection with license agreements for standard proprietary and tailored
software are recognized upon delivery of the software, provided collection is
considered probable, the fee is fixed or determinable, there is evidence of an
arrangement, and vendor specific evidence exists to allocate the total fee to
all elements of the arrangement. Revenues derived from services primarily
include consulting, implementation, training and network management. Fees are
billed under both time and materials and fixed fee arrangements and are
recognized as services are performed. Maintenance fees are generally billed
annually in advance and the resulting revenues are recognized ratably over the
term of the maintenance agreement. Deferred revenues represent advance payments
or billings for software licenses, services, and maintenance billed in advance
of the time revenues are recognized.
30
RESULTS OF OPERATIONS
The following table sets forth certain revenue and expense items as a
percentage of total revenues for the three years ended April 30, 2000 and the
percentage increases and decreases in those items for the years ended April 30,
2000 and 1999:
Pct.
Percentage of Change In
Total Revenues Dollars
------------------ -----------
2000 1999
Vs Vs
2000 1999 1998 1999 1998
---- ---- ---- ---- ----
Revenues:
License fees........................... 19 % 18 % 31% 5 % (42) %
Services............................... 57 58 47 (6) 27
Maintenance............................ 24 24 22 (3) 9
--- --- --- --- ---
Total revenues....................... 100 100 100 (3) 2
--- --- --- --- ---
Cost of revenues:
License fees........................... 5 8 8 (37) 1
Services............................... 44 42 31 1 36
Maintenance............................ 9 9 7 (6) 35
--- --- --- --- ---
Total cost of revenues............... 58 59 46 (5) 30
--- --- --- --- ---
Gross margin............................. 42 41 54 (1) (22)
--- --- --- --- ---
Operating expenses:
Research and development cost, net..... 9 11 11 (16) (5)
Marketing and sales.................... 23 26 24 (17) 11
General and administrative............. 13 13 11 (7) 27
Provision for doubtful accounts........ nm 2 nm (79) nm
Charge for asset impairment and
purchased R&D......................... -- 24 -- nm nm
--- --- --- --- ---
Total operating expenses............. 45 76 46 (43) 68
--- --- --- --- ---
Operating earnings (loss)............ (3) (35) 8 (93) nm
Other income, net...................... 2 3 4 (49) (10)
--- --- --- --- ---
Earnings (loss) before income taxes.. (1) (32) 12 (97) nm
Income taxes........................... nm (2) 4 nm nm
--- --- --- --- ---
Net earnings (loss).................. (1)% (30)% 7% (96) nm
=== === === === ===
- --------
nm--not meaningful
GENERAL MARKET CONDITIONS:
Beginning in the second calendar quarter of 1998 (the Company's first
quarter of fiscal 1999), several application software companies began to
experience slowdowns in the sales of their software products. These companies,
as well as industry experts, have identified the following factors as
contributors to this slowdown in the buying market:
. Significant financial commitments devoted to Year 2000 readiness, which
led to limited discretionary financial resources available for the
purchase of software products such as the Company's.
. Public announcements by large Enterprise Resource Planning (ERP) software
vendors regarding plans for introduction of new products within the
Company's target markets which have led to confusion and indecision by
prospective buyers.
The Company believes these factors, as well as possibly others, have
contributed to the Company's reduced revenues in fiscal 2000 and 1999,
particularly in the area of software license fees.
31
Years Ended April 30, 2000 and 1999:
Revenues:
The Company's total revenues decreased 3% to $105.5 million in the fiscal
year ended April 30, 2000 from $109.2 million in the fiscal year ended April
30, 1999. This decrease was primarily due to a decrease in implementation and
training services as well as a decline in maintenance revenues. This was offset
by an increase in license fees revenue. International revenues represented
approximately 7% and 10% of total revenues in the years ended April 30, 2000
and 1999, respectively.
Software Licenses. The Company's license fee revenues increased 5% in the
fiscal year ended April 30, 2000 to $20.6 million compared to $19.6 million in
the prior year. This increase was primarily due to a 19% increase in License
fees for the Logility software products, partially offset by14% decrease in the
Enterprise Solution software products. The Logility license fee revenue
increased to $ 13.5 million in the fiscal year ended April 30, 2000 compared to
$11.4 million in the prior fiscal year. Logility software product sales
constituted approximately 66% and 58% of license fee revenues in fiscal 2000
and fiscal 1999, respectively. Software revenues have fluctuated and are
expected to continue to fluctuate based on competition, demand for the
Company's product and other factors.
Services. Services revenues, which consist primarily of consulting,
implementation, training and network management services, decreased 6% to $59.7
million in fiscal year 2000 from $63.6 million in fiscal year 1999. This
decrease was primarily due to the completion of "Year 2000" projects in fiscal
year 2000 that were active in the prior fiscal period as well as lower license
fees in the prior period. Services revenues constituted 57% and 58% of total
revenues in fiscal year 2000 and fiscal year 1999, respectively. Service
revenues as a percentage of total revenues have fluctuated, and are expected to
continue to fluctuate on a period-to-period basis based upon the demand for
implementation, consulting and network services.
Maintenance. Maintenance revenues, which consist of product support
activities and on-going product enhancements provided to customers who license
the Company's products and purchase maintenance agreements, decreased 3% to
$25.2 million in fiscal year 2000 compared to $26.0 million in fiscal year
1999, respectively. This decrease was due to the lower ERP license fee revenues
in fiscal year 1999. Maintenance revenues have a direct relationship to current
and historic license fee revenues, since licenses are the source of potential
new maintenance customers. Maintenance revenues constituted 24% of total
revenues in fiscal year ended April 30, 2000 and fiscal year ended April 30,
1999.
Gross Margin:
Total gross margin in fiscal 2000 was 42% compared to 41% a year ago. This
increase was primarily due to the increase of license fee margin to 75% in
fiscal 2000 compared to 58% in fiscal 1999 as a result of higher license fee
sales and lower capitalized software amortization expense during fiscal 2000,
which has occurred as a result of the write-off of capitalized software during
fiscal year 1999. Fiscal 2001 and years beyond will have substantially higher
capitalized software amortization as certain products are released. The Company
will monitor the market acceptance of these newly released products. Services
gross margin decreased to 23% in fiscal 2000 from 29% in the prior year due
mainly to the completion of higher margin services work related to the "Year
2000" remediation performed in fiscal year 1999 compared to lower margin
services work being performed in fiscal 2000. Maintenance gross margin remained
relatively constant for fiscal 2000 as compared to fiscal 1999.
32
Operating Expenses:
Research and Development. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
Years Ended (000's
omitted)
---------------------------
April April
30, Percent 30,
2000 Change 1999
-------- ------- --------
Gross product development costs............... $ 20,121 (10)% $ 22,413
Percentage of total revenues................ 19 % 21 %
Less: capitalized development................. (10,446) (4)% (10,902)
Percentage of gross prod. dev. Costs........ 52 % 49 %
-------- ---- --------
Product development expenses.................. $ 9,675 (16)% $ 11,511
Percentage of total revenues................ 9 % 11 %
Gross product development costs decreased 10% in fiscal 2000 compared to
fiscal 1999 as a result of the Company's cost reduction efforts in the prior
year. Capitalized development decreased by 4% from a year ago, while the rate
of capitalized development increased to 52% from 49% in fiscal year 1999. This
increase is due to the significant effort in the early part of fiscal 2000 to
complete revision and enhancement work on Flow Manufacturing product. Product
development expenses as a percentage of total revenues decreased to 19% in
fiscal year 2000 compared to 21% in fiscal year 1999. The Company's net product
development expenses decreased 16% due to continued cost containment efforts
that were begun in fiscal 1999. The Company anticipates development expenses to
increase as it continues to develop new product applications, and further
enhance existing products.
Sales and Marketing. Sales and marketing expenses decreased 17% in fiscal
year ended April 30, 2000 as a result of cost containment efforts during the
current year. Sales and marketing expenses as a percentage of total revenues
decreased to 23% for fiscal year 2000 when compared to 26% for fiscal year
1999. The Company intends to continue to pursue increased share of the market
for value chain management software solutions by expanding its sales and
marketing activities. The Company intends to continue building a direct sales
force that is focused on selected vertical markets such as consumer goods
manufacturers.
General and Administrative. General and Administrative expenses (including
the provision for doubtful accounts) decreased 16% in fiscal year 2000 to
approximately $13.7 million from the prior year primarily due to a significant
decrease in fiscal 2000 in the provision for doubtful accounts when compared to
the prior period. The decrease can also be attributed to the Company's
reduction in leased facilities and cost management policies that were put in
place during the current fiscal period.
Other Income. Other income is comprised predominantly of interest income,
gains and losses from sales of investments, changes in the market value of
investments, and minority interest in subsidiaries earnings. Other income
decreased 50% to $1.7 million due primarily to a loss from minority interest,
compared to fiscal year 1999 when there was a gain from minority interest. The
decrease is also due to a lower average cash investment balance during the
year.
Income Taxes. The effective income tax rate in fiscal year 2000 was 0% of
pretax income compared to 5% in fiscal year 1999.
Years Ended April 30, 1999 and 1998:
Revenues:
The Company's total revenues increased 2% to $109.2 million in the fiscal
year ended April 30, 1999 from the prior year of $107.5 million in the fiscal
year ended April 30, 1998. This increase was primarily due to a significant
increase in implementation and training services as well as an overall rise in
maintenance revenues. This was offset by a decrease in license fees revenue due
to a general industry market slowdown for software products. International
revenues represented approximately 10% and 9% of total revenues in the years
ended April 30, 1999 and 1998, respectively.
33
Software Licenses. The Company's license fee revenues decreased 42% in the
fiscal year ended April 30, 1999 to $19.6 million compared to $33.5 million in
the prior year. This decrease was primarily due to an overall enterprise
application market slowdown for software purchases as a result of concerns over
the Asian financial crises and the short-term emphasis on "Year 2000"
compliance projects. License fees for the Logility Voyager Solutions software
decreased 43% to $ 11.4 million in the fiscal year ended April 30, 1999
compared to $20.1 million in fiscal year 1998. Logility Voyager Solutions
software constituted approximately 58% and 60% of license fee revenues in
fiscal 1999 and fiscal 1998, respectively.
Services. Services revenues, which consist primarily of consulting, custom
programming, and network management services, increased 27% to $63.6 million in
fiscal year 1999 from $50.1 million in fiscal year 1998. This increase was
primarily due to increased consulting related to implementation and tailoring
of new customers' software products, staffing services and network management
services. Services revenues constituted 58% and 47% of total revenues in fiscal
year 1999 and fiscal year 1998, respectively.
Maintenance. Maintenance revenues, which consist of product support
activities and on-going product enhancements provided to customers who license
the Company's products and purchase maintenance agreements, increased 9% to
$26.0 million in fiscal year 1999 compared to $23.8 million in fiscal year
1998, respectively. This increase was due to increased license fees in fiscal
year 1998, as maintenance growth generally follows license fee revenues, which
serve as the source of new maintenance customers. Maintenance revenues
constituted 24% and 22% of total revenues in fiscal year ended April 30, 1999
and fiscal year ended April 30, 1998, respectively.
Gross Margin:
Total gross margin in fiscal 1999 was 41% compared to 54% in fiscal 1998.
This decrease was primarily due to the decrease in the license fee margin from
76% in fiscal 1998 compared to 58% in fiscal 1999 as a result of lower license
fee sales and higher capitalized software amortization expense during fiscal
1999. In addition, the services gross margin decreased to 29% in fiscal 1999
from 33% in the prior year due mainly to the switch from higher margin services
work related to the "Year 2000" remediation work performed in fiscal year 1998
to lower margin services work being performed in fiscal 1999. Maintenance gross
margin decreased to 60% for fiscal 1999 when compared to 68% in fiscal 1998.
This reduction was due to slower than anticipated growth in maintenance revenue
during fiscal 1999 combined with additional support efforts related to newer
products introduced during fiscal year 1999.
Operating Expenses:
Research and Development. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
Years Ended
--------------------------
April April
30, Percent 30,
1999 Change 1998
-------- ------- -------
Gross product development costs................. $ 22,413 7 % $20,939
Percentage of total revenues.................. 21 % 20 %
Less: capitalized development................... (10,902) 24 % (8,827)
Percentage of gross prod. dev. Costs.......... 49 % 42 %
-------- --- -------
Product development expenses.................... $ 11,511 (5)% $12,112
Percentage of total revenues.................. 11 % 11 %
Gross product development costs increased 7% in fiscal 1999 compared to
fiscal 1998 as a result of the Company's continued investment in new product
development. Capitalized development increased by 24% in 1999, while the rate
of capitalized development increased to 49% from 42% in fiscal year 1998 due to
Company personnel spending more time on the development phase of projects that
are currently capitalized. Product development expenses as a percentage of
total revenues remained the same at 11% for fiscal years 1999 and 1998.
34
Marketing and sales. Marketing and sales expenses increased 11% in fiscal
year 1999 as a result of an increased sales force. As a percentage of total
revenues, sales and marketing expenses were 26% for fiscal 1999 when compared
to 24% for fiscal 1998.
General and Administrative. General & Administrative (after expenses
including provision for doubtful accounts) expenses increased 41% in 1999 to
approximately $16.3 million in fiscal year 1998, primarily due to increased
provision for doubtful account reserves, amortization expense related to
goodwill from acquisitions and other general expenses. General & Administrative
expenses as a percentage of total expenses was 15% in fiscal 1999 compared to
11% in the prior year.
Charge for asset impairment and purchased R&D. The Company incurred a non-
recurring charge against earnings of $26.6 million during fiscal year 1999.
This charge was the result of: 1) the write-off of certain capitalized software
development costs in the amount of $24.2 million, 2) purchased research and
development expense of $1.8 million related to the acquisition of New
Generation Computing, 3) an impaired asset write-off of $0.4 million and 4)
restructuring charge of $0.2 million.
Other Income. Other income is comprised predominantly of interest income,
gains and losses from sales of investments, changes in the market value of
investments, and minority interest in subsidiary earnings. Other income
decreased 10% to $3.4 million in 1999 compared to 1998 due primarily to a lower
average cash investment balance during the year and a lower return on
investments during the year when compared to the prior year, offset by income
from minority loss.
Income Taxes. The effective income tax rate in 1999 was 5% of pretax loss
compared to 37% pretax income in fiscal 1998. This decrease was due to the fact
that the Company experienced a net loss for the fiscal year 1999 and did not
provide a deferred tax benefit for the charge for asset impairment and
purchased research and development which was non-deductible. The income tax
benefit was reduced by estimated liabilities for tax issues principally related
to tax authority examinations and other matters.
Operating Pattern
The Company experiences an irregular pattern of quarterly operating results,
caused primarily by fluctuations in both the number and size of software
license contracts received and delivered from quarter to quarter.
Liquidity And Capital Resources
The Company's operating activities provided cash of approximately $13.8
million in the year ended April 30, 2000, compared to approximately $14.2
million in the same period of the prior year. The cash provided by operations
during the year ended April 30, 2000, was primarily attributable to non-cash
depreciation and amortization of $10 million, proceeds from the sale of trading
securities of $7.9 million, proceeds from the maturities of trading securities
of $3.5 million, an increase in accounts payable of $1.5 million, a decrease in
accounts receivable of $697,000, minority interest in net earnings of
subsidiary of $261,000 and grants of compensatory stock options of $208,000.
This was partially offset by purchases of trading securities of $8.0 million, a
net loss of $1.2 million, an increase in prepaid expenses of $508,000, a
decrease in deferred revenue of $362,000 and a net gain on investments of
$250,000. The cash provided by operations during the year ended April 30, 1999,
was primarily attributable to a non-cash charge for asset impairment and
purchased R&D of $26.4 million, non-cash depreciation and amortization expense
of $11.8 million, a decrease in accounts receivable of $6.6 million, an
increase in accounts payable of $5.6 million, proceeds from the sale of trading
securities of $3.4 million, proceeds from the maturities of trading securities
of $2.2 million and a decrease in prepaid expenses of $2.0 million. This was
partially offset by a net loss of $32.8 million, a decrease in deferred income
taxes of $5.4 million, purchases of trading securities of $3.5 million,
decrease in deferred revenues of $1.6 million and minority interest in loss of
subsidiary of $1.4 million.
35
Cash used in investing activities was approximately $22.4 million and $1.6
million for the years ended April 30, 2000 and 1999, respectively. The majority
of the cash was used for computer software development costs, purchases of
held-to-maturities investments, purchases of property and equipment, purchase
of common stock by subsidiary, purchase of majority investment in subsidiaries
and minority investment and additional funding in business.
Cash used in financing activities for fiscal year 2000 was approximately
$43,000 compared to $5.5 million in fiscal year 1999. In fiscal year 2000, cash
was used for the payment of capital lease obligations in the amount of $2.3
million, to purchase common stock of the Company in the amount of $1.3 million
and for the repayment of long-term debt in the amount of $950,000. This was
partially offset by the proceeds from the exercising of stock options in the
amount of $4.4 million. In fiscal year 1999, cash was used for the purchase of
common stock of the Company in the amount of $3.5 million and for the payment
of capital lease obligations in the amount of $2.3 million.
Days Sales Outstanding in accounts receivable were 70 days as of April 30,
2000 and April 30, 1999. The Company's current ratio was 1.9 to 1 and cash and
investments totaled 39% of total assets at April 30, 2000 compared to a current
ratio of 2.1 to 1 and cash and investments totaling 45% of total assets at
April 30, 1999. The Company expects existing cash and investments, combined
with cash generated from operations, to be sufficient to meet its operational
needs in fiscal 2001. The Company may seek additional sources of capital to
meet its growth objectives in the future. To the extent that such amounts are
insufficient to finance the Company's capital requirements, the Company will be
required to raise additional funds through equity or debt financing. The
Company does not currently have a bank line of credit. No assurance can be
given that bank lines of credit or other financing will be available on terms
acceptable to the Company. If available, such financing may result in further
dilution to the Company's shareholders and higher interest expense.
On December 18, 1997, the Company's Board of Directors approved a resolution
authorizing the Company to repurchase up to 1.5 million shares of the Company's
Class A common stock. On March 11, 1999, the Company's Board of Directors
approved a resolution authorizing the Company to repurchase an additional
700,000 shares for a total of up to 2.2 million shares of the Company's Class A
common stock. This repurchase will be through open market purchases at
prevailing market prices. The timing of any repurchases will depend on market
conditions, the market price of the Company's common stock and management's
assessment of the Company's liquidity and cash flow needs. Since the adoption
of these resolutions, the Company has repurchased approximately 1.6 million
shares of common stock at a cost of approximately $5.6 million as of April 30,
2000.
YEAR 2000 READINESS DISCLOSURE
Products:
The Company believes that its compliance and remediation efforts leading up
to the Year 2000 were effective in preventing any material Year 2000 related
problems. This belief is based on the fact that the Company has not received to
date any report of Year 2000 related erroneous results or system failures in
the software products it markets or in the software and hardware it utilizes
internally. There may however, be residual problems related to the Year 2000
issue that could result in a decrease in the sales of software and services the
Company provides, or an increase in litigation costs relating to losses
suffered by the Company or its clients due to such problems.
In the future, the Company may be subject to claims based on Year 2000
problems in its own products, as well as in others' products, and issues
arising from the integration of multiple products within an overall system.
Although the Company has not been a party to any litigation involving its
products or services related to Year 2000 compliance issues, there can be no
assurance that the Company will not in the future be required to defend its
products or services in such proceedings, or otherwise address claims based on
Year 2000 issues. The costs of defending and resolving Year 2000 related
disputes, and any liability of the Company for Year 2000 related damages,
including consequential damages, could have a material adverse effect on the
Company's business, operating results, and financial condition.
36
The Company believes that Year 2000 issues have affected and may continue to
affect the purchasing decisions of customers and potential customers of the
Company's products. Many businesses expended significant resources on projects
to make their current hardware and software systems Year 2000 ready. Such
expenditures may result in reduced funding for projects to purchase software
products such as those offered by the Company. Any of the foregoing could have
a material adverse effect on the Company's business, operating results and
financial condition.
Internal Systems:
The Company has completed 100% of its system evaluation and 100% of its
remediation. While it appears that all internal systems are Year 2000
compliant, there is still a possibility of residual internal system problems
related to the Year 2000 issue. The cost of correcting any residual problems on
internal systems would probably not be material because we could use internal
resources to correct potential problems.
The Company utilizes third-party vendor equipment, telecommunication
products and software products, all of which appear to be Year 2000 compliant.
There may be residual problems related to the Year 2000 issue. The failure of
any third party products may have a material adverse effect on business
operations and could possibly cause the Company to expend resources to correct
any problems.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Foreign Currency. In the fiscal year ended April 30, 2000, the Company
generated 7% of its revenues outside the United States. International sales
usually are made by the Company's foreign subsidiaries and are denominated
typically in U.S. Dollars or British Pounds Sterling. However, the expense
incurred by foreign subsidiaries is denominated in the local currencies. The
effect of foreign exchange rate fluctuations on the Company in Fiscal 2000 was
not material.
Interest rates and other market risks. The Company manages its interest rate
risk by maintaining an investment portfolio of available-for-sale instruments
with high credit quality and relatively short average maturities. These
instruments include, but are not limited to, money-market instruments, bank
time deposits, and taxable and tax-advantaged variable rate and fixed rate
obligations of corporations, municipalities, and national, state, and local
government agencies, in accordance with an investment policy approved by the
Company's Board of Directors. These instruments are denominated in U.S.
dollars. The fair value of securities at April 30, 2000 was approximately $31.3
million. Interest income on the Company's investments is carried in "Other
income/(expense)."
The Company also holds cash balances in accounts with commercial banks in
the United States and foreign countries. These cash balances represent
operating balances only and are invested in short-term time deposits of the
local bank. Such operating cash balances held at banks outside the United
States are denominated in the local currency.
Many of the Company's investments carry a degree of interest rate risk. When
interest rates fall, the Company's income from investments in variable-rate
securities declines. When interest rates rise, the fair market value of the
Company's investments in fixed-rate securities decreases. In addition, the
Company's equity investments are subject to stock market volatility. Due in
part to these factors, the Company's future investment income may fall short of
expectations or the Company may suffer losses in principal if forced to sell
securities which have seen a decline in market value due to changes in interest
rates. The Company attempts to mitigate risk by holding fixed-rate securities
to maturity, but should its liquidity needs force it to sell fixed-rate
securities prior to maturity, the Company may experience a loss of principal.
37
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board "(FASB)" issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement was amended in June 2000 by Statement No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
Statement No. 138 will be effective for the Company beginning May 1, 2001. The
new Statement requires all derivatives to be recorded on the balance sheet at
fair value and establishes accounting treatment for three types of hedges:
hedges of changes in the fair value of assets, liabilities, or firm
commitments; hedges of the variable cash flows of forecasted transactions; and
hedges of foreign currency exposures of net investments in foreign operations.
The Company has not invested in derivative instruments nor participated in
hedging activities and, therefore, does not anticipate there will be a material
impact on the results of operations or financial position from Statement No.
133 or No. 138.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") and amended it in March and June 2000. We are required
to adopt the provisions of SAB 101 in our fourth quarter of fiscal 2001. We are
currently reviewing the provisions of SAB 101 and have not fully assessed the
impact of its adoption. While SAB 101 does not supercede the software industry-
specific revenue recognition guidance, which we believe we comply with, the SEC
Staff has recently informally indicated its views related to SAB 101 that may
change current interpretations of software revenue recognition requirements.
Such SEC interpretations could result in many software companies, including us,
recording a cumulative effect of a change in accounting principles retroactive
to May 1, 2000.
Forward-Looking Statements
The foregoing discussion contains forward-looking statements, which are
subject to substantial risks and uncertainties. There are a number of factors
that could cause actual results to differ materially from those anticipated by
statements made herein. The timing of releases of the Company's software
products can be affected by client needs, marketplace demands and technological
advances. Development plans frequently change, and it is difficult to predict
with accuracy the release dates for products in development. In addition, other
factors, including changes in general economic conditions, the growth rate of
the market for the Company's products and services, the timely availability and
market acceptance of these products and services, the effect of competitive
products and pricing, and the irregular pattern of revenues, as well as a
number of other risk factors, could affect the future performance of the
Company.
38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated Balance Sheets as of April 30, 2000 and 1999................. 40
Consolidated Statements of Operations for the Years ended April 30, 2000,
1999 and 1998............................................................ 41
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the Years ended April 30, 2000, 1999 and 1998........................ 42
Consolidated Statements of Cash Flows for the Years ended April 30, 2000,
1999 and 1998............................................................ 43
Notes to the Consolidated Financial Statements............................ 44
Independent Auditors' Report.............................................. 60
39
AMERICAN SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
April 30, 2000 and 1999
2000 1999
--------- -------
ASSETS
Current assets:
Cash and cash equivalents................................ $ 12,910 21,567
Investments--current..................................... 21,457 23,781
Trade accounts receivable, less allowance for doubtful
accounts of $1,739 in 2000 and $1,718 in 1999:
Billed................................................. 15,233 17,534
Unbilled............................................... 5,143 3,539
Deferred income taxes.................................... 1,975 1,294
Prepaid expenses and other current assets................ 2,099 1,759
--------- -------
Total current assets................................. 58,817 69,474
Investments--noncurrent.................................... 9,878 3,516
Property and equipment, less accumulated depreciation...... 18,614 18,920
Intangible assets, less accumulated amortization........... 23,391 16,248
Other assets............................................... 2,347 1,578
--------- -------
$ 113,047 109,736
========= =======
LIABILITIES AND SHAREHOLDER' EQUITY
Current liabilities:
Current portion of obligations under capital leases...... $ 1,493 1,628
Accounts payable......................................... 3,505 3,442
Accrued compensation and related costs................... 4,545 4,995
Income tax payable....................................... 3,122 3,220
Other current liabilities................................ 7,012 5,010
Deferred revenue......................................... 15,936 16,298
--------- -------
Total current liabilities............................ 35,613 34,593
Obligations under capital leases, net of current portion... 907 750
Long-term debt............................................. -- 950
Deferred income taxes...................................... 1,975 1,294
--------- -------
Total liabilities.................................... 38,495 37,587
--------- -------
Minority interest.......................................... 4,846 4,952
Shareholders' equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000 shares;
issued 21,476,284 shares in 2000 and 19,469,405 shares
in 1999............................................... 2,148 1,947
Class B, $.10 par value. Authorized 10,000,000 shares;
issued and outstanding 4,086,289 shares in 2000 and
4,768,289 shares in 1999; convertible into Class A
shares on a one-for-one basis......................... 409 477
Additional paid-in capital............................. 65,241 60,368
Other comprehensive income............................. 247 244
Retained earnings...................................... 19,165 20,408
Class A treasury stock, 2,920,854 and 2,603,823 shares
as of April 30, 2000 and 1999, respectively........... (17,504) (16,247)
--------- -------
Total shareholders' equity........................... 69,706 67,197
Commitments and contingencies..............................
--------- -------
$ 113,047 109,736
========= =======
See accompanying notes to consolidated financial statements.
40
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Years ended April 30, 2000, 1999, and 1998
2000 1999 1998
----------- ---------- ----------
Revenues:
License fees........................... $ 20,572 19,602 33,548
Services............................... 59,740 63,572 50,090
Maintenance............................ 25,198 26,003 23,834
----------- ---------- ----------
Total revenues....................... 105,510 109,177 107,472
----------- ---------- ----------
Cost of revenues:
License fees........................... 5,177 8,254 8,182
Services............................... 45,999 45,344 33,439
Maintenance............................ 9,750 10,337 7,642
----------- ---------- ----------
Total cost of revenues............... 60,926 63,935 49,263
----------- ---------- ----------
Research and development costs........... 20,121 22,413 20,939
Less capitalizable software.............. (10,446) (10,902) (8,827)
Sales and marketing expense.............. 23,985 28,859 25,915
General and administrative expenses...... 13,365 14,427 11,354
Provision for doubtful accounts.......... 385 1,880 176
Charge for asset impairment and purchased
R&D..................................... -- 26,563 --
----------- ---------- ----------
Operating earnings (loss)................ (2,826) (37,998) 8,652
Other income (expense):
Interest income........................ 2,135 2,094 2,001
Minority interest...................... (261) 1,396 (488)
Other, net............................. (140) (75) 2,278
----------- ---------- ----------
Earnings (loss) before income taxes...... (1,092) (34,583) 12,443
Income tax expense (benefit)............. 150 (1,766) 4,648
----------- ---------- ----------
Net earnings (loss)...................... $ (1,242) (32,817) 7,795
=========== ========== ==========
Net earnings (loss) per common share:
Basic.................................. $ (0.06) (1.48) 0.34
=========== ========== ==========
Diluted................................ $ (0.06) (1.48) 0.32
=========== ========== ==========
Shares used in the calculation of net
earnings (loss) per common share:
Basic.................................. 21,721,636 22,230,656 22,667,283
=========== ========== ==========
Diluted................................ 21,721,636 22,230,656 24,414,515
=========== ========== ==========
See accompanying notes to consolidated financial statements.
41
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years ended April 30, 2000 1999, and 1998
Common Stock
----------------------------------------- Accumulated
Class A Class B Additional other Total
--------------------- ------------------- paid-in comprehensive Retained Treasury shareholders'
Shares Amount Shares Amount capital income earnings stock equity
---------- ---------- --------- -------- ---------- ------------- ----------- ----------- -------------
Balance at April
30, 1997....... 18,972,926 $1,897,294 4,815,289 $481,529 31,317,194 9,800 45,429,506 (11,973,776) 67,161,547
Proceeds from
issuance of
Logility, Inc.
subsidiary
common stock... -- -- -- -- 33,152,201 -- -- -- 33,152,201
Minority
interest
resulting from
issuance of
subsidiary
common stock... -- -- -- -- (6,969,866) -- -- -- (6,969,866)
Proceeds from
stock options
exercised at
$2.75 to $7.13
per share and
other stock
option
transactions... 379,830 37,983 -- -- 1,160,004 -- -- -- 1,197,987
Conversion of
Class B shares
into Class A
shares......... 17,000 1,700 (17,000) (1,700) -- -- -- -- --
Grants of
compensatory
stock options.. -- -- -- -- 11,586 -- -- -- 11,586
Repurchase of
98,900 Class A
shares......... -- -- -- -- -- -- -- (794,953) (794,953)
Repurchase of
205,300
Logility, Inc.
common shares.. -- -- -- -- (1,882,149) -- -- -- (1,882,149)
Decrease in
minority
interest in
subsidiary,
resulting from
purchase of
stock.......... -- -- -- -- 866,836 -- -- -- 866,836
Issuance of 724
Class A shares
under Dividend
Reinvestment
and Stock
Purchase Plan.. -- -- -- -- -- -- -- 8,000 8,000
Net earnings.... -- -- -- -- -- -- 7,795,281 -- 7,795,281
Translation
adjustments.... -- -- -- -- -- 263,768 -- -- 263,768
Comprehensive
income for
fiscal 1998....
---------- ---------- --------- -------- ---------- ------- ----------- ----------- -----------
Balance at April
30, 1998....... 19,369,756 1,936,977 4,798,289 479,829 57,655,806 273,568 53,224,787 (12,760,729) 100,810,238
Revised
presentation on
purchase of
Logility shares
from minority
interest....... -- -- -- -- 1,882,149 -- -- -- 1,882,149
Proceeds from
stock options
exercised at
$2.22 to $6.50
per share and
other stock
option
transactions... 69,649 6,963 -- -- 222,126 -- -- -- 229,089
Conversion of
Class B shares
into Class A
shares......... 30,000 3,000 (30,000) (3,000) -- -- -- -- --
Grants of
compensatory
stock options.. -- -- -- -- 24,319 -- -- -- 24,319
Repurchase of
1,179,000 Class
A shares....... -- -- -- -- -- -- -- (3,509,729) (3,509,729)
Issuance of
3,604 Class A
shares under
Dividend
Reinvestment
and Stock
Purchase Plan.. -- -- -- -- -- -- -- 23,316 23,316
Decrease in
minority
interest in
subsidiary,
resulting from
purchase of
stock.......... -- -- -- -- 583,500 -- -- -- 583,500
Net loss........ -- -- -- -- -- -- (32,817,060) -- (32,817,060)
Translation
adjustments.... -- -- -- -- -- (28,656) -- -- (28,656)
Comprehensive
income for
fiscal 1999....
---------- ---------- --------- -------- ---------- ------- ----------- ----------- -----------
Balance at April
30, 1999....... 19,469,405 1,946,940 4,768,289 476,829 60,367,900 244,912 20,407,727 (16,247,142) 67,197,166
Proceeds from
stock options
exercised...... 1,321,995 132,200 -- -- 4,288,933 -- -- -- 4,421,133
Conversion of
Class B shares
into Class A
shares......... 682,000 68,200 (682,000) (68,200) -- -- -- -- --
Noncash stock
compensation... -- -- -- -- 208,217 -- -- -- 208,217
Repurchase of
321,562 Class A
shares......... -- -- -- -- -- -- -- (1,256,427) (1,256,427)
Issuance of
2,884 Class A
shares under
Dividend
Reinvestment
and Stock
Purchase Plan.. 2,884 288 -- -- 9,753 -- -- -- 10,041
Decrease in
minority
interest in
subsidiary,
resulting from
purchase of
stock.......... -- -- -- -- 366,325 -- -- -- 366,325
Net loss........ -- -- -- -- -- -- (1,242,778) -- (1,242,778)
Translation
adjustments.... -- -- -- -- -- 1,997 -- -- 1,997
Comprehensive
income for
fiscal 2000....
---------- ---------- --------- -------- ---------- ------- ----------- ----------- -----------
Balance at April
30, 2000....... 21,476,284 $2,147,628 4,086,289 $408,629 65,241,128 246,909 19,164,949 (17,503,569) 69,705,674
---------- ---------- --------- -------- ---------- ------- ----------- ----------- -----------
Comprehensive
income
--------------
Balance at April
30, 1997.......
Proceeds from
issuance of
Logility, Inc.
subsidiary
common stock...
Minority
interest
resulting from
issuance of
subsidiary
common stock...
Proceeds from
stock options
exercised at
$2.75 to $7.13
per share and
other stock
option
transactions...
Conversion of
Class B shares
into Class A
shares.........
Grants of
compensatory
stock options..
Repurchase of
98,900 Class A
shares.........
Repurchase of
205,300
Logility, Inc.
common shares..
Decrease in
minority
interest in
subsidiary,
resulting from
purchase of
stock..........
Issuance of 724
Class A shares
under Dividend
Reinvestment
and Stock
Purchase Plan..
Net earnings.... $ 7,795,281
Translation
adjustments.... 263,768
--------------
Comprehensive
income for
fiscal 1998.... $ 8,059,049
==============
Balance at April
30, 1998.......
Revised
presentation on
purchase of
Logility shares
from minority
interest.......
Proceeds from
stock options
exercised at
$2.22 to $6.50
per share and
other stock
option
transactions...
Conversion of
Class B shares
into Class A
shares.........
Grants of
compensatory
stock options..
Repurchase of
1,179,000 Class
A shares.......
Issuance of
3,604 Class A
shares under
Dividend
Reinvestment
and Stock
Purchase Plan..
Decrease in
minority
interest in
subsidiary,
resulting from
purchase of
stock..........
Net loss........ $(32,817,060)
Translation
adjustments.... (28,656)
--------------
Comprehensive
income for
fiscal 1999.... $(32,845,716)
==============
Balance at April
30, 1999.......
Proceeds from
stock options
exercised......
Conversion of
Class B shares
into Class A
shares.........
Noncash stock
compensation...
Repurchase of
321,562 Class A
shares.........
Issuance of
2,884 Class A
shares under
Dividend
Reinvestment
and Stock
Purchase Plan..
Decrease in
minority
interest in
subsidiary,
resulting from
purchase of
stock..........
Net loss........ (1,242,778)
Translation
adjustments.... 1,997
--------------
Comprehensive
income for
fiscal 2000.... $ (1,240,781)
==============
Balance at April
30, 2000.......
42
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended April 30, 2000, 1999, and 1998
2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Net earnings (loss)............................ $ (1,242) $(32,817) $ 7,795
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Charge for asset impairment and purchased
R&D......................................... -- 26,389 --
Depreciation and amortization................ 10,034 11,846 11,652
Net loss (gain) on investments............... (250) 833 (4,916)
Loss on disposal of property................. 73 -- 258
Minority interest in net (loss) earnings of
subsidiary.................................. 261 (1,396) 488
Grants of compensatory stock options......... 208 24 12
Deferred income taxes........................ -- (5,437) 4,298
Changes in operating assets and liabilities:
Purchases of trading securities............ (7,998) (3,471) (3,267)
Proceeds from sale of trading securities... 7,894 3,421 6,478
Proceeds from maturities of trading
securities................................ 3,455 2,152 2,334
Accounts receivable........................ 697 6,641 (5,912)
Prepaid expenses and other current assets.. (508) 2,025 (581)
Accounts payable and other current
liabilities............................... 1,517 5,610 (3,638)
Deferred revenue........................... (362) (1,641) 3,565
-------- -------- --------
Net cash provided by operating
activities.............................. 13,779 14,179 18,566
-------- -------- --------
Cash flows from investing activities:
Capitalized software development costs......... (10,446) (10,902) (8,827)
Purchased software............................. (603) (93) (593)
Purchase of majority interest in subsidiaries,
net of cash received.......................... (658) (1,929) --
Minority investment and additional funding in
business...................................... (601) (857) (115)
Purchases of property and equipment............ (2,178) (1,647) (2,640)
(Purchases) sales of investments, net.......... (7,139) 15,534 (29,605)
Purchases of common stock by subsidiary........ (768) (1,660) (1,882)
-------- -------- --------
Net cash used in investing activities.... (22,393) (1,554) (43,662)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of Logility, Inc.
Subsidiary common stock....................... -- -- 33,152
Repayment of long-term debt.................... (950) -- --
Payments of capital lease obligations.......... (2,268) (2,266) (1,580)
Repurchases of common stock.................... (1,256) (3,510) (787)
Proceeds from Dividend Reinvestment Plan....... 10 23 --
Proceeds from exercise of stock options........ 4,421 229 1,198
-------- -------- --------
Net cash (used in) provided by financing
activities.............................. (43) (5,524) 31,983
-------- -------- --------
Net change in cash and cash equivalents.. (8,657) 7,101 6,887
Cash and cash equivalents at beginning of year... 21,567 14,466 7,579
-------- -------- --------
Cash and cash equivalents at end of year......... $ 12,910 $ 21,567 $ 14,466
======== ======== ========
Income taxes................................... $ 248 $ 219 $ 161
======== ======== ========
Interest....................................... $ 106 $ 226 $ 104
======== ======== ========
Supplemental disclosures of noncash operating,
investing, and financing activities:
Net assets acquired............................ $ -- $ 2,579 $ --
Assumption of capital lease obligations for
property and equipment........................ $ 2,289 $ 1,941 $ 990
======== ======== ========
See accompanying notes to consolidated financial statements.
43
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000, 1999, and 1998
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of American
Software, Inc., its wholly owned subsidiaries, and its majority-owned
subsidiaries (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company is engaged in the development, marketing, and support activities
of a broad range of computer business application software. The Company's
operations are principally in the computer software industry with a network
management services business.
(b) Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, Software Revenue Recognition, and SOP 98-9, Software Revenue
Recognition with Respect to Certain Transactions.
License. License revenues in connection with license agreements for standard
proprietary and tailored software are recognized upon delivery of the software,
providing collection is considered probable, the fee is fixed or determinable,
there is evidence of an arrangement, and vendor specific evidence exists to
defer any revenue related to undelivered elements of the arrangement.
Maintenance. Maintenance fees are generally billed annually in advance and
the resulting revenues are recognized ratably over the term of the maintenance
agreement.
Services. Revenues derived from services primarily include consulting,
implementation, and training. Fees are billed under both time and materials and
fixed fee arrangements and are recognized as services are performed
The percentage-of-completion method of accounting is utilized to recognize
revenue on products under development for fixed amounts. Progress under the
percentage-of-completion method is measured based on management's best estimate
of the cost of work completed in relation to the total cost of work to be
performed under the contract. Any estimated losses on products under
development for fixed amounts are immediately recognized in the consolidated
financial statements.
Deferred Revenues. Deferred revenues represent advance payments or billings
for software licenses, services, and maintenance billed in advance of the time
revenues are recognized.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents. At April 30, 2000, $3.2
million of commercial paper and $6.0 million in money market funds, stated at
fair value, were included in cash equivalents.
(d) Investments
Investments at April 30, 2000 and 1999 consist of money market funds, debt
securities, and marketable equity securities. The Company accounts for its
investments under the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Pursuant to the provisions of SFAS 115, the Company has classified
its investment portfolio as "trading" and "held-to-maturity" in 2000 and 1999.
"Trading" securities are bought and held principally for the purpose of
44
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
selling them in the near term and are recorded at fair value. Unrealized gains
and losses on trading securities are included in the determination of net
earnings. "Held-to-maturity" investments are recorded at amortized cost. No
adjustment is made for unrealized gains and losses on held-to-maturity
investments.
(e) Property and Equipment
Property and equipment are recorded at cost. Depreciation of buildings,
computer equipment, and office furniture and equipment is calculated using the
straight-line method based upon estimated useful lives of 30 years, three to
five years, and five years, respectively. Assets held under capital leases and
leasehold improvements are amortized using the straight-line method over the
estimated useful lives of the assets or the lease term, whichever is shorter.
(f) Intangible Assets
Capitalized Computer Software Development Costs. The Company capitalizes
certain computer software development costs in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed. Costs incurred internally to create a computer software product or to
develop an enhancement to an existing product are charged to expense when
incurred as research and development expense until technological feasibility
for the respective product is established. Thereafter, all software development
costs are capitalized and reported at the lower of unamortized cost or net
realizable value. Capitalization ceases when the product or enhancement is
available for general release to customers. The Company makes ongoing
evaluations of the recoverability of its capitalized software projects by
comparing the amount capitalized for each product to the estimated net
realizable value of the product. If such evaluations indicate that the
unamortized software development costs exceed the net realizable value, the
Company writes off the amount by which the unamortized software development
costs exceed net realizable value. Capitalized computer software development
costs are being amortized ratably based on the projected revenue associated
with the related software or on a straight-line basis over three years,
whichever method results in a higher level of amortization.
Purchased Computer Software Costs, Goodwill, and Other Intangible
Assets. Purchased computer software costs, goodwill, and other intangibles are
amortized on a straight-line basis over the expected periods to be benefited,
generally three to seven years. The Company evaluates the recoverability of
these intangible assets at each period-end using the undiscounted estimated
future net operating cash flows expected to be derived from such assets. If
such an evaluation indicates a potential impairment, the Company uses the fair
value to determine the amount of these intangible assets that should be written
off. During 2000, goodwill additions of $658,000 and $768,000 relate to the
purchase of additional interests in New Generation Computing and Logility,
Inc., respectively.
45
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
Total Expenditures, Amortization, and Write-offs. Total expenditures for
capitalized computer software development costs, total research and development
expense, total amortization of capitalized computer software development costs,
total amortization of purchased computer software costs and write-off of
capitalized computer software costs are as follows:
Years ended April 30,
---------------------
2000 1999 1998
------- ------ ------
(in thousands)
Total capitalized computer software development
costs............................................... $10,446 10,902 8,827
Total research and development expense............... 9,675 11,511 12,112
------- ------ ------
Total research and development expense and
capitalized computer software development costs..... $20,121 22,413 20,939
======= ====== ======
Total amortization of capitalized computer software
development costs................................... $ 3,632 6,104 6,706
======= ====== ======
Total amortization of purchased computer software
costs and goodwill.................................. $ 346 924 560
======= ====== ======
Write-off of capitalized software costs as a result
of net realizable value analyses.................... $ -- 24,152 --
======= ====== ======
(h) Income Taxes
The Company accounts for income taxes using the asset and liability method
of SFAS No. 109, Accounting for Income Taxes. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forward. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(i) Net Earnings (Loss) Per Common Share
On January 31, 1998, the Company adopted SFAS No. 128, Earnings Per Share,
which prescribes the calculation methodology and financial reporting
requirements for basic and diluted earnings per share. Basic earnings (loss)
per common share available to common shareholders are based on the weighted-
average number of Class A and B common shares outstanding, since the Company
considers the two classes of common stock as one class for the purposes of the
per share computation. Diluted earnings (loss) per common share available to
common shareholders are based on the weighted-average number of common shares
outstanding and dilutive potential common shares, such as dilutive stock
options. All prior period net earnings (loss) data presented in these
consolidated financial statements have been restated to conform to the
provisions of SFAS 128.
46
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
The numerator in calculating both basic and diluted earnings (loss) per
common share for each year is the same as net income (loss). The denominator is
based on the following number of common shares:
Years ended April 30,
---------------------------
2000 1999 1998
-------- -------- -------
(in thousands)
Common Shares:
Weighted average common shares outstanding:
Class A shares................................ 17,016 17,463 17,869
Class B shares................................ 4,706 4,768 4,798
-------- -------- -------
Basic weighted average common shares
outstanding................................... 21,722 22,231 22,667
======== ======== =======
Dilutive effect of outstanding Class A common
stock options outstanding..................... -- -- 1,747
======== ======== =======
Total.......................................... 21,722 22,231 24,414
======== ======== =======
Net earnings (loss)............................ $ (1,242) $(32,817) $ 7,795
Net earnings (loss) per common share:
Basic......................................... $ (.06) $ (1.48) $ .34
======== ======== =======
Diluted....................................... $ (.06) $ (1.48) $ .32
======== ======== =======
For the years ended April 30, 2000 and April 30, 1999 approximately
2,746,451 and 3,418,796 stock options, respectively, were excluded from the
computation of diluted earnings (loss) per share because they were
antidilutive.
(j) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the consolidated financial
statements and revenues and expenses for reporting periods to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
(k) Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets using SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles held and used by a company be reviewed for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also requires
that long-lived assets and certain identifiable intangibles held for sale,
other than those related to discontinued operations, be reported at the lower
of carrying amount or fair value less cost to sell. The Company's adoption of
SFAS No. 121 did not have an impact on its consolidated financial statements.
47
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
(l) Stock Compensation Plans
The Company applies the intrinsic-value-based method of accounting for its
nonvariable stock option plans in accordance with the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
Opinion No. 25), and related interpretations. As such, compensation expense
would generally be recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price.
(m) Sales of Subsidiary Stock
The Company has elected to record gains and losses from sales of subsidiary
stock as a component of equity.
(n) Reclassifications
Certain reclassifications have been made to the 1999 and 1998 consolidated
financial statements to conform to the presentation adopted in 2000.
(o) Comprehensive Income
On May 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and foreign currency translation
adjustments and is presented in the consolidated statements of shareholders'
equity and comprehensive income. The statement requires only additional
disclosures in the consolidated financial statements; it does not affect the
Company's financial position or results of operations. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130.
(2) Investments
Investments consist of the following:
April 30,
--------------
Trading 2000 1999
------- ------- ------
(in thousands)
Debt securities:
U.S. Treasury securities.................................... $ 579 606
Tax-exempt state and municipal bonds........................ 5,865 5,585
------- ------
Total debt securities..................................... 6,444 6,191
Equity securities............................................. 3,729 7,082
------- ------
$10,173 13,273
======= ======
April 30, 2000
--------------------------
Unrealized
Carrying Fair gain
Held-to-maturity value value (loss)
---------------- -------- ------ ----------
(in thousands)
Government securities............................. $ 2,480 2,472 (8)
Commercial paper.................................. 7,958 7,988 30
Corporate bonds................................... 10,724 10,701 (23)
------- ------ ---
$21,162 21,161 (1)
======= ====== ===
48
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
April 30, 1999
--------------------------
Unrealized
Carrying Fair gain
Held-to-maturity value value (loss)
---------------- -------- ------ ----------
(in thousands)
Commercial paper.................................. $ 5,229 5,236 7
Corporate bonds................................... 8,795 8,780 (15)
------- ------ ---
$14,024 14,016 (8)
======= ====== ===
The total carrying value of all investments on a consolidated basis was
$31,335,000 and $27,297,000 at April 30, 2000 and 1999, respectively, of which
$9,878,000 mature beyond April 30, 2001 and are classified non-current
accordingly.
In 2000, 1999, and 1998, the Company's investment portfolio of trading
securities experienced net unrealized holding gains (losses) of approximately
($1,415,642), ($878,000), and $2,244,000 respectively, which have been included
in other income, net in the 2000, 1999, and 1998 consolidated statements of
operations.
At April 30, 2000, 97% of the tax-exempt state and municipal bonds related
to state and municipal governments and authorities in Georgia.
(3) Fair Value of Financial Instruments
The Company's financial instruments, excluding investments, consisted of
cash; trade accounts receivable and unbilled accounts receivable; refundable
income taxes; accounts payable; accrued compensation and related costs; accrued
royalties; other current liabilities; and deferred revenue. These
aforementioned financial instruments carrying amounts approximate fair value
because of the short maturity of those instruments. For the Company's
investments classified as "trading," the carrying value represents fair value.
See note 2 for the fair value of the Company's investments classified as "held-
to-maturity."
(4) Property and Equipment
Property and equipment consist of the following at April 30, 2000 and 1999
(in thousands):
2000 1999
------- ------
Buildings and leasehold improvements.......................... $20,982 20,670
Computer equipment............................................ 32,387 28,936
Office furniture and equipment................................ 4,742 4,573
------- ------
58,111 54,179
Less accumulated depreciation and amortization................ 39,497 35,259
------- ------
$18,614 18,920
======= ======
49
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
(5) Intangible Assets
Intangible assets consist of the following at April 30, 2000 and 1999 (in
thousands):
2000 1999
------- ------
Capitalized computer software development costs............... $56,666 46,472
Purchased computer software costs............................. 6,956 6,356
Goodwill...................................................... 6,395 4,969
------- ------
70,017 57,797
Less accumulated amortization................................. 46,626 41,549
------- ------
$23,391 16,248
======= ======
(6) Income Taxes
Income tax expense (benefit) consists of the following:
Years ended April
30,
-------------------
2000 1999 1998
----- ------ -----
(in thousands)
Current:
Federal................................................ $ -- 3,453 150
State.................................................. 150 218 200
----- ------ -----
$150 3,671 350
----- ------ -----
Deferred:
Federal................................................ $ -- (4,862) 3,838
State.................................................. -- (575) 460
----- ------ -----
-- (5,437) 4,298
----- ------ -----
$ 150 (1,766) 4,648
===== ====== =====
The Company's effective income tax rate of 12%, 5%, and 37% for the years
ended April 30, 2000, 1999, and 1998, respectively, differs from the "expected"
income tax expense (benefit) for those years calculated by applying the Federal
statutory rate of 34% to earnings (loss) before income taxes as follows:
Years ended April
30,
---------------------
2000 1999 1998
----- ------- -----
(in thousands)
Computed "expected" income tax expense (benefit)..... $(371) (11,758) 4,231
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax
effect............................................ 57 (235) 504
Foreign taxes...................................... -- 650 --
Tax-exempt interest income......................... (64) (161) (250)
Change in the beginning-of-the year balance of the
valuation allowance for deferred tax assets
allocated to income tax benefit................... 404 4,416 --
Gain on investments not recognized for tax
purposes.......................................... -- -- 163
Estimated liabilities.............................. -- 3,020 --
Permanent differences.............................. 179 1,310 --
Other.............................................. (55) 992 --
----- ------- -----
$ 150 (1,766) 4,648
===== ======= =====
50
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
Estimated liabilities for tax issues principally relate to tax authority
examinations and other matters. Permanent differences are primarily derived
from non-deductible in-process research and development charges and
amortization of goodwill.
The significant components of deferred income tax expense attributable to
earnings (loss) before income taxes for the years ended April 30, 2000, 1999,
and 1998 are as follows:
Years ended April
30,
--------------------
2000 1999 1998
----- ------ -----
(in thousands)
Deferred tax (benefit) expense........................ $(404) (9,853) 4,293
Increase in beginning-of-the year balance of the
valuation allowance for deferred tax assets.......... 404 4,416 --
----- ------ -----
$ -- (5,437) 4,293
===== ====== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 30,
2000 and 1999, are presented as follows:
April 30,
---------------
2000 1999
------- ------
(in thousands)
Deferred tax assets:
Expenses, due to accrual for financial reporting
purposes............................................... $ 2,565 1,677
Accounts receivable, due to allowance for doubtful
accounts............................................... 674 690
Compensation expense related to grants of nonqualified
stock options.......................................... 175 189
Net operating loss carryforwards........................ 8,838 7,523
Foreign tax credit carryforwards........................ 777 777
Intangible asset amortization........................... 922 922
Other................................................... 718 720
------- ------
Total gross deferred tax assets....................... 14,669 12,498
Less valuation allowance................................ (6,800) (6,396)
------- ------
Net deferred tax assets............................... 7,869 6,102
------- ------
Deferred tax liabilities:
Capitalized computer software development costs......... (4,976) (4,396)
Property and equipment, primarily due to differences in
depreciation........................................... (1,629) (584)
Gain on investments not recognized for tax purposes..... (1,196) (1,012)
Other................................................... (68) (110)
------- ------
Total gross deferred tax liabilities.................. (7,869) (6,102)
------- ------
Net deferred tax liability............................ $ -- --
======= ======
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon
reversal of deferred tax liabilities, management believes it is more likely
than not the Company will realize the benefits of these deductible differences,
net of the existing valuation allowances at April 30, 2000 and 1999.
51
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
At April 30, 2000, the Company has net operating loss carry forwards for
federal income tax purposes of approximately $23.0 million which are available
to offset future federal taxable income, if any, through 2020. In addition, the
Company has foreign tax credit carry forwards for federal income tax purposes
of approximately $777,000 which are available to offset future federal income
taxes pursuant to the income tax laws. Such credits expire in varying amounts
through 2002.
(7) Acquisitions
In July 1998, the Company purchased an 80% interest in New Generation
Computing ("NGC"), a company which specializes in accounting and manufacturing
control software for the sewn goods industry (apparel, handbags, shoes, hats,
etc.). This investment was accounted for based on the purchase accounting
method with the results of operations included from the date of acquisition. Of
the $2.6 million purchase price, the Company acquired $1.2 million in current
assets, $1.8 million in liabilities (including long-term debt of $950,000) and
purchased research and development of $1.8 million which was expensed upon
acquisition. The related goodwill of $1.4 million is being amortized over a
seven-year period. During fiscal year 2000, the Company purchased an additional
7% interest in NGC for $658,000.
In January 1996, the Company acquired a 60% interest in Intellimedia
Commerce, Inc., a company which builds and maintains systems for commerce on
the Internet, for $850,000. In April 1998, the Company acquired an additional
3% interest in Intellimedia for $115,000. To maintain its majority ownership
interest, the Company invested an additional $367,500 and $166,450 in fiscal
year 2000 and fiscal year 1999, respectively. The acquisition has been
accounted for as a purchase and, accordingly, the results of operations have
been included since the date of acquisition. The related minority interest is
not significant.
(8) Long-term Debt
During 1999, long-term debt was assumed in the acquisition of New Generation
Computing and consisted of several notes payable for an aggregate amount of
$950,000. The balance was paid in full during fiscal year 2000.
(9) Shareholders' Equity
Certain Class A and Class B Common Stock Rights
Except for the election or removal of Directors and class votes as required
by law or the Articles of Incorporation, holders of both classes of common
stock vote as a single class on all matters with each share of Class A common
stock entitled to cast one-tenth vote per share and each share of Class B
common stock entitled to cast one vote per share. Neither has cumulative voting
rights. Holders of Class A common stock, as a class, are entitled to elect 25%
of the Board of Directors (rounded up to the nearest whole number of Directors)
if the number of outstanding shares of Class A common stock is at least 10% of
the number of outstanding shares of both classes of common stock. No cash or
property dividend may be paid to holders of shares of Class B common stock
during any fiscal year of the Company unless a dividend of $.05 per share has
been paid in such year on each outstanding share of Class A common stock. This
$.05 per share annual dividend preference is noncumulative. Dividends per share
of Class B common stock during any fiscal year may not exceed dividends paid
per share of Class A common stock during each year. Each share of Class B
common stock is convertible at any time into one share of Class A common stock
at the option of the shareholder. Class A and B shares are considered as one
class for purpose of the earnings (loss) per share computation.
52
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
Employee Stock Purchase Plan
In December 1998 the Company began an Employee Stock Purchase Plan that
offers employees the right to purchase shares of the Company's common stock at
85% of the market price, as defined, pursuant to the Employee Stock Purchase
Plan (the "Purchase Plan"). Under the Purchase Plan, full-time employees,
except persons owning 5% or more of the Company's common stock, are eligible to
participate after one month of employment. Employees may contribute up to 15%
of their annual salary toward the Purchase Plan up to a maximum of $15,000 per
year. During the fiscal year ended April 30, 2000, shares issued under the
Purchase Plan were 42,641.
In November 1998, Logility, Inc., a subsidiary of the Company, began an
Employee Stock Purchase Plan that offers employees the right to purchase shares
of Logility's common stock at 85% of the market price, as defined, pursuant to
the Employee Stock Purchase Plan (the "Purchase Plan"). Under the Purchase
Plan, full-time employees, except persons owning 5% or more of Logility's
common stock, are eligible to participate after one month of employment.
Employees may contribute up to 15% of their annual salary toward the Purchase
Plan up to a maximum of $15,000 per year. A maximum of 200,000 shares of common
stock may be purchased under the Purchase Plan. Common stock is purchased in
the open market on behalf of the participants. The Company contributes to the
purchase price in order to provide for the 15% discount to market price. During
the fiscal year ended April 30, 2000, shares issued under the Purchase Plan
were 23,361.
Stock Option Plans
In fiscal 1992, the Company discontinued issuing options under its Incentive
Stock Option Plan and its Nonqualified Stock Option Plan. There were 9,400
options outstanding under these plans at April 30, 2000. These plans were
replaced with the 1991 Employee Stock Option Plan ("1991 Plan") and the
Director and Officer Stock Option Plan ("D and O Plan"). Under the 1991 Plan,
the Board of Directors is authorized to grant key employees options to purchase
up to 3.6 million shares of Class A common stock, plus any shares granted under
the terminated plans that terminate or expire without being wholly exercised.
These options vest in four equal annual installments commencing one year
from the effective date of grant. All options must be exercised within ten
years of the effective date of grant, but will expire sooner if the optionee's
employment terminates. Under the D and O Plan, the Board of Directors is
authorized to grant directors and officers options to purchase up to 1.6
million shares of Class A common stock. These options typically are exercisable
based upon the terms of such options up to 10 years after the date of grant,
but will expire sooner if the optionee's employment terminates. Additionally,
both the 1991 Plan and D and O Plan can issue either incentive stock options or
nonqualified stock options. Both the 1991 Plan and D and O Plan will terminate
on May 13, 2001.
On August 26, 1999, the Company amended the 1991 Plan to increase the number
of authorized options from 3.6 million to 4.6 million. The Company also
modified the 1991 Plan on February 14, 2000 to allow the exercise of options
beyond the initial three-month allowance from the termination date of an option
holder's employment, but not to exceed 10 years, for retired employees, as
defined, or any employee as designated by the Board of Directors at its sole
discretion. This right was granted to certain employees during 2000 and created
a compensation charge of $208,000 for the difference between the original
exercise price of the option and the fair market value of the Company's common
stock at the date of grant.
Incentive and nonqualified options exercisable at April 30, 2000 are 438,879
and 305,000 shares, respectively. Options available for grant at April 30,
2000, for the 1991 Plan and D and O Plan, are 424,907 and 991,313 shares,
respectively.
53
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
Effective August 7, 1997, Logility Inc., a subsidiary of the Company,
adopted the Logility, Inc. 1997 Stock Plan ("Subsidiary Stock Plan"). The
Subsidiary Stock Plan provides for grants of incentive stock options and
nonqualified stock options to certain key employees and directors of Logility,
Inc. The Subsidiary Stock Plan also allows for stock appreciation rights in
lieu of or in addition to stock options. Options to purchase a maximum of 1.2
million shares of common stock and a maximum of 300,000 units of Stock
Appreciation Rights ("SARs"), as defined, may be granted under the Subsidiary
Stock Plan. The Stock Plan further limits stock option grants by providing that
the number of outstanding option shares, when added to the outstanding shares
held by shareholders other than American Software, may not exceed 20% of the
issued and outstanding shares, if it were assumed that all of the stock options
were exercised. As of April 2000, this limitation resulted in a maximum
aggregate number of option shares that had been exercised, were outstanding or
were available for grant of 817,878 shares. The options and SARs generally vest
over a four-year period. The terms of the options generally are for ten years,
and the terms of the SARs generally are for five years.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for the Company's stock-based
compensation plans been determined consistent with SFAS No. 123, the Company's
net earnings (loss) and diluted earnings (loss) per share would have been
reduced to the pro forma amounts indicated below: (including amount for
Subsidiary Stock Plan).
Years ended April 30,
-----------------------
2000 1999 1998
------- ------- -----
(in thousands,
except per share
data)
Net earnings (loss):
As reported........................................ $(1,242) (32,817) 7,795
Pro forma.......................................... (5,154) (36,076) 4,721
Diluted earnings (loss) per share:
As reported........................................ (.06) (1.48) .32
Pro forma.......................................... (.23) (1.62) .19
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
2000 1999 1998
------- ------- -------
Dividend yield....................................... 0% 0% 0%
Expected volatility.................................. 104.9% 85.9% 62.1%
Risk-free interest rate.............................. 5.6% 5.6% 5.6%
Expected life........................................ 8 years 8 years 8 years
54
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
A summary of the status of the Company's stock option plans as of April 30,
2000, 1999, and 1998, and changes during the years ended on those dates is
presented below:
2000 1999 1998
--------------------- --------------------- --------------------
Weighted- Weighted- Weighted-
average average average
Fixed options Shares price Shares price Shares price
------------- ---------- --------- ---------- --------- --------- ---------
Outstanding at beginning
of year................ 3,418,796 $3.10 3,283,204 $4.84 2,990,234 $3.75
Granted................. 1,116,650 4.80 2,756,668 3.13 1,079,325 7.34
Exercised............... (1,321,995) 3.25 (69,649) 3.29 (379,830) 3.18
Forfeited/canceled...... (467,000) 2.94 (2,551,427) 5.39 (406,525) 4.91
---------- ---------- ---------
Outstanding at April 30,
2000................... 2,746,451 3.76 3,418,796 3.10 3,283,204 4.84
========== ========== =========
Options exercisable at
year-end............... 743,879 1,410,227 1,347,694
========== ========== =========
Weighted-average fair
value of options
granted during the
year................... $ 4.38 $ 1.43 $ 5.56
========== ========== =========
The following table summarizes information about fixed stock options
outstanding at April 30, 2000:
Options outstanding Options exercisable
------------------------------------------------ -------------------------------
Number
Range of outstanding at Weighted-average Number
exercise April 30, remaining Weighted-average exercisable at Weighted-average
prices 2000 contractual life exercise price April 30, 2000 exercise price
-------- -------------- ---------------- ---------------- -------------- ----------------
$1.69-3.38 2,100,088 7.7 $2.79 411,791 $2.76
3.38-6.75 315,588 7.2 4.50 163,513 4.69
6.75-13.50 330,775 8.6 9.20 168,575 11.07
--------- -------
2,746,451 7.8 $3.76 743,879 $5.07
========= ===== ======= =====
A summary of the status of the Subsidiary's Stock Plan as of April 30, 2000
and 1999, and changes during the years then ended is presented below:
2000 1999 1998
------------------- ------------------- ------------------
Weighted- Weighted- Weighted-
average average average
Fixed options Shares price Shares price Shares price
------------- -------- --------- -------- --------- ------- ---------
Outstanding at beginning
of year................ 555,446 $4.22 262,070 $12.96 -- $ --
Granted................. 415,400 5.04 600,130 2.93 267,890 12.97
Exercised............... (43,454) 2.88 -- -- -- --
Forfeited/canceled...... (163,303) 4.28 (306,754) 8.78 (5,820) 13.67
-------- -------- -------
Outstanding at year
end.................... 764,089 4.73 555,446 4.22 262,070 12.96
======== ===== ======== ====== ======= ======
Options exercisable at
year end............... 126,438 6.17 28,150 11.76 16,000 13.22
======== ===== ======== ====== ======= ======
Weighted-average fair
value of options
granted during the
year................... 2.63 1.71 10.74
===== ====== ======
55
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
The following table summarizes information about fixed stock options
outstanding at April 30, 2000 under the Subsidiary Stock Plan:
Options outstanding Options exercisable
------------------------------------------------ -------------------------------
Number
Range of outstanding at Weighted-average Number
exercise April 30, remaining Weighted-average exercisable at Weighted-average
prices 2000 contractual life exercise price April 30, 2000 exercise price
-------- -------------- ---------------- ---------------- -------------- ----------------
$2.75-5.00 625,054 8.8 3.33 87,955 3.01
5.01-10.00 83,000 9.5 8.85 5,000 7.50
10.01-15.00 49,035 7.6 14.07 26,483 13.92
15.01-16.25 7,000 8.5 15.61 7,000 15.61
------- -------
764,089 8.8 $ 4.73 126,438 $ 6.17
======= ====== ======= ======
In August 1998, the Company offered an option repricing program to its
employees. Under the terms of the program, the opportunity was provided to
employees, excluding executive officers, to cancel any outstanding option grant
in its entirety and replace it on a share-for-share basis with an option grant
bearing an exercise price equal to the fair market value of the Company's stock
at the new grant date. All newly issued options grants have a life of ten years
and vesting occurs ratably over four years beginning on the new grant date. A
total of 1,775,968 options were returned under this program.
In September 1998, Logility, Inc., the Company's subsidiary, offered an
option repricing program to its employees. Under the terms of the program, the
opportunity was provided to cancel any outstanding option grant in its entirety
and replace it on a share-for-share basis with an option grant bearing an
exercise price equal to the fair market value of the Company's stock at the new
grant date. All newly issued options grants have a life of ten years and
vesting occurs ratably over four years beginning on the new grant date. A total
of 136,280 options were returned under this program.
(10) International Revenues
International revenues approximated $7.8 million or 7%, $11.4 million or
10%, and $10.1 million or 9% of consolidated revenues for the years ended April
30, 2000, 1999, and 1998, respectively, and were primarily from customers in
Canada and Europe.
(11) Commitments
Leases
The Company is obligated under various capital leases for certain computer
equipment and software that expire at various dates during the next three
years. At April 30, 2000, the amount of equipment and related accumulated
amortization recorded under capital leases was as follows:
Machinery and equipment............................................. $10,365
Less accumulated amortization....................................... (7,965)
-------
$ 2,400
=======
Amortization of assets held under capital leases is included with
depreciation expense.
56
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
The Company leases an office facility from a partnership controlled by the
two Class B shareholders, under an operating lease that by its term expired
December 31, 1996. An extention of that lease, on a month-to-month basis, has
been approved by the Board of Directors for the balance of the calendar year
1998 and for the subsequent years, pending negotiation of a new long-term
lease. Amounts expensed under this lease for the years ended April 30, 2000,
1999, and 1998 approximated $300,000, $300,000, and $300,000, respectively.
The Company leases other office facilities, certain office equipment, and
computer equipment under various operating and capital leases expiring through
2005. Rental expense for these leases approximated $6.4 million, $5.5 million,
and $4.8 million for the years ended April 30, 2000, 1999, and 1998,
respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of April 30, 2000 are as follows:
Year ending Capital Operating
April 30, leases leases
----------- ------- ---------
2001.................................................... $1,581 3,958
2002.................................................... 794 1,766
2003.................................................... 158 531
2004.................................................... -- 182
2005.................................................... -- 54
------ ------
Total minimum lease payments............................ 2,533 $6,491
======
Less amount representing interest (at rates of 2.00% and
7.90%)................................................. 133
------
Present value of net minimum capital lease payments..... 2,400
Less current installments of obligations under capital
leases................................................. 1,493
------
Obligations under capital leases, excluding current
installments........................................... $ 907
======
401(k) Profit Sharing Plan
Employees are offered the opportunity to participate in the Company's 401(k)
Profit Sharing Plan (the "401(k) Plan"), which is intended to be a tax-
qualified defined contribution plan under Section 401(k) of the Internal
Revenue Code. Under the 401(k) Plan, employees are eligible to participate on
the first day of the month following the date of hire. Eligible employees may
contribute up to 15% of pretax income to the 401(k) Plan. Subject to certain
limitations, the Company may make a discretionary profit sharing contribution
at an amount determined by the Board of Directors of the Company. The Company
did not make profit sharing contributions for 2000, 1999 or 1998.
Effective January 1, 1999, the Company contributes an employer match in an
amount equal to 25% of the eligible participant's compensation contributed to
the Plan subject to a maximum of 6% of compensation. The Company's matching
contributions totaled $488,942 and $112,277 for 2000 and 1999.
(12) Contingencies
The Company is involved in various claims arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse affect on the financial position or
results of operations of the Company.
57
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
(13) Sale of Common Stock of Subsidiary
In October 1997, Logility, Inc., a wholly owned subsidiary of the Company,
sold 2,200,000 shares of its unissued common stock in an initial public
offering. Proceeds from the offering were $31.9 million, less underwriters'
commissions, and other expenses of approximately $3.1 million. In November
1997, Logility, Inc. sold 330,000 shares of common stock as part of the
underwriters' overallotment from the initial public offering for $4.8 million
less issuance costs of approximately $400,000. As a result of the offering
combined with the Company's subsequent purchase of Logility, Inc.'s common
stock, the Company's ownership percentage of the wholly owned subsidiary was
85% at April 30, 2000.
(14) Segment information
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information". SFAS 131 establishes standards for
the way public business enterprises are to report information about the
operating segments in annual financial statements and requires those
enterprises to report selected financial information about operating segments
in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers.
On May 1, 1999, the Company adopted SFAS No. 131. The Company operates and
manages its business in three segments based on software and services provided
in three key product markets. First, Enterprise Resource Planning (ERP)
automates customers' internal financing, human resources, and manufacturing
functions. Second, Business-to-Business Collaborative Commerce (BBCC), provides
advanced business-to-business collaborative planning and integrated logistics
capabilities. Third, Application Infrastructure Provider (AIP) provides data
center infrastructure, network outsourcing services, e-commerce solution
hosting and monitoring, and professional services staffing. Intersegment
charges are based on marketing and general administration services provided to
the BBCC and AIP segments by the ERP segment. Intersegment charges are also
based on application hosting services provided to the ERP and BBCC segment by
the AIP segment.
58
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2000, 1999, and 1998
2000 1999 1998
-------- ------- -------
(in thousands)
Revenues:
Enterprise resource planning..................... $ 54,604 67,658 61,055
Business-to-business collaborative commerce...... 32,289 27,017 34,662
Application infrastructure provider:
External customers............................. 18,617 14,502 11,755
Intersegment revenues.......................... 3,978 4,639 3,983
Elimination of intersegment revenues............. (3,978) (4,639) (3,983)
-------- ------- -------
Total........................................ $105,510 109,177 107,472
======== ======= =======
Operating income before intersegment eliminations:
Enterprise resource planning..................... $ (3,457) (29,386) 5,633
Business-to-business collaborative commerce...... 1,251 (9,282) 1,719
Application infrastructure provider.............. (620) 670 1,300
-------- ------- -------
Total........................................ $ (2,826) (37,998) 8,652
======== ======= =======
Intersegment eliminations:
Enterprise resource planning..................... $ 754 1,546 604
Business-to-business collaborative commerce...... 2,156 2,131 2,505
Application infrastructure provider.............. (2,910) (3,677) (3,109)
-------- ------- -------
Total........................................ $ -- -- --
======== ======= =======
Operating income after intersegment eliminations:
Enterprise resource planning..................... $ (2,705) (27,843) 6,237
Business-to-business collaborative commerce...... 3,409 (7,148) 4,224
Application infrastructure provider.............. (3,530) (3,007) (1,809)
-------- ------- -------
Total........................................ $ (2,826) (37,998) 8,652
======== ======= =======
Capital expenditures:
Enterprise resource planning..................... $ 628 590 1,158
Business-to-business collaborative commerce...... 538 755 1,136
Application infrastructure provider.............. 1,012 302 346
-------- ------- -------
Total........................................ $ 2,178 1,647 2,640
======== ======= =======
Capitalized software:
Enterprise resource planning..................... $ 7,073 6,950 5,658
Business-to-business collaborative commerce...... 3,373 3,952 3,169
Application infrastructure provider.............. -- -- --
-------- ------- -------
Total........................................ $ 10,446 10,902 8,827
======== ======= =======
Depreciation and amortization:
Enterprise resource planning..................... $ 3,878 5,493 5,111
Business-to-business collaborative commerce...... 3,485 3,862 4,737
Application infrastructure provider.............. 2,671 2,491 1,804
-------- ------- -------
Total........................................ $ 10,034 11,846 11,652
======== ======= =======
April
April 30,
30, 2000 1999
-------- -------
Identifiable assets:
Enterprise resource planning..................... $ 63,701 63,200
Business-to-business collaborative commerce...... 42,330 40,678
Application infrastructure provider.............. 7,016 5,858
-------- -------
Total........................................ $113,047 109,736
======== =======
59
Independent Auditors' Report
The Board of Directors and Shareholders
American Software, Inc.:
We have audited the accompanying consolidated balance sheets of American
Software, Inc. and subsidiaries as of April 30, 2000 and 1999, and the related
consolidated statements of operations, shareholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
April 30, 2000. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Software, Inc. and subsidiaries as of April 30, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-
year period ended April 30, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ KPMG LLP
Atlanta, Georgia
June 16, 2000
60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are:
Name Age Position
---- --- --------
James C. Edenfield.... 65 President, Chief Executive Officer, Treasurer and
Director; Chairman of the Board of Directors of
Logility, Inc.
Thomas L. Newberry.... 67 Chairman of the Board of Directors
David H. Gambrell..... 70 Director
Thomas R. Williams.... 71 Director
J. Michael Edenfield.. 42 Executive Vice President, President and Director
of Logility, Inc.
Paul DiBono, Jr....... 61 Senior Vice President, General Manager--
Enterprise Division
Vincent C. Klinges.... 37 Chief Financial Officer
James R. McGuone...... 53 Secretary
All directors hold office until the next annual meeting of the shareholders
of the Company. Executive officers of the Company are elected annually and
serve at the pleasure of the Board of Directors.
Mr. James C. Edenfield is a co-founder of the Company and has served as
Chief Executive Officer since November 1989, and as Co-Chief Executive Officer
for more than five years prior to that time. He has been a Director since 1971.
Prior to founding the Company, Mr. Edenfield held several executive positions
and was a director of Management Science America, Inc., an applications
software development and sales company. He holds a Bachelor of Industrial
Engineering degree from the Georgia Institute of Technology. Mr. Edenfield also
serves as Chairman of the Board of Directors of Logility, Inc., a majority
owned subsidiary of the Company.
Dr. Newberry is a co-founder of the Company and has served as its Chairman
of the Board since November 1989, and was Co-Chief Executive Officer prior to
that for more than five years. He has been a Director since 1971. Prior to
founding the Company, he held executive positions with several companies
engaged in computer systems analysis and software development and sales
including Management Science America, Inc., where he was also a director. Dr.
Newberry holds Bachelor, Master of Science, and Ph.D. degrees in Industrial
Engineering from the Georgia Institute of Technology.
Mr. Gambrell has served as a Director of the Company since January 1983. He
has been a practicing attorney since 1952, and is a partner with the law firm
of Gambrell & Stolz, L.L.P., counsel to the Company. He served as a member of
the United States Senate from the State of Georgia in 1971 and 1972. Mr.
Gambrell holds a Bachelor of Science degree from Davidson College and a J.D.
degree from the Harvard Law School.
Mr. Williams has served as a Director of the Company since April 1989. He is
currently the President of the Wales Group, Inc., a closely-held corporation
engaged in investments and venture capital, and has held such position since
1987. Mr. Williams also serves as Director of Conagra, Inc., National Life
Insurance Company of Vermont and Avado Brands, Inc. In addition, he also serves
as a trustee of Fidelity Group of Mutual Funds. He was a director of Southern
Bell Corporation from 1980 to 1983 and is a Former Chairman of the Board of
First Wachovia Corporation, First National Bank of Atlanta and First Atlanta
Corporation. Mr. Williams currently holds a Bachelor of Science degree in
Industrial Engineering from the Georgia Institute of Technology and a Master of
Science degree in Industrial Management from the Massachusetts Institute of
Technology.
61
Mr. J. Michael Edenfield has served as Executive Vice President since June
1994. In January 1997, Mr. Edenfield was elected to President of Logility,
Inc., a majority owned subsidiary of the Company. Mr. Edenfield also serves as
director of Logility, Inc. From June 1994 to October 1997, he served as Chief
Operating Officer of the Company. Prior to holding that position, he served as
Senior Vice President of North American Sales and Marketing of American
Software USA, Inc. from July, 1993 to June, 1994, as Senior Vice President of
North American Sales from August, 1992 to July, 1993, as Group Vice President
from May, 1991 to August, 1992 and as Regional Vice President from May, 1987 to
May, 1991. Mr. Edenfield holds a Bachelor of Industrial Management degree from
the Georgia Institute of Technology. Mr. Edenfield is the son of James C.
Edenfield, Chief Executive Officer of the Company.
Mr. DiBono joined the Company in January 1982 and in July 1993 was elected
Senior Vice President and General Manager for the Enterprise Division (formerly
known as the Midrange Division). Prior to that time, he served as Vice
President for Marketing since December 1985. Mr. DiBono holds a B.S. degree in
industrial psychology/business administration from Iowa State University.
Mr. Klinges joined the Company in February 1998 as Vice President of
Finance, in September 1999 Mr. Klinges was promoted to Chief Financial Officer.
From July 1995 to February 1998, Mr. Klinges was employed by Indus
International, Inc. (formerly known as TSW International, Inc.), as Controller.
From November 1986 to July 1995, Mr. Klinges held various positions with Dun &
Bradstreet, Inc., including as Controller of Sales Technologies, a software
division of Dun & Bradstreet Inc. Mr. Klinges holds a Bachelor of Business
Administration from St. Bonaventure University.
Mr. McGuone was elected the Secretary of the Company in May 1988. He has
been a practicing attorney since 1972, and is a partner with the law firm of
Gambrell & Stolz, L.L.P., counsel to the Company. Mr. McGuone holds a B.A.
degree from Pennsylvania State University and a J.D. degree from Fordham
University School of Law.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "Commission").
Officers, directors and holders of more than 10% of the Common Stock are
required by regulations promulgated by the Commission pursuant to the Exchange
Act to furnish the Company with copies of all Section 16(a) forms they file.
The Company assists officers and directors in complying with the reporting
requirements of Section 16(a) of the Exchange Act.
Based upon review of filings made under Section 16(a) of the Exchange Act,
not all of the reports required to be filed during fiscal 2000 were filed on a
timely basis. The Company is aware of the following report that was filed with
the Commission by a director of the Company after it's due date: Dr. Thomas L.
Newberry (annual Statement of Beneficial Ownership with respect to a charitable
donation of stock made in fiscal 2000). To the Company's knowledge, James M.
Modak, an officer of the Company who resigned in fiscal 2000, has not made the
required section 16(a) filings with respect to stock options exercised at the
time of his departure and with respect to resales of such shares. Based upon
its review of copies of filing received by it, the Company believes that since
May 1, 1999 all other Section 16(a) filing requirements applicable to its
directors, officers and greater than 10% beneficial owners were complied with.
62
ITEM 11. EXECUTIVE COMPENSATION
This information is set forth under the caption "Certain Information
Regarding Executive Officers and Directors" in the Company's 2000 Proxy
Statement (the "Proxy Statement"), which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is set forth under the caption "Voting Securities--Security
Ownership" in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Logility, Inc. and Certain Transactions
On October 10, 1997, the Company completed an initial public offering of
2,200,000 shares of common stock in its subsidiary, Logility, Inc.
("Logility"). Prior to that time, Logility was a wholly owned subsidiary of the
Company, operating as the supply chain planning software group, warehouse
management software group and transportation management group. In anticipation
of such offering, the Company and Logility entered into a number of agreements
for the purpose of defining certain relationships between the parties (the
"Intercompany Agreements"). The more significant of the Intercompany Agreements
are summarized below. As a result of the Company's ownership interest in
Logility, the terms of such agreements were not the result of arms-length
negotiation.
Services Agreement
The Company and Logility have entered into a Services Agreement (the
"Services Agreement") with respect to certain services to be provided by the
Company (or subsidiaries of the Company) to Logility. The Services Agreement
provides that such services are provided in exchange for fees which management
of the Company believes would not exceed fees that would be paid if such
services were provided by independent third parties. The services initially
provided by the Company to Logility under the Services Agreement include, among
other things, certain accounting, audit, cash management, corporate
development, employee benefit plan administration, human resources and
compensation, general and administration services, and risk management and tax
services. In addition to these services, the Company has agreed to allow
eligible employees of Logility to participate in certain of the Company's
employee benefit plans. Logility has agreed to reimburse the Company for costs
(including any contributions and premium costs and including third-party
expenses and allocations of certain personnel expenses), generally in
accordance with past practice, relating to the participation by Logility's
employees in any of the Company's benefit plans.
The Services Agreement has an initial term of three years and is renewed
automatically thereafter for successive one-year terms unless either the
Company or Logility elects not to renew its term by giving proper notice.
Logility will indemnify the Company against any damages that the Company may
incur in connection with its performance of services under the Services
Agreement (other than those arising from the Company's gross negligence or
willful misconduct), and the Company will indemnify Logility against any
damages arising out of the Company's gross negligence or willful misconduct in
connection with its rendering of services under the Services Agreement. For the
fiscal years ended 2000 and 1999 the services related to this agreement have
been $1.0 and $1.5 million, respectively.
Facilities Agreement
The Company and Logility have entered into a Facilities Agreement (the
"Facilities Agreement"), which provides that Logility may occupy space located
in certain facilities owned or leased by the Company (or subsidiaries of the
Company).
The Facilities Agreement has an initial term of two years and is renewed
automatically thereafter for successive one-year terms unless either the
Company or Logility elects not to renew its term. The Facilities
63
Agreement may be terminated by Logility for any reason with respect to any
particular facility upon thirty days' written notice. Logility's lease of space
at any facility under the Facilities Agreement is limited by the term of the
underlying lease between the Company and a landlord with respect to any
facility leased by the Company and by the disposition by the Company of any
facility owned by the Company. For the fiscal years ended 2000 and 1999 the
services related to this agreement have been $418,000 and $342,000,
respectively.
Tax Sharing Agreement
Logility is included in the Company's federal consolidated income tax group,
and Logility's federal income tax liability will be included in the
consolidated federal income tax liability of the Company and its subsidiaries.
Logility and the Company have entered into a Tax Sharing Agreement (the "Tax
Sharing Agreement") pursuant to which the Company and Logility will make
payments between them such that the amount of taxes to be paid by Logility,
subject to certain adjustments, will be determined as though Logility were to
file separate federal, state, and local income tax returns, rather than as a
consolidated subsidiary of the Company. Pursuant to the Tax Sharing Agreement,
under certain circumstances, Logility will be reimbursed for tax attributes
that it generates after deconsolidation of Logility from the consolidated tax
group of the Company, such as net operating losses and loss carryforwards. Such
reimbursement, if any, will be made for utilization of Logility's losses only
after such losses are utilized by the Company. For that purpose, all losses of
the Company and its consolidated income tax group will be deemed utilized in
the order in which they are recognized. Logility will pay the Company a fee
intended to reimburse American Software for all direct and indirect costs and
expenses incurred with respect to the Company's share of the overall costs and
expense incurred by the Company with respect to tax related services.
Technology License Agreement
The Company and Logility have entered into a Technology License Agreement
(the "Technology License Agreement") pursuant to which Logility has granted the
Company a non-exclusive, worldwide license to use, execute, reproduce, display,
modify, and prepare derivatives of the Logility Voyager Solutions product line,
provided such license is limited to maintaining and supporting users that have
licensed Logility Voyager Solutions products from the Company. Pursuant to the
Technology License Agreement, the Company and Logility are required to disclose
to one another any and all enhancements and improvements which they may make or
acquire in relation to a Logility Voyager Solutions product, subject to
confidentiality requirements imposed by third parties. The term of the
Technology License Agreement is indefinite, although Logility may terminate the
Technology License Agreement for cause, and the Company may terminate the
Technology License Agreement at any time upon sixty (60) days' prior written
notice to Logility. Upon termination of the Technology License Agreement, all
rights to Logility Voyager Solutions products licensed by Logility to the
Company revert to Logility, while all rights to enhancements and improvements
made by the Company to Logility Value Chain Solutions products revert to the
Company.
Marketing License Agreement
American Software USA, Inc. ("USA"), a wholly-owned subsidiary of the
Company, and Logility have entered into a Marketing License Agreement (the
"Marketing License Agreement") pursuant to which USA has agreed to act as a
non-exclusive marketing representative of Logility for the solicitation of
license agreements relating to the Logility Voyager Solutions product line. The
Marketing License Agreement provides for the payment to USA of a commission
equal to 30% (or 50% for affiliates of USA located in the United Kingdom and
France if they carry out installation and provide first-line support services)
of the net license revenue collected by Logility under license agreements for
the Logility Voyager Solutions product line with certain end-users who are also
licensees of software products of the Company which are secured and forwarded
to Logility by USA and accepted by Logility. The Marketing License Agreement
has a five-year term, although Logility may terminate the Marketing License
Agreement for cause, and either party may terminate the Marketing License
Agreement at any time upon twelve (12) months' prior written notice to the
other party. For the fiscal years ended 2000 and 1999 the services related to
this agreement have been $731,000 and $308,000, respectively.
64
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1. Financial statements; All financial statements of the Company as
described in Item 8 of this report on Form 10-K.
2. Financial statement schedule included in Part IV of this Form:
Page
----
Report of Independent Auditors...................................... 67
Schedule II--Consolidated Valuation Accounts--for the three years
ended April 30, 2000............................................... 68
All other financial statements and schedules not listed above are omitted as
the required information is not applicable or the information is presented in
the financial statements or related notes.
3. Exhibits
The following exhibits are filed herewith or incorporated herein by
reference:
3.1 The Company's Amended and Restated Articles of Incorporation, and
amendments thereto. (1)
3.2 The Company's Amended and Restated By-Laws dated November 13, 1989. (2)
10.1 Amended and Restated 1991 Employee Stock Option Plan dated February 14,
2000. (3)
10.2 Amended and Restated Directors and Officers Stock Option Plan effective
August 26, 1999. (4)
10.3 American Software, Inc. 401(k)/Profit Sharing Plan and Trust Agreement.
(5)
10.4 Lease Agreement dated December 15, 1981, between Company and Newfield
Associates. (6)
10.5 Amendment dated January 14, 1983, to Lease Agreement between the Company
and Newfield Associates. (6)
10.6 Subsidiary Formation Agreement entered into among the Company, Logility,
Inc., and certain subsidiaries of the Company, as amended, dated January
23, 1997. (7)
10.7 Services Agreement between the Company and Logility, Inc., dated August
1, 1997. (7)
10.8 Facilities Agreement between the Company and Logility, Inc., dated
August 1, 1997. (7)
10.9 Tax Sharing Agreement between the Company and Logility, Inc., dated
January 23, 1997. (7)
10.10 Stock Option Agreement between the Company and Logility, Inc., dated
August 1, 1997. (7)
10.11 Technology License Agreement between the Company and Logility, Inc., as
amended, dated August 1, 1997. (7)
10.12 Marketing License Agreement between USA and Logility, Inc., as amended,
dated August 1, 1997. (7)
10.13 The Company's Employee Stock Purchase Plan dated September 30, 1998. (8)
10.14 Logility, Inc.'s Amended and Restated 1997 Stock Plan dated August 26,
1998. (9)
10.15 Logility, Inc.'s Employee Stock Purchase Plan dated September 30, 1998.
(9)
10.16 Split-Dollar Agreement between the Company and the J&N Edenfield Trust,
dated November 30, 1999.
65
21.1 List of Subsidiaries.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
- --------
(1) Incorporated by reference herein. Filed by the Company as an exhibit to
its quarterly report filed on Form 10-Q for the quarter ended October 31,
1990.
(2) Incorporated by reference herein. Filed by the Company as an exhibit to
its quarterly report filed on Form 10-Q for the quarter ended January 31,
1990.
(3) Incorporated by reference herein. Filed by the Company as an exhibit to
its quarterly report filed on Form 10-Q for the quarter ended January 31,
2000.
(4) Incorporated by reference herein. Filed by the Company as an exhibit to
its Registration Statement No. 333-86141 filed on Form S-8 on August 30,
1999.
(5) Incorporated by reference herein. Filed by the Company as an exhibit to
its Registration Statement No. 33-55214 filed on Form S-8 on December 1,
1992.
(6) Incorporated by reference herein. Filed by the Company as an exhibit to
its Registration Statement No. 2-81444 filed on Form S-1 on January 21,
1983.
(7) Incorporated by reference herein. Filed by the Company as an exhibit to
its annual report filed on Form 10-K for the fiscal year ended April 30,
1998.
(8) Incorporated by reference herein. Filed by the Company as an exhibit to
its Registration Statement No. 333-67533 filed on Form S-8 on November 19,
1998.
(9) Incorporated by reference herein. Filed by the Company as an exhibit to
its annual report filed on Form 10-K for the fiscal year ended April 30,
1999.
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the fourth quarter of
the recently completed fiscal year.
66
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American Software, Inc.:
Under date of June 16, 2000, we reported on the consolidated balance sheets
of American Software, Inc. and subsidiaries as of April 30, 2000 and 1999, and
the related consolidated statements of operations, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended April 30, 2000, which are included in the April 30, 2000 annual
report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule included in the Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Atlanta, Georgia
June 16, 2000
67
SCHEDULE II
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED VALUATION ACCOUNTS
Years ended April 30, 2000, 1999, and 1998
Allowance for Doubtful Accounts
Additions
Balance at charged Balance
beginning to costs and at end
Year ended of year expenses Deductions(1) of year
---------- ---------- ------------ ------------- ----------
April 30, 1998.............. $1,181,771 $ 176,000 $ 135,771 $1,222,000
April 30, 1999.............. 1,222,000 1,880,000 1,384,000 1,718,000
April 30, 2000.............. 1,718,000 385,000 364,000 1,739,000
- --------
(1) Write-offs of accounts receivable.
Deferred Income Tax Valuation Allowance
Balance Additions
at Charged Balance
beginning to costs and at end
Year ended of year expenses Deductions of year
---------- --------- ------------ ---------- ---------
April 30, 1998................... 1,980,209 -- -- 1,980,209
April 30, 1999................... 1,980,209 4,416,000 -- 6,396,209
April 30, 2000................... 6,396,209 404,000 -- 6,800,209
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
American Software, Inc.
/s/ James C. Edenfield
By___________________________________
James C. Edenfield
President, Chief Executive
Officer, Treasurer and Director
Date: July 26, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James C. Edenfield President, Chief Executive July 26, 2000
______________________________________ Officer, Treasurer and
James C. Edenfield Director
/s/ Thomas L. Newberry Chairman of the Board of July 26, 2000
______________________________________ Directors
Thomas L. Newberry
/s/ David H. Gambrell Director July 26, 2000
______________________________________
David H. Gambrell
/s/ Thomas R. Williams Director July 26, 2000
______________________________________
Thomas R. Williams
/s/ Vincent C. Klinges Chief Financial Officer July 26, 2000
______________________________________
Vincent C. Klinges
/s/ Deirdre J. Lavender Controller and Principal July 26, 2000
______________________________________ Accounting Officer
Deirdre J. Lavender
69