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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]
For the fiscal year ended April 30, 2001
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
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Shares, $.10 Par Value
(Title of class)
----------------
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. [X]
At July 12, 2001, 18,697,107 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 12, 2001) of the Class A shares held by
nonaffiliates was approximately $28 million.
DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-K
1. 2001 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, 333-86141 and
333-44744 into Part IV.
4. Form 10-K's for fiscal years ended April 30, 1998, 1999 and 2000 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; developments in our
market and strategic focus; future economic, business and regulatory
conditions; strategic relationships; new products and product enhancements;
potential acquisitions and the integration of acquired businesses; and future
customer benefits attributable to our products and 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. Our 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., 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. Our software and
services are designed to bring business value to enterprises by supporting
their operations over intranets, extranets, client/servers or the Internet. We
launched our comprehensive suite of e-business solutions in December 1999,
positioning ourselves as a single source e-business solution provider.
References to "the Company," "our products," "our software," "our services" and
similar references include the appropriate business unit actually providing the
product or service.
We focus our e-business solutions in five major product and services groups:
(i) e-intelliprise, a fully web-based Enterprise Resource Planning (ERP)
solution that 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) offered
through the Logility subsidiary; (iv) e-services, comprehensive services to
support traditional and e-business solutions and ( v) e-hosting , Managed
Services Provider (MSP) services for American Software products offered 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. We also provide support for our 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 system that can be run
over the Internet or an intranet, extranet or traditional client/server. This
allows any function within the ERP system to be easily deployed over the
Internet using a dynamic role-based web page capability. Users no longer
require separate implementations to achieve differing e-business views 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 and logistical organizations. This system is built around a flexible
enterprise architecture that enables centralized management of enterprisewide
processes while allowing delegation of other business process decisions to
lower levels of the organization.
Flow Manufacturing is a software solution that supports pull-based
manufacturing. Many industry experts believe that Flow Manufacturing, also
referred to as Lean or Agile 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.
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American Software's e-applications are e-business solutions that can web-
enable specific business functions through integration with existing ERP or
legacy system. Currently, e-applications are available for the following
applications: procurement, store, expenses, forms, payables, receivables and
connect, a seamless, XML-enabled data exchange. We believe that these products
represent a cost-effective solution for customers with a focused e-business
requirement.
Logility, Inc., our approximately 85% owned subsidiary, is a leading
provider of e-Business solutions for business-to-business (B2B) collaborative
commerce that optimize internal and external value chain efficiencies of
manufacturers, suppliers, distributors, retailers and other organizations. 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 and includes demand chain, supply chain, logistics, warehouse
management and business-to-business process management for collaborative
relationships between customers, suppliers and carriers. Logility's 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. Logility Voyager Solutions(TM)
consists of an Internet-based, integrated software suite that provides advanced
supply chain management, including collaborative planning, supply chain
execution and collaborative 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, corporate Internet portals and public e-Business
trading exchanges.
AmQUEST, Inc., our wholly-owned subsidiary, is a managed services provider,
or MSP, which delivers a comprehensive suite of technology infrastructure
management services. These services provide monitoring and management of our
customers' computer and network systems on a local and remote basis. Our
managed services include Enterprise Monitoring System Administration, Network
Monitoring, and Hosting. We provide these services in complex system
environments where our customers can benefit from our value added technical
expertise and our 24x7x365 support. We are able to provide services for most of
the major hardware platforms, including leading servers, midrange, and
mainframe computing platforms. Our Network Operations Center, or NOC, which is
located in Atlanta, Georgia, and our direct access to the fiber optic networks
of Level 3 and Bell South, provide us with the capability to deliver our
managed services to a number of locations, including data centers operated by
colocation providers and customer locations, as well as our hosting center.
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 with 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
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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 ensure that the right products are
in the right place at the right time.
The Internet has emerged as a new medium for communicating, collaborating
and transacting business. The rapid growth of the Internet is challenging
corporate IT organizations with dynamic technology infrastructures, changing
business models, and staffing difficulties.
Products and Services
Our 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 95,
98 and 2000, and Windows NT. The products are written in various standard
programming languages utilized for business application software, including ANS
COBOL, Micro Focus COBOL, C, C++, Visual Basic, JAVA and other programming
languages. Many have both on-line and batch capabilities.
The following is a summary of our main software solutions:
ENTERPRISE SOLUTIONS SOFTWARE
Our enterprise solutions are comprehensive global solutions that link
critical functions throughout the enterprise. All of our enterprise solutions
support e-business functions.
e-intelliprise(TM) is 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. e-intelliprise 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
Application Service Provider (ASP) 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
4
Logistics Modules
Our logistics solution consists of an integrated system of modules that
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
. Replenishment Processing
. Requisition Management
. Inspection
Procurement
. e-Procurement
. Trading Portal
. Auction/Reverse Auction
. Blanket Purchasing
. Approval Routing
Customer Order Management
. E-Store
. Order Management
. Pricing & Promotions Management
. Shipping Management
. Billing Management
. Credit Control Processing
. Customer Management
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Financial Modules
Our 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 European Monetary Unit (EMU). The specific
applications available are:
General Ledger
. Chart of Accounts Processing
. Budgeting
. Journal Entry Processing
Accounts Payable
. e-Payables
. Voucher Entry Processing
. Payment Processing
Treasury
. Bank Reconciliation
. Cash Management
. Netting & Write-Offs
Accounts Receivable
. E-Receivables
. Collections Management
. Credit 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. Our 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 presented based upon the profile of the user.
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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 create multiple secure role-
based views of the system. We believe 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.
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 Application Service Provider (ASP) 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 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. Our 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. Our products utilize a modular design and a flexible
rules-based architecture, thereby streamlining implementation and reducing
project time and expenses. We have 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:
e-business support. To meet e-business demands, many manufacturers are
replacing traditional mass production methods with Flow Manufacturing
techniques. The benefits of Flow Manufacturing, including reduced cost and
reduced lead-time, offer more appropriate structure for responding to e-
business demands. With Flow Manufacturing, product is built on customer demand.
7
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. We believe this hybrid approach offers manufacturers
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 integration.
Rapid Deployment. Flow Manufacturing has a modular design, which we believe
streamlines implementation and allows 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's Windows-based interface and other tools and techniques
reduces training requirements and implementation tasks.
e-APPLICATIONS
e-applications streamline business processes and create competitive
advantage that helps businesses leverage the full value of their existing ERP
and legacy systems. Our e-applications provide added value by extending the
reach of the ERP to trading partners, establishing the groundwork for
collaborative trading.
Procurement. This self-service online procurement solution reduces the time,
cost and effort associated with "buy side" activities. This e-application can
also help an enterprise become more effient and productive by streamlining the
procurement process and eliminating purchasing bottlenecks, by streamlining
procurement, not only are purchasing delays eliminated, but enterprises are
positioned to respond faster to change and and to capitalize on e-bussiness
opportunities.
Store. This e-business storefront solution offers a cost-effective way to
expand an enterprise's market by providing around-the-clock access to web-based
ordering solution. Store acquires and retains customers', employees' and
distributors' access to catalog information, pricing, product availability and
order status.
Expenses. This paperless workflow solution enables employees to submit
expense reports via the Internet, documenting receipts via fax and merging
receipts and electronic documents. By giving employees access into expense
status at all stages of the processing cycle (routing, approval and payment)
and by supplying company management with a systemwide look into expense
behavior, the Expenses solution offers a new level of control over and
accountability for the expense of the function.
Forms. By providing the ability via e-mail to route specific forms like
requisition orders. We believe that forms offers an effective, easy-to-use
communication channel to external partners. We intend for forms to provide a
secure, self-service link between non-host users and purchasing, material
request, AP, AR, customer order processing and manufacturing systems. Using e-
mail, fax and XML/FTP gateways, this solution's workflow engine routes
documents from host applications. The review, approval and update loop uses
HTML formatting and receives instructions interactively.
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. We believe that this paperless method of
disbursement enables customers to cost-effectively transact business anywhere,
anytime.
Receivables. This solution is designed to supply account information online
to an enterprise's customers. The customers can remit payments online via
credit cards and Electronic Funds Transfer (EFT) anytime,
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anywhere in a secure enviroment. We believe that receivables can help improve
cash flow, reduce the cost of financing sales and, by automating routine tasks
such as customer queries, enable strategic focus on profit creation.
Connect. This solution is designed to enable the exchange of XML-enabled
data. Connect provides the link to extend ERP software to the Web and to enable
the Web to interact with the ERP software. Connect enables the interactive
communication between Web applications, marketplaces, trading exchanges,
suppliers, B2B transactions and the back office ERP systems.
LOGILITY VOYAGER SOLUTIONS AND SERVICES
Voyager Solutions are provided through Logility, Inc. We currently own
approximately 85% of the common stock of Logility, the remaining 15% being
publicly held.
Logility's Voyager Solutions is an e-Business 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 among 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 Collaborative
Planning, Forecasting and Replenishment (CPFR)-based collaborative commerce
within a web-based network of trading partners including suppliers,
manufacturers, retailers and customers. Logility Voyager Solutions are also
designed to power Internet-based trading exchanges, marketplaces and private
company portals. 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 Logility's software solutions and services include the
following:
e-Business Solution for End-to-End Supply Chain Management. Our Logility
Voyager Solutions provide functionality that addresses both the flow of
information and the flow of products throughout the supply chain. By
synchronizing our comprehensive planning software products with our
transportation and warehouse management software solutions, our 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 supply chain including collaboration with external trading partners.
Advanced Collaborative Planning and Supply Chain Execution
Functionality. Our products allow for collaboration among the various levels
within an organization and among external constituents (trading partners)
throughout the supply 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. Our collaborative planning functionality is further enhanced
with collaborative commerce tools such as Logility Voyager Collaborate(TM)
(formerly Logility Voyager XPS(TM), eXtensible Planning Solution), which
leverages Internet technology to facilitate information sharing directly with
trading partners. Voyager Collaborate supports the business processes and
practices defined in the VICS' CPFR guidelines, enabling B2B collaborative
commerce via the Internet between two or more trading partners. Complementing
Voyager Collaborate for supply chain planning is Logility Voyager Fulfill(TM)
(formerly Logility Voyager XES(TM), eXtensible Execution Solution) on the
supply chain execution side. Voyager Fulfill extends collaboration to
transportation and distribution center management trading partners. Through our
i-CommunitySM, 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 amongst warehouse, transportation and carrier trading partners.
Voyager Fulfill supports emerging industry standards for collaborative
transportation management.
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Comprehensive Planning Solution. Our planning solution is comprised of
demand, inventory, event, life cycle, replenishment, supply, manufacturing, and
transportation planning modules that balance demand opportunities with supply
constraints through the synchronization of information gathered from supply
chain participants. A key benefit of our planning solution components is its
emphasis on addressing the full range of complex demand planning requirements
of our customers, including comprehensive forecasting capabilities that take
into account each user's unique perspective of the supply chain. Additionally,
the solution implements and manages key business initiatives like profit
maximization or cost minimization, advancing traditional distribution resource
planning (DRP), and advanced planning systems (APS) by applying financial and
optimization capabilities to sourcing decisions, enabling companies with
complex supply chains to balance profits, costs, and service while
simultaneously considering all supply chain constraints.
Robust Supply Chain Execution Solution. The 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 to optimize
warehouse and transportation operations. During fiscal year 2001, Logility
introduced the industry's first Internet-based collaborative transportation
management solution, Voyager Fulfill, that incorporates the carrier in the
buyer/seller relationship to optimize order fulfillment, increase on-time
shipments, and provide greater visiblity of the status of customer orders.
Rapid Deployment. Our products utilize a modular design centered around
proven business processes to streamline implementation and accelerate
deployment. The comprehensive functionality of each module generally permits
customers to implement the solutions with nominal modifications. In addition,
our software combines sophisticated techniques and tools with intuitive,
Windows-and browser-based interfaces to reduce training requirements and
implementation tasks. The Logility i-Community provides a complete solution for
web-based networking of trading partners that facilitates collaboration with
suppliers, manufacturers, distributors, retailers and customers. The i-
Community allows trading partners to quickly access and leverage the Logility
Voyager Solutions suite and gain the benefits of e-Business via a hosted
deployment with a web-browser access.
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.
Product Features
Logility Voyager Solutions is 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
supply chain management resulting in both external and internal collaboration
to streamline the supply chain. These modules can be implemented individually,
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 UNIX AS/400 and Intel-based servers running
Windows NT/Windows 2000 on Oracle, Microsoft SQL Server 2000 and DB2 databases.
The following table summarizes our product line:
Module Features
------ --------
Supply Chain Collaborative Commerce
Logility Voyager Collaborate . VICS Collaborative Planning,
(formerly Logility Voyager XPS) Forecasting and Replenishment (CPFR)
compliant
. Collaborative planning with trading
partners (customers and suppliers)
. Configurable deployment
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Module Features
------ --------
. Open integration architecture supports
rapid integration with any forecasting
scenario
. Value Chain Workflow(TM)
. Exception-based management of business
conditions across the supply chain
. Deployable in both private and public
trading exchanges
Logility Voyager Fulfill . Collaborative warehouse and
(formerly Logility Voyager XES) transportation planning with trading
(suppliers, customers, and carriers)
. Configurable deployment
. Open integration architecture
. Value Chain Workflow(TM)
. Exception-based management of order
fulfillment business conditions
. Deployable in both private and public
trading exchanges
Logility Voyager Select(TM) . Optimizes transportation performance
and pricing for total landed cost
calculations
. Targets private and public trading
exchanges
. Extends order sourcing, procurement and
logistics offerings
Supply Chain Event Management
Logility Voyager Navigate(TM) . Provides supply chain event management
for increased visibility
. Exception-based management of the
supply chain
. Efficiently monitors, notifies,
controls and measures supply chain
performance
. Incorporates any Open Database
Connectivity (ODBC)-compliant data
source for an accuarate view of key
business conditions
Value Chain Strategy
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 Planning
Life Cycle Planning . Plans each phase of a products life
cycle from introduction, maturity,
replacement, substitution and
retirement
. Flexible demand profile definition
. Self-correcting model management
automatically reforecasts based on POS
data
. Exception-based management alerts users
of key business conditions
Demand Planning . Item and Group forecasting
. Self-selecting forecast models
. Personalized data views
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Module Features
------ --------
. Item stratification
. Product life cycle management with simulation
. Drag and drop data manipulation
Inventory Planning . Time-phased view of inventory
. Graphical simulations of inventory trade-off
. Views of dependent and independent demand
. Inventory management variables
Event Planning . Promotion planning
. Self-learning capabilities using artificial
intelligence
. Causal-based forecasting
. Promotion profitability simulations
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
Supply Chain Planning . 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
Supply Planning . Comprehensive constraint-based management of
sourcing process
. Supports business goals such as profit
maximization or cost minimization
. Provides available to promise (ATP), capable to
promise (CTP) and profitable to promise (PTP)
. Exception-based management of supply chain
conditions
Replenishment Planning . Supports continuous replenishment strategies
. Provides time-phased distribution requirements
planning
. Proactive action messages
. EDI integration
. ATP methodologies
. Multi-site sourcing and allocation
Transportation Planning . Load Control Center
. Shipment planning and consolidation
. Freight rating and routing
. Carrier selection
. Optimized inbound and outbound planning
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Module Features
------ --------
Supply Chain Execution
Transportation Management . Load tendering
. Shipment confirmation
. Freight audit and payment control
. Shipment documentation and tracking
WarehousePRO(R) . Customizable workflows and attributes
incorporate best-of-breed warehouse practices
. Directs all pick, pack, and ship activities
thorugh hand-held radio frequency devices
. User terminals support a variety of languages
. Dynamic label and report printing
. Integrated graphical user interface
Logility Voyager Solutions for B2B Collaborative Commerce
These e-Business applications allow companies to execute and manage
strategic trading partner relationships for direct material procurement,
logistics and customer order fulfillment over intranets, extranets or the
Internet.
Supply Chain Collaboration
Logility Voyager Collaborate enables companies to communicate easily and
share real-time information with trading partners by uniting suppliers,
manufacturers, distributors and retailers under the power of common goals,
common business processes and VICS Collaborative Planning, Forecasting and
Replenishment (CPFR) standards that eliminates traditional barriers among
trading partners. Voyager Collaborate is a completely CPFR-compliant
application that provides configurable deployment, scaleability, Microsoft-
centric architecture, open-integration architecture, value chain workflow and
an exception-based management of business conditions both within the enterprise
and across the supply chain network.
Logility Voyager Fulfill extends collaboration to transportation and
distribution center management trading partners to allow real-time information
sharing and collaboration between customers, suppliers and carriers to ensure
that customer orders are efficiently scheduled, executed and tracked for on-
time delivery. Voyager Fulfill is compliant with emerging collaborative
transportation management standards and provides configurable deployment,
scaleability, Microsoft-centric architecture, open-integration architecture,
value chain workflow and an exception-based management of business conditions.
Logility Voyager Select optimizes transportation performance and pricing for
private and public trading exchanges by enabling a total landed cost
calculation within order sourcing, procurement and logistics processes.
Supply Chain Event Management
Logility Voyager Navigate provides the benefits of Supply Chain Event
Management (SCEM) by allowing trading partners to efficiently monitor, notify,
control and measure supply chain processes on an exception basis, both within
the company and throughout the supply chain to improve the efficiency and
effectiveness of the overall operation.
13
Value Chain Strategy
The Value Chain Designer module provides a strategic view of the Supply
Chain Network. Companies can optimize location decisions, resource allocation,
customer assignment and transportation strategies to minimize costs or maximize
profitability.
Demand Chain Planning
These solutions provide the visibility to increase forecast accuracy by as
much as 40%. They create a comprehensive overview of demand. And with demand
patterns revealed, companies can build plans that are totally attuned to the
market.
Life Cycle Planning provides collaborative life cycle planning, enabling the
supply chain to effectively control each phase in a product's sunrise-to-sunset
cycle--including introduction, maturity, replacement, substitution and
retirement--to ensure that the right products are available at the point of
customer demand.
The Demand Planning module reconciles demand history, existing customer
orders, point-of-sale data, market forecasts and other information to generate
a graphical representation of demand by item, location, customer and/or group.
Demand Planning has an automatic self-correcting, self-selecting modeling
process that utilizes a number of advanced forecasting models to generate
sales, marketing, logistics and other forecasts. The system allows for user-
override of certain modeling parameters, such as quantities or percentages, to
account for promotions, supply constraints and other "what-if" scenarios.
The Inventory Planning module is designed to determine the optimal balance
between inventory and service levels. With extensive simulation capabilities,
Inventory Planning helps manufacturers and distributors reduce inventory costs
while meeting customer service requirements at the individual stock keeping
unit (SKU) level. Built around industry best practices, Inventory Planning can
enhance planning and scheduling of inventory while taking into consideration
replenishment frequency and order size, seasonal build and manufacturing plans.
Service level targets and policies can be applied individually to every product
within an enterprise or uniformly throughout the various product lines.
Event Planning is a causal-based forecasting solution designed to facilitate
product life-cycle management and promotion planning, and provide forecasting
capabilities to help determine the impact of promotions, price changes or other
events, enabling manufacturers to adjust production to match changing demand.
Event Planning utilizes advanced algorithms based on neural network techniques
that allow the system to refine forecasting by incorporating the results of
ongoing promotions and other activities.
Demand Chain Voyager. Through the use of the Internet, the Demand Chain
Voyager module extends the reach of Demand Planning by allowing remote users to
view corporate forecasts and to input demand data in real-time. Demand Chain
Voyager provides an online, updated schedule of events including promotions,
product launches and holidays. In addition, it allows for the revision of
inventory goals and objectives such as service levels and turns.
Supply Chain Planning
Logility offers superior support for optimizing assets, synchronizing
supply, and planning order fulfillment. With multiple and simultaneous sourcing
capabilities, supply issues and alternatives are immediately visible.
The Manufacturing Planning module is designed as a constraint-based planning
solution that balances manufacturing processes and resources with demand
priorities and corporate objectives. Manufacturing Planning models the
operations of a business by capturing capacity constraints such as equipment
capabilities, intermediate storage limitations, shop floor calendars and raw
material availability and production constraints such as synchronization of
multi-step operations, product sequencing, production changeovers and inventory
14
policies. Manufacturing Planning enables collaborative decision-making by
comparing the feasibility and cost effectiveness of various scheduling
strategies through the use of simulation.
Supply Planning supports sourcing options based on business goals such as
profit maximization or cost minimization, balances manufacturing constraints,
and applies advanced financial and optimization capabilities to sourcing
decisions. Supply Planning also enables companies with complex supply chains to
balance profits, costs, and service while simultaneously considering all supply
chain constraints to satisfy business requirements.
The Replenishment Planning module addresses the planning needs of an
organization to determine the optimal balance between customer service levels
and inventory. Replenishment Planning takes into account manufacturing
constraints, inventory investment, desired service levels, and current orders
and commitments. Features of Replenishment Planning include automatic detailed
item planning to balance delivery loads and orders, filtered order review, SKU
change simulation and constrained distribution requirements planning. The
benefits of Replenishment Planning include, among others, faster inventory
turns, optimized inventory levels and the ability to allocate customer orders
based on user-defined priorities. Replenishment Planning provides support for
continuous replenishment strategies, such as Vendor Managed Inventory, Quick
Response and Efficient Consumer Response.
The Transportation Planning module synchronizes transportation plans with
demand, inventory, manufacturing and replenishment strategies. Transportation
Planning consolidates shipments and determines the optimal transportation mode
and carrier while providing a list of alternatives. The solution includes a
Load Control Center that reviews all inbound, outbound and inter-facility
shipments and provides an integrated view of all orders requiring shipping
decisions. The product is designed to reduce freight costs, improve customer
service levels and increase responsiveness to customer requirements.
Supply Chain Execution
Logility provides capabilities for managing both inventory and
transportation with our Supply Chain Execution Solution. With these
applications, companies can systematically balance logistics strategies,
customer service policies, carrier effectiveness and inventory management.
Transportation Management facilitates the timely execution of the optimized
shipping plan developed by the Transportation Planning module. Load tendering
and shipment tracking are included via Electronic Data Interchange (EDI), e-
mail or automatic fax. The freight audit and payment capabilities enable
flexible reporting of landed cost by shipment, customer or product group. The
module is designed to reduce freight costs, improve carrier utilization and
provide comprehensive freight management reporting.
WarehousePRO incorporates advanced workflow technology, industry-specific
practices and radio frequency data collection terminals to optimize warehouse
operations. The software's object-oriented design allows users to define the
properties of specific items, locations, or processes, thereby reducing the
need for custom programming. The solution is highly flexible and can be
reconfigured by the user to adapt to changing business requirements.
WarehousePRO features an extensive workflow library of user-selected templates
incorporating industry-specific best-practice warehousing techniques. With
built-in standard interfaces to major radio frequency data collection systems,
the software delivers more accurate inventory accountability and improved
warehouse efficiency. WarehousePRO's performance analysis tools generate
graphical reports that illustrate productivity gains, warehouse efficiency and
inventory controls, enabling users to make real-time management decisions.
15
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 scaleable, high performance platform for hosted
business, e-commerce and multimedia applications. AmQUEST offers the following
three services:
. Complex 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, our 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. We
can handle our customers entire server and application needs, whereas
traditional hosting companies could only handle a portion of these needs.
Advanced Network Management/Monitoring Capabilities
The Network Operations Center (NOC) is monitored 24 hours a day, 365 days a
year by qualified, trained personnel. The NOC is equipped with advanced
monitoring tools, back-up power supplies, redundant network architecture and
standard security and fire protection measures. AmQUEST's center has been
audited by PricewaterhouseCoopers and has been certified SAS70 compliant.
AmQUEST 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, AmQuest 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 50
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
supports complex enterprise systems as well as NT and UNIX servers.
. Security Management
. System Backup
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. 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
. Frame Relay
. VPNs (Virtual Private Networks)
. Design and Implementation Support
. Network Operation Center Monitoring
. Security
Strategy
Our objective is to become the leading provider of enterprise-wide solutions
to mid-market distributors and manufacturers. Our strategy includes the
following key elements:
Leverage and Expand Installed Base of Customers. We currently target
businesses in the consumer goods, chemicals and pharmaceuticals, food and
beverage, and oil and gas industries. We intend to continue to leverage our
installed base of more than 700 customers to introduce additional
functionality, product upgrades, complementary modules, and application hosting
services. In addition, we intend to expand sales to new customers in our
existing vertical markets and to target additional vertical markets over time.
Continue to Expand Sales and Marketing. We intend to continue to pursue an
increased share of the market for value chain management software solutions by
expanding our sales and marketing activities. We intend to continue building a
direct sales force that is focused on selected vertical markets, such as
consumer goods manufacturers.
17
Maintain Technology Leadership. We believe that we are a technology leader
in the field of value chain management software solutions and intend to
continue to provide innovative, advanced solutions and services to this market.
We believe that we were 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. We intend to continue to
develop and introduce new or enhanced products and keep pace with technological
developments and emerging industry standards.
Implement E-Business Strategy. We have launched an e-Business initiative
that will enable us to build on current applications while moving toward total
Internet-based value chain management. Our 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,
we intend 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 ASP.
Focus on Integrated Planning and Logistics Execution Solution. We believe we
are 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. We are focusing on providing the most
comprehensive planning and execution solution aimed at optimizing operations
along the value chain. We intend to continue focusing our development
initiatives on enhancing our end-to-end solution and introducing additional
capabilities that complement an integrated solution.
Focus on MidMarket. We have 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 our historical customer profile,
and are prime candidates for the purchase and use of our unique full suite of
integrated products.
Increase Penetration of International Markets. In the fiscal year ended
April 30, 2001, we generated 10% of our total revenues from international sales
and established marketing relationships with a number of international
distributors. We intend to expand our 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. We intend to expand the depth and number of
strategic relationships with leading enterprise software, systems integrators
and e-commerce vendors. We have a number of varying marketing and/or product
relationships with ERP vendors, systems integrators and service organizations,
including Accenture, GERS Retail Systems, IBM, INSIGHT, Inc., JBA
International, Level3, March First, Microsoft, Microsoft Great Plains Business
Solutions (formerly Great Plains Software), Pitney Bowes, Ross Systems,
Tompkins Associates, and 3Plex. In addition, we have developed a network of
international agents who assist in the selling our products. We intend to
utilize these and future relationships with software and service organizations
to enhance our sales and marketing position.
Continue to Focus on Providing High Quality Customer Service. Providing high
quality customer service is a critical element of our strategy. We intend to
continue to invest in technology and personnel to accommodate the needs of our
growing customer base.
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Customers
We primarily target businesses in the consumer-packaged goods, chemicals,
pharmaceuticals, industrial products and other manufacturing industries. During
fiscal 2001, we provided software and services to approximately 700 customers.
No single customer accounted for 10% or greater of our revenues for the fiscal
year ended April 30, 2001. A sample of companies that have purchased one or
more of our products and services is as follows:
Consumer Chemicals, Oil & Gas, Manufacturing
Packaged Goods Pharmaceuticals and Others
-------------- --------------------- -------------
Ashley Furniture Beyschlag Centralab Component Appleton Paper
Aurora Foods BOC Distribution Services Corning Cable Systems
Bausch & Lomb Boots the Chemist Crown Crafts, Inc.
Bell Sports CITGO Dal-Tile Corporation
Broyhill Furniture Eastman Chemical Company Epson America, Inc
Canandaigua Wine Company Gulf Petrochemical Harley Davidson
ConAgra, Inc. Intesa HugoBoss
Eagle Family Foods Kaiser Foundation IBM/Synertech
Haverty Furniture Company Nordic Synthesis AB Koch Industries
Heineken USA Norton Chemical Komatsu America
L'Oreal USA Pharmacia & Upjohn Magneti Marelli
Maybelline, Inc. Phizer, Inc. Mercury Marine
McCormick & Company Sigma-Aldrich Corporation Mohawk Paper
Nestle France Solvay Pharmaceuticals Inc. Peugeot International
Sara Lee Knit Products Warner-Lambert Company Plastics, Inc.
Johnson Polymer Porsche Cars of North America, Inc.
Saks, Inc. Telecommunications Powerware Corporation
Seagram's ------------------ Newell Company
The Franklin Mint British Telecom Rand McNally & Company
The HoneyBaked Ham Co. GTE Raytheon Marine
Tiffany & Company Sprint PCS Reynolds Metals
Unilever Research Rheem Manufacturing
VF Corporation Utilities RJ Reynolds
Wickes Furniture --------- Robert Horne Paper Company
Alabama Gas Corporation Saks, Incorporated
Allegheny Power Corporation Siecor
Florida Power & Light Snap On, Incorporated
Saudi Consolidated Electric Sony Electronics
Texas Utilities Subaru of America, Inc.
Tyco Plastics and Adhesives
Union Camp
US Ceramic Tile
Wells/Bloomfield
WestPoint Stevens
Xpedx
19
Integrated System Design
While our 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 $1,200,000 or more for a multi-
module, multiple-user solution incorporating the full range of our products.
Customers frequently require services beyond those provided by our standard
support/maintenance agreement. To meet those customers' needs, we 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, our 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.
We sell our products directly to the end-user through our sales and presales
staff, which consists of 66 persons located in five areas worldwide: Mid U.S.
(13), Northeast U.S. (3), Southern U.S. (38), and Europe (12). 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. We obtain sales leads from advertising in
trade publications, participation in industry trade shows and exhibitions,
Company-conducted seminars, telemarketing activities and referrals from
existing customers.
In fiscal 2001, we continued our program to develop a network of sales
agents to support our sales internationally. These agents, along with a
designated Company-employed country manager, are establishing a national
presence for us in targeted countries throughout Latin America, Europe and the
Middle East.
The price for our 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 the fiscal year ended April 30, 2001, license fees
generally ranged from $50,000 to $1.2 million.
Licenses
Like many business application software firms, we typically enter into
license agreements that grant non-exclusive rights to use our products. Our
standard license agreements contain provisions designed to prevent disclosure
and unauthorized use of our software. These agreements warrant that our
products will function in accordance with the specifications set forth in our
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
We offer a full range of services that allow our customers to maximize the
benefits of our 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
20
operation. The user is normally entitled to telephone support for a period of
at least six months at no additional charge. Our software products are
continually enhanced and improved to accommodate technological changes and
other factors, which may affect the customer's information requirements. Our
services are priced separately, and fees for our services generally are not
included in the price of our software products. To receive maintenance and
enhancements from us after the initial period, customers must pay fees which
are based on the then-current price of the product.
As a part of our support service, we provide experienced application and
data processing personnel to answer telephone inquiries on a 24-hours-a-day,
seven days-a-week basis, and furnish consulting support in implementing and
maintaining our systems. In addition, training courses and documentation
materials are available to train personnel and update them on new system
features.
Research and Development
We are committed to the development and acquisition of new products and to
the continued enhancement of our existing products. During fiscal 2001, 2000,
and 1999, we expensed approximately $11,624,000, $9,675,000 and $11,511,000,
respectively, for research and development. In addition, we capitalized
$3,949,000, $10,446,000 and $10,902,000, in software development costs during
fiscal years 2001, 2000 and 1999, respectively, in accordance with the
Statement of Financial Accounting Standards No. 86. Our 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 $15,573,000,
$20,121,000 and $22,413,000 in fiscal years 2001, 2000 and 1999, respectively,
and represented 24%, 19% and 21%, respectively, of total revenues in those
years.
We believe that our client/server and Internet-based solutions, which
utilize the latest technologies, will be important for our long-term growth. As
of April 30, 2001, we employed 88 persons in research, development and
enhancement activities.
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, we compete 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 over thirty
firms that market midrange and client/server application software products are
significant competitors for one or more of our products. A number of these
competitors have significant worldwide presence, longer operating and product
development history and financial, marketing, management and technical
resources substantially greater than we do.
The primary markets for our software include manufacturers and distributors
in consumer packaged goods, food & beverage, chemicals, pharmaceuticals,
industrial products, and textiles, as well as retailers, wholesale
distributors, health & beauty care, public utilities and public transportation.
Our software and services operate 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.
We believe 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. We further believe that our software products and services are
competitive in these areas. Price considerations are a key factor and we
believe our pricing is competitive. We believe 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 us to expend significant development monies annually
to remain competitive in the marketplace.
21
Trademarks and Copyrights
We seek to protect our proprietary interest in software products and trade
secrets. We maintain 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, we
believe that they provide a deterrent to the use of information which may be
proprietary to us and in the event of any breach of such agreements, we intend
to take appropriate legal action. We also copyright our programs and software
documentation related to these programs. In addition, certain trademarks of
ours have been registered an others have registration applications pending.
Existing copyright laws afford only limited protection of our intellectual
property. Moreover, 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. Management
believes that the rapid technological change in the computer software industry
has made trade secret and copyright protection less significant than factors
such as the knowledge, ability and experience of our employees, frequent
software product enhancements and the timeliness and quality of our support
services.
Despite measures we have taken to protect our proprietary rights,
unauthorized parties may attempt to reverse engineer or copy aspects of our
products or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our products is difficult. In addition, litigation
may be necessary to enforce our intellectual property rights to the extent that
unauthorized parties may attempt to reverse engineer or copy aspects of our
products or obtain and use information that we regard as proprietary. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition.
In the future, we may increasingly be subject to claims of intellectual
property infringement as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segment
overlaps. There can be no assurance that third parties will not claim
infringement by us with respect to current or future products. Any such claims
against us, with or without merit, can be time consuming and expensive to
defend, prosecute or resolve. Moreover, an adverse outcome in litigation or
similar adversarial proceedings could subject us to significant liabilities to
third parties, require the expenditure of significant resources to develop non-
infringing technology, require a substantial amount of attention from
management, require disputed rights to be licensed from others, require us to
enter into royalty arrangements or require us to cease the marketing or use of
certain products, any of which could have a material adverse effect on our
business, operating results and financial condition. To the extent that we are
required to obtain licenses to patents or proprietary rights of others there
can be no assurance that any such licenses will remain acceptable to us, if at
all.
Employees
As of April 30, 2001, we had 444 full-time employees, including 88 in
product research, development and enhancement, 236 in customer support and
professional services, 79 in marketing, sales and sales support, and 41 in
accounting, facilities and administration. We believe that our continued
success will depend in part on our ability to continue to attract and retain
highly skilled technical, marketing and management personnel, who are in great
demand.
We have never had a work stoppage and no employees are represented under
collective bargaining arrangements. We consider our employee relations to be
excellent.
22
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 and written forward-looking
statements from time to time, in reports filed with the Securities and Exchange
Commission, and otherwise. 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 the 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 fiscal years ended April 30, 1999, 2000 and
2001 contained elsewhere in this Form 10-K.
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, both domestic and international,
characterized by decreased product demand, price erosion, technological
shifts, work slowdowns and layoffs, may substantially reduce customer
demand and 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 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; and
. the number, timing and significance of software product enhancements and
new software product announcements by us and by 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 transactions include both currently deliverable software products
and software products that are under development or other undeliverable
elements;
. whether the customer demands services that includes significant
modifications, customizations or complex interfaces that could delay
products delivery or acceptance;
23
. 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 contracting activity in prior quarters may
affect current and future consulting, training and maintenance service revenues
since these revenues typically follow license fee revenues. Our ability to
maintain or increase services 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.
There Is Intense Competition in Our 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;
. internal development efforts by Corporate Information Technology
departments.
. application hosting services vendors; and
. numerous other 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 prices and 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
application service providers, data center outsourcing and service bureaus as
viable alternatives to licensing our software products.
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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 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. 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. 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 Principal Stockholders May Control Our Management Decisions.
James C. Edenfield, Chief Executive Officer of the Company, and Thomas L.
Newberry, Chairman of the Board of Directors, own 100% of our outstanding Class
B common stock between them, giving them the right to elect a majority of the
Board of Directors. Current directors and executive officers as a group
beneficially own approximately 3.9% of our Class A common stock. Mr. Edenfield,
Dr. Newberry and members of their immediate families currently constitute four
of the eight members of the Board and, thus, have significant influence in
directing the actions of the Board of Directors.
The Impact of Changes in Global Economic Conditions on Our Customers May Cause
Us to Fail to Meet Expectations, Which Would Negatively Impact the Price of Our
Stock.
Our operating results can vary significantly based upon the effect of
changes in global economic conditions on our customers. In particular, the
current macro-economic environment is more uncertain than in recent periods and
has the potential to materially and adversely affect us. The revenue growth and
profitability of our business depends on the overall demand for computer
software and services, particularly in the areas in which we compete. Because
we sell primarily to major corporate customers whose businesses fluctuate with
general economic and business conditions, a softening of demand for computer
software caused by a weakening economy may result in decreased revenues and
lower growth rates. Because historically we have relied upon relatively large
license transactions, we may be especially prone to this risk. Customers may
defer or reconsider purchasing products if they experience a downturn in their
business or if there is a downturn in the general economy.
25
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.
Future Regulation of the Internet May Slow its Growth, Resulting in Decreased
Demand for Our Products and Services and Increased Costs of Doing Business.
Due to increasing popularity of the Internet, it is possible that state,
federal and international regulators could adopt laws and regulations that
impose additional burdens on companies conducting business online. For example,
the growth and development of the market for Internet-based services may prompt
calls for more stringent consumer protection laws. Moreover, the applicability
to the Internet of existing laws in various jurisdictions governing issues such
as property ownership, sales tax, libel and personal privacy is uncertain and
may take years to resolve. Any new legislation or regulation, the application
of laws and regulations from jurisdictions whose laws do not currently apply to
our business, or the application of existing laws and regulations to the
Internet and other online services could inhibit the expansion of the Internet,
causing our costs to increase and our growth to be harmed.
The Viability of Electronic Marketplaces Is Uncertain.
Electronic marketplaces that allow collaboration over the Internet among
trading partners are relatively new and unproven. There can be no assurance
that trading partners will adopt electronic marketplaces as a method of doing
business. Trading partners may fail to participate in electronic marketplaces
for a variety of reasons, including:
. concerns about the confidentiality of information provided electronically
to electronic marketplaces;
. the inability of technological advances to keep pace with the volume of
information processed by electronic marketplaces; and
. egulatory issues, including antitrust issues that may arise when trading
partners collaborate through electronic marketplaces.
Any of these factors could limit the growth of electronic marketplaces as an
accepted means of commerce. Slower growth or the abandonment of the electronic
marketplace concept in one or more industries could have a material adverse
effect on our results of operations and financial condition.
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 or acquisition 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 relationships 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
26
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.
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.
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) increase (or
decrease) the use of pricing that involves 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.
Recent Accounting Pronouncements Could Adversely Impact Our Profitability by
Delaying Some Revenue Recognition into Future Periods.
In recent years, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition;" SOP
98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition;" and SOP 98-9, "Modification of SOP 97-2, 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 98-4. SOP 98-9 was effective beginning January 1,
2000 and imposes significant new requirements such as establishing vendor-
specific objective evidence. We have changed certain business policies to meet
the requirements of SOP 98-9. The effect of the SOP 98-9 on our fiscal 2002
financial results is not presently determinable due to numerous factors,
including the actual implementation of such policies, specifically negotiated
exceptions to such policies, changes in market conditions and changes in
interpretations of the SOPs. However, we believe that SOP 98-9 may require
significantly more revenue to be deferred for certain types of transactions.
The American Institute of Certified Public Accountants has 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 and services. These changes may adversely
affect our business.
Our Continued Growth Depends Upon Our Ability to Build and Maintain Strategic
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 and the marketing of
our managed services and other services. 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
27
competition with us, or may otherwise discontinue their relationships with or
support of us. In addition, if these strategic 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.
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 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 sell our products;
. 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 database management systems. There may be future or existing
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 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, 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
. 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.
28
Implementation of Our Products Can Be Complex, Time-Consuming and Expensive and
Customers May Be Unable to Implement Our Products Successfully or Otherwise
Achieve the Benefits Attributable to Our Products.
Our products must integrate with the many existing computer systems and
software programs of our customers. This can be complex, time-consuming and
expensive, and may cause delays in the deployment of our products. Our
customers may be unable to implement our products successfully or otherwise
achieve the benefits attributable to our products.
Our Recent and Future Acquisitions May Not Be Successful.
We have in the recent past acquired and invested, 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 the use of the purchase method of
accounting in all new business acquisitions. 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
combinations of 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.
Our International Operations and Sales Subject Us to Risks Associated with
Unexpected Activities Outside of the United States.
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 locations within the United States. 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;
29
. 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;
. offering 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.
A number of our software releases contain 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.
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. 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. 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.
30
We May Experience Liability Claims Arising Out of the Licensing of Our Software
and Provision of Services.
Our agreements normally 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.
Concerns That Our Products Do Not Adequately Protect the Privacy of Consumers
Could Inhibit Sales of Our Products.
One of the features of our customer management software applications is the
ability to develop and maintain profiles of customers for use by businesses.
Typically, these products capture profile information when customers and
employees visit an Internet web-site and volunteer information in response to
survey questions concerning their backgrounds, interests and preferences. Our
products augment these profiles over time by collecting usage data. Although
our customer management products are designed to operate with applications that
protect user privacy, privacy concerns may nevertheless cause visitors to
resist providing the personal data necessary to support this profiling
capability. If we cannot adequately address customers' privacy concerns, these
concerns could seriously harm our business, financial condition and operating
results.
Increased Rate of Growth in Our Operations Could Increase Demands on Our
Managerial and Operational Resources.
If the rate of growth in the scope of our operating and financial systems
and the geographic distribution of our operations and customers increases
dramatically, it may increase demands on our management and operations. Our
officers and other key employees will need to implement and improve our
operational, customer support and financial control systems and effectively
expand, train and manage our employee base. Further, we may be required to
manage an increasing number of relationships with various customers and other
third parties. We may not be able to manage future expansion successfully, and
our inability to do so could harm our business, operating results and financial
condition.
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;
31
. 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 the managed services offered by AmQUEST has only recently
begun to develop, is evolving rapidly and is characterized by an
increasing number of market entrants. The market for managed services
offered by AmQUEST may not prove to be viable or, if it becomes viable,
may not continue to grow. If this market fails to develop, or develops
more slowly than expected, or if AmQUEST's services do not achieve market
acceptance, AmQUEST's business would be adversely affected. In
particular, AmQUEST has not yet determined the long-term impact on its
business of recent weakness in U.S. and international technology
industries. Because AmQUEST believes that companies in these industries
are strong candidates for its services, continued weakness in these
industries could have a material adverse effect on the business of
AmQUEST.
. The market for managed services offered by AmQUEST 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.
. Any damage to or failure of AmQUEST's systems or service providers caused
by human error, physical or electronic security breaches, power loss and
other facility failures, fire, earthquake, flood, telecommunications
failure, sabotage, vandalism and similar events could result in
reductions in, or terminations of, services to its customers, which could
negatively affect its revenue, cause it to lose customers or result in
litigation. AmQUEST seeks to protect its network infrastructure and
customers' equipment against such damage. Despite precautions it has
taken, however, a natural disaster or other unanticipated problems at
AmQUEST's Network Operation Center and other service provider locations
could result in interruptions in its services or significant damage to
customer equipment.
. Colocation providers have established colocation facilities in most major
cities in the U.S. Because AmQUEST anticipates that many customers
locating their computer equipment at those facilities will be attracted
to monitoring services such as those AmQUEST provides, AmQUEST is seeking
to build a direct sales force targeting these potential customers, as
well as its own customers that may wish to locate in those facilities. If
this new market fails to generate substantial revenues at attractive
margins, this source of business will not contribute to AmQUEST's future
profitability and, thus, AmQUEST's revenues and profitability would not
increase at a rate consistent with its goals and projections.
. The increased use of the Internet for retrieving, sharing and
transferring information among businesses and consumers has only recently
begun to develop. The increased demands that the Internet imposes on
large enterprises has been an important factor in the increased demand
for AmQUEST's managed services. Thus, AmQUEST's success will depend
largely on the continued growth in Internet usage. In addition, AmQUEST's
business plan anticipates extensive growth in the application hosting
markets, which complement AmQUEST's managed services. The growth of the
Internet, including the Web site
32
hosting and application hosting markets, is subject to a high level of
uncertainty and depends on a number of factors, including the growth in
consumer and business use of new interactive technologies, the development
of technologies that facilitate interactive communications, security
concerns and increases in data transport capacity. If the Internet as a
commercial medium fails to grow or develops more slowly than expected,
AmQUEST will not be able to develop its business as anticipated.
. AmQUEST relies on a number of public and private network interconnections
to allow its customers to connect to other networks. AmQUEST must
continue to expand and adapt its network arrangements to accommodate an
increasing amount of data traffic and changing customer requirements. If
the networks with which AmQUEST interconnects were to discontinue their
interconnections, and AmQUEST is unable to access alternative networks,
its ability to provide services to its customers would be significantly
constrained. Furthermore, AmQUEST's business will be harmed if these
networks do not add more bandwidth to accommodate increased traffic.
. The ability to provide secure transmissions of confidential information
over networks accessible to the public is a significant barrier to
electronic commerce and communications. A portion of AmQUEST's services
rely on security technology licensed from third parties. Despite a
variety of network measures that it has taken, AmQUEST cannot provide
assurance that unauthorized access, computer viruses, accidental or
intentional actions and other disruptions will not occur. In such an
event, AmQUEST could become liable to others and lose existing or
potential customers.
. Because AmQUEST's managed services are critical to many of its customers'
businesses, any significant interruption in AmQUEST's services could
result in lost profits or other indirect or consequential damages to its
customers. AmQUEST's customers are required to sign agreements that
incorporate its standard terms and conditions. Although these terms
disclaim AmQUEST's liability for any such damage, a customer could still
bring a lawsuit against AmQUEST claiming lost profits or other
consequential damages as the result of a service interruption or other
problems that the customer may ascribe to AmQUEST. If a court refuses to
enforce any limitations on AmQUEST's liability and the outcome of any
lawsuit is adverse to it, then AmQUEST could be required to pay a
judgment and significant costs.
. The adoption or modification of laws or regulations relating to the
Internet could adversely affect AmQUEST's business. Laws and regulations
passed in the United States and abroad that are directly applicable to
communications and commerce over the Internet are becoming more
prevalent. The law of the Internet, however, remains largely unsettled,
even in areas where there has been some legislative action. It may take
years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet.
AmQUEST provides services over the Internet in all states in the United
States and in many foreign countries, and it facilitates the activities
of its customers in these jurisdictions. The application of these
multiple sets of laws and regulations is uncertain, and AmQUEST could
find that it is subject to regulation, taxation, enforcement or other
liability in unexpected ways, which could materially adversely affect its
business.
ITEM 2. PROPERTIES
Our corporate headquarters are located in an approximately 100,000 square
foot office building that we own, at 470 East Paces Ferry Road, N.E., Atlanta,
Georgia.
We own a four-story 42,000 square foot building at 3110 Maple Drive, 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 in Atlanta, Georgia near
our headquarters. We also own a one-story 4,000 square foot building at 490
East Paces Ferry Road, Atlanta, Georgia, which we lease to a restaurant.
We lease 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 American
Software, are the sole
33
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.
We lease approximately 30,175 square feet of office space in the United
Kingdom. We have also 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.
We own a variety of electronic and computer equipment, including two
mainframe class computers, consisting of one IBM 9121 732, and one IBM 9221
150, and lease 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
We are 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 our recently completed fiscal year.
34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Trading Market
Our Class A Common Shares are listed on the Nasdaq Stock Market--National
Market under the symbol AMSWA. As of July 12, 2001, there were 9,185 holders of
record of Class A Common Shares, some of whom are holders in nominee name for
the benefit of different shareholders, and two holders of 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 (2001 and 2000).
High Low
---- ---
Fiscal Year 2001
First Quarter............................................... $ 8 1/2 $3 7/8
Second Quarter.............................................. 6 5/8 3 1/16
Third Quarter............................................... 3 1/2 1 3/8
Fourth Quarter.............................................. 2 7/16 1 1/8
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
Dividends
No dividends were paid on our 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 our profitability, financial
condition, cash requirements, future prospects and other factors deemed
relevant by the Board of Directors.
Transfer Agent
First Union National Bank
Equity Services Group
1525 West W.T. Harris Blvd, 3C3
Charlotte, NC 28288
Phone: (800)829-8432
www.firstunion.com/corptrust
Inquiries regarding stock transfers, lost certificates or address changes
should be directed to the above address.
35
Market Makers
The following firms make a market in the common shares of American Software,
Inc:
Cantor, Fitzgerald & Co. Schwab Capital Markets
Fleet Trading/Div Fleet Secs. Sherwood Securities Corp.
Gruntal & Co. Incorporated Spear, Leeds & Kellogg
Herzog, Heine, Geduld, Inc. The Robinson Humphrey Co.
Jefferies & Company, Inc. Wachovia Securities
Knight Securities L.P. Wien Securities Corp.
36
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected combined financial data presented below for the years ended
April 30, 2001, 2000, 1999, 1998, and 1997 are derived from our audited
combined financial statements.
Years Ended April 30,
--------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(In thousands, except per share amounts)
Combined Statements of
Operations Data:
Revenues
Licenses.............. $ 12,778 $ 20,572 $ 19,602 $ 33,548 $ 30,106
Services.............. 52,064 59,740 63,572 50,090 32,595
Maintenance........... 23,865 25,198 26,003 23,834 22,010
----------- ----------- ----------- ----------- -----------
Total revenues...... 88,707 105,510 109,177 107,472 84,711
----------- ----------- ----------- ----------- -----------
Cost of Revenues:
Licenses.............. 5,681 5,177 8,254 8,182 6,754
Services.............. 44,289 45,999 45,344 33,439 27,410
Maintenance........... 5,225 9,750 10,337 7,642 7,972
----------- ----------- ----------- ----------- -----------
Total cost of
revenues........... 55,195 60,926 63,935 49,263 42,136
----------- ----------- ----------- ----------- -----------
Gross Margin............ 33,512 44,584 45,242 58,209 42,575
Operating expenses:
Research and
development.......... 11,624 9,675 11,511 12,112 7,343
Sales and marketing... 22,588 23,985 28,859 25,915 20,811
General and
administrative....... 13,555 13,365 14,427 11,354 11,970
Provision for doubtful
accounts............. 1,627 385 1,880 176 770
Charge for asset
impairment........... 10,458 -- 26,563 -- --
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 59,852 47,410 83,240 49,557 40,894
----------- ----------- ----------- ----------- -----------
Operating earnings
(loss)................. (26,340) (2,826) (37,998) 8,652 1,681
Other income, net....... 1,342 1,734 3,415 3,791 1,744
----------- ----------- ----------- ----------- -----------
Earnings (loss) before
income taxes........... (24,998) (1,092) (34,583) 12,443 3,425
Income tax expense
(benefit).............. (2,418) 150 (1,766) 4,648 1,093
----------- ----------- ----------- ----------- -----------
Net earnings (loss)..... $ (22,580) $ (1,242) $ (32,817) $ 7,795 $ 2,332
=========== =========== =========== =========== ===========
Net earnings (loss) per
common share--Basic ... $ (.99) $ (.06) $ (1.48) $ .34 $ .10
Diluted................. $ (.99) $ (.06) $ (1.48) $ .32 $ .10
Weighted average common
shares--Basic.......... 22,730,101 21,721,636 22,230,656 22,667,283 22,353,192
Diluted................. 22,730,101 21,721,636 22,230,656 24,414,515 23,525,532
April 30,
--------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(In thousands, except per share amounts)
Combined Balance Sheet
Data:
Cash and cash
equivalents............ $ 10,057 $ 12,910 $ 21,567 $ 14,466 $ 7,579
Investments............. $ 21,044 $ 31,335 $ 27,297 $ 45,757 $ 16,827
Working capital......... $ 15,601 $ 23,204 $ 34,881 $ 63,263 $ 21,492
Total assets............ $ 82,067 $ 113,047 $ 109,736 $ 142,656 $ 99,509
Total long term lease
obligation and debt.... $ 1,045 $ 907 $ 1,700 $ 776 $ 1,157
Shareholders' equity.... $ 47,851 $ 69,706 $ 67,197 $ 100,810 $ 67,152
37
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.
We develop, market, and support 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. We offer professional services to
our customers in support of our products and third-party products. These
services include project management, implementation, product education,
technical consulting, programming, system integration, network management and
maintenance and support.
Our 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. We recognize 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.
38
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, 2001, 2000,
and 1999 and the percentage increases and decreases in those items for the
years ended April 30, 2001 and 2000:
Percentage of Pct. Change
Total Revenues In Dollars
------------------ -------------------------
2001 2000 1999 2001 vs 2000 2000 vs 1999
---- ---- ---- ------------ ------------
Revenues:
License fees.............. 14 % 19 % 18 % (38)% 5 %
Services.................. 59 57 58 (13) (6)
Maintenance............... 27 24 24 (5) (3)
--- --- --- ----- ---
Total revenues.......... 100 100 100 (16) (3)
--- --- --- ----- ---
Cost of revenues:
License fees.............. 6 5 8 10 (37)
Services.................. 50 44 42 (4) 1
Maintenance............... 6 9 9 (46) (6)
--- --- --- ----- ---
Total cost of revenues.. 62 58 59 (9) (5)
--- --- --- ----- ---
Gross margin ............... 38 42 41 (25) (1)
--- --- --- ----- ---
Operating expenses:
Research and development
cost, net................ 14 9 11 20 (16)
Marketing and sales....... 25 23 26 (6) (17)
General and
administrative........... 13 13 13 1 (7)
Provision for doubtful
accounts................. 2 nm 2 323 (79)
Charge for asset
impairment and purchased
R&D...................... 12 -- 24 nm nm
--- --- --- ----- ---
Total operating
expenses............... 67 45 76 26 (43)
--- --- --- ----- ---
Operating earnings
(loss)................. (30) (3) (35) (832) (93)
Other income, net......... 1 2 3 (23) (49)
--- --- --- ----- ---
Earnings (loss) before
income taxes........... (28) (1) (32) (2189) (97)
Income taxes.............. (3) nm (2) nm nm
--- --- --- ----- ---
Net earnings (loss)..... (25)% (1)% (30)% (1918)% (96)%
=== === === ===== ===
--------
nm--not meaningful
GENERAL MARKET CONDITIONS:
The weakness in the overall economy has resulted in delayed purchases of our
software during fiscal year 2001. As a result of these economic conditions and
increased competition in the ERP area, we restructured our business in the
first half of fiscal 2001 in order to become profitable, which we achieved in
the fourth quarter of fiscal 2001. The restructuring resulted in the write-off
of certain capitalized software development costs in the amount of $9.5 million
and severance costs of approximately $970,000.
Fiscal Years Ended April 30, 2001 and 2000:
Revenues:
Our total revenues decreased 16% to $88.7 million in the fiscal year ended
April 30, 2001 from $105.5 million in the fiscal year ended April 30, 2000.
This decrease was primarily due to a decrease in license fee
39
revenues as well as a decline in implementation and training services.
International revenues represented approximately 10% of total revenues in the
year ended April 30, 2001 and 7% of total revenues in the year ended April 30,
2000.
Software Licenses. Our license fee revenues decreased 38% in the fiscal year
ended April 30, 2001 to $12.8 million compared to $20.6 million in the prior
year. This decrease was primarily due to a 36% decrease in license fees for the
software products of our 85% owned subsidiary, Logility. The Logility license
fee revenues decreased to $ 8.6 million in the fiscal year ended April 30, 2001
compared to $13.5 million in the prior fiscal year. This decrease was due to
the general slowing in economic conditions and transition and restructuring
within our executive sales management team, which has since been completed.
Logility software product sales constituted approximately 68% of license fees
in fiscal 2001 and 66% of license fee revenues in fiscal 2000. Software
revenues have fluctuated and we expect them to continue to fluctuate based on
competition, demand for our products and other factors.
Services. Services revenues, which consist primarily of consulting,
implementation, training and network management services, decreased 13% to
$52.1 million in fiscal year 2001 from $59.7 million in fiscal year 2000. This
decrease was primarily a result of a reduction in new consulting and
implementation projects due to lower prior period license fee sales. Due to the
decrease in new projects for the ERP area, a reduction in services personnel
occurred during the twelve-month period as part of our restructuring efforts.
Services revenues for Logility constituted 18% of total services revenues, for
the twelve months ended April 30, 2001 and constituted 16% of total services
revenues for the twelve months ended April 30, 2000. Services revenues for
AmQUEST constituted 34% of total services revenue for the twelve months ended
April 30, 2001 and 31% of total services revenue for the twelve months ended
April 30, 2000. Services revenues constituted 59% of total revenues in fiscal
year 2001 and 57% of total revenues in fiscal year 2000. 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 ongoing product enhancements provided to customers who license
our products and purchase maintenance agreements, decreased 5% to $23.9 million
in fiscal year 2001 compared to $25.2 million in fiscal year 2000. This
decrease was due primarily to the lower ERP license fee revenues. Maintenance
revenues have a direct relationship to current and historic license fee
revenues, since licenses are the source of potential new maintenance customers,
as well as renewals for maintenance services; accordingly, maintenance revenues
will fluctuate on the basis of new license sales and renewal rates. Maintenance
revenues constituted 27% of total revenues in fiscal year ended April 30, 2001
and 24% of total revenues in fiscal year ended April 30, 2000.
Gross Margin:
Total gross margin in fiscal 2001 was 38% compared to 42% in the prior
fiscal year. This decrease was primarily due to the decrease of license fee
margin to 56% in fiscal 2001 compared to 75% in fiscal 2000, as a result of
lower license fee sales and the relatively fixed amount of amortization expense
on capitalized software, which made up the largest component of cost of license
fees during fiscal 2001. We are continually developing software enhancements
and new products. We will monitor the market acceptance of these new products.
Services gross margin decreased to 15% in fiscal 2001 from 23% in the prior
year due mainly to the higher margin services work related to the "Year 2000"
remediation being performed in the first and second quarters of fiscal year
2000 compared to the lower margin services work that we performed in fiscal
year 2001 and the second half of fiscal year 2000. Maintenance gross margin
increased to 78% in fiscal 2001 compared to 61% in fiscal year 2000. This
increase was primarily due to the increased maintenance revenues of Logility
and the cost management efforts by the ERP area that we began in the prior
fiscal year.
40
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 for the two most recent fiscal years is as
follows:
Years Ended (000's
omitted)
-------------------------
April April
30, Percent 30,
2001 Change 2000
------- ------- -------
Gross product development costs................ $15,573 (23)% $20,121
Percentage of total revenues................. 18 % 19 %
Less: capitalized development.................. (3,949) (62)% (10,446)
Percentage of gross product development
costs....................................... 26 % 52 %
------- --- -------
Product development expenses................... $11,624 20 % $ 9,675
Percentage of total revenues................. 14 % 9 %
Gross product development costs decreased 23% in fiscal 2001 compared to
fiscal 2000 as a result of cost reduction efforts in response to lower license
fees. Capitalized development decreased by 62% from a year ago, while the rate
of capitalized development decreased to 26% from 52% in fiscal year 2000 due to
cost reduction efforts, as well as the reduction in capitalized projects.
Product development expenses as a percentage of total revenues increased to 14%
in fiscal year 2001 compared to 9% in fiscal year 2000 primarily as a result of
the decrease in total revenues and the reduction in capitalized development
costs.
Sales and Marketing. Sales and marketing expenses decreased 6% in the fiscal
year ended April 30, 2001 as a result of cost containment and restructuring
efforts that occurred during the current year. Sales and marketing expenses as
a percentage of total revenues increased to 25% for fiscal year 2001 when
compared to 23% for fiscal year 2000. This increase is due to the reduced
revenues in the current year.
General and Administrative. General and administrative expenses remained
relatively constant at $13.6 million in fiscal year 2001 compared to $13.4
million during the same period in the prior year.
Provision for Doubtful Accounts. For the twelve months ended April 30, 2001
we incurred a charge for doubtful accounts of $1.6 million compared to $385,000
in fiscal year 2000. The current year charge was a result of difficult customer
collections of Internet-related businesses and the overall weakness in the
economy.
Charge for Asset Impairment and Restructuring. For the twelve months ended
April 30, 2001, we incurred a charge against earnings of $10.5 million. This
charge was a result of the write-off of certain capitalized software
development costs in the amount of $9.5 million, and a restructuring charge of
$970,000. These charges were primarily a result of lower than anticipated sales
of our ERP products in recent periods. We believe the charge for the asset
impairment will bring the amount of capitalized software in line with the
revised forecasts of future ERP sales. The restructuring charge is the result
of severance expenses for approximately 110 employees in Sales, Marketing,
Services and Research and Development. Included in the $970,000 was a non-cash
charge of approximately $270,000 related to the accelerated vesting of stock
options for the severed employees.
Other Income/Minority Interest. Other income is comprised predominantly of
interest income, gains and losses from sales of investments and changes in the
market value of investments. Other income decreased to $1.3 million for the
twelve months, ended April 30, 2001 compared to $1.7 million for the same
period a year ago, primarily due to a reduction in invested assets related to
the write down of certain investments in early stage companies and a reduction
in rates of return. Minority interest income (loss) is an adjusting entry based
on our subsidiaries' earnings (loss). Minority interest income was $914,000 for
the twelve months, ended April 30, 2001 compared to a loss of $261,000 for the
same period a year ago. This increase is primarily related to Logility's losses
in the current fiscal year, compared to Logility's earnings in the prior year.
41
Income Taxes. For the twelve months ended April 30, 2001, we recorded an
income tax benefit of $2.4 million as a result of an income tax refund in the
amount of $705,000 and a reduction in income tax liability in the amount of
$1.7 million based on current estimates of future tax liabilities based on the
conclusion of an Internal Revenue Service audit. In the prior year income tax
expense in the amount of $150,000 was recorded based on an estimate for our tax
liability for fiscal year 2000.
Fiscal Years Ended April 30, 2000 and 1999:
Revenues:
Our 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% of total revenue in the fiscal year ended April 30, 2000 and
10% of total revenues in the fiscal year ended April 30, 1999.
Software Licenses. Our 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 of our 85%-owned Logility subsidiary, partially
offset by a 14% 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% of license fee
revenues in fiscal 2000 and 58% of license fee revenues in fiscal 1999.
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% of total revenues
in fiscal 2000 and 58% of total revenues in fiscal 1999.
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. Maintenance revenues constituted 24% of total revenues in both in the
fiscal year ended April 30, 2000 and the fiscal year ended April 30, 1999.
Gross Margin:
Total gross margin in fiscal 2000 was 42% compared to 41% in the prior year.
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. 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.
42
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 in fiscal 2000 and fiscal 1999 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 product development
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 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 was 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 9% in
fiscal year 2000 compared to 11% in fiscal year 1999. The net product
development expenses decreased 16% due to the cost containment efforts that
were begun in fiscal 1999.
Sales and Marketing. Sales and marketing expenses decreased 17% in fiscal
year ended April 30, 2000 as a result of cost containment. 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.
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 our reduction in
leased facilities and cost management policies that were put in place during
the 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 our subsidiaries' earnings. Other income
decreased 50% to $1.7 million due primarily to the change in minority interest.
The decrease is also due to a lower average cash investment balance during the
year.
Income Taxes. There was no effective income tax rate in fiscal year 2000
compared to 5% of pretax income in fiscal year 1999.
Operating Pattern
We experience 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 and our ability to
recognize revenues in that quarter in accordance with our revenue recognition
policies. We expect this pattern to continue.
43
Liquidity And Capital Resources
The following table shows information about our cash flows during the fiscal
years ended April 30, 2001 and April 30, 2000. You should read this table and
the discussion that follows in conjunction with our consolidated statements of
cash flows.
Twelve Months Ended
April 30,
---------------------
2001 2000
--------- ----------
Net cash provided by operating activities before
Changes in operating assets and liabilities........ (2,340) 9,084
Increase in operating assets and liabilities........ 2,018 4,695
--------- ----------
Net cash provided by operating activities........... (322) 13,779
Net cash provided by (used for) investing
activities......................................... (896) (22,393)
Net cash provided by (used for) financing
activities......................................... (1,635) (43)
--------- ----------
Net (decrease) increase in cash and cash
equivalents...................................... (2,853) (8,657)
========= ==========
We fund our operations and capital expenditures primarily with cash
generated from operating activities. The changes in net cash used for operating
activities generally reflect the changes in net income and non-cash operating
items plus the effect of changes in operating assets and liabilities,
especially trading securities, trade accounts receivable, trade accounts
payable, accrued expenses and deferred revenue.
Our operating activities used cash of approximately $322,000 for the year
ended April 30, 2001, and provided cash of approximately $13.8 million in the
fiscal year ended April 30, 2000. Operating cash flows decreased for the period
primarily because the net loss for the period and the net changes in operating
assets and liabilities, such as trade accounts payable and deferred revenue,
and were only partially offset by non-cash operating items, such as charges for
asset impairment, depreciation and amortization and provisions for doubtful
accounts.
Cash used in investing activities was approximately $896,000 and $22.4
million for the years ended April 30, 2001 and 2000, respectively. Investing
cash flows increased for the period primarily because additions to capitalized
software development was $3.9 million in the current period, compared to $10.5
in the same prior year period. In addition, there were sales of short term
investments in the amount of $5.8 million for the fiscal year ended April 30,
2001 compared to purchases of investments in the amount of $7.1 million in the
corresponding prior year period.
Cash used in financing activities was approximately $1.6 million for the
fiscal year ended April 30, 2001 and $43,000 for the fiscal year ended April
30, 2000. Financing cash flows decreased for the period primarily because there
was no repurchase of common stock during the fiscal year ended April 30, 2001
and there were repurchases of common stock in the prior year period of $1.3
million. In addition, proceeds from exercise of stock options were $396,000 in
the current fiscal period, compared to $4.4 million in the prior year period.
Days Sales Outstanding in accounts receivable were 70 days both as of April
30, 2001 and as of April 30, 2000.
5Our current ratio was 1.6 to 1 and cash and investments totaled 38% of
total assets at April 30, 2001 compared to a current ratio of 1.7 to 1 and cash
and investments totaling 39% of total assets at April 30, 2000. Our principal
sources of liquidity are our cash and investments, which totaled approximately
$31.1 million at April 30, 2001. We believe that our sources of liquidity and
capital resources will be sufficient to satisfy our presently anticipated
requirements during at least the next twelve months for working capital,
capital expenditures and other corporate needs. However, we may need to seek
additional sources of capital to meet our requirements, either through equity
or debt financing. We do 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 us. If available, such financing may result in further
dilution to our shareholders and higher interest expense.
44
On December 18, 1997, our Board of Directors approved a resolution
authorizing the Company to repurchase up to 1.5 million shares of our Class A
common stock. On March 11, 1999, our Board of Directors approved a resolution
authorizing us to repurchase an additional 700,000 shares for a total of up to
2.2 million shares of our Class A common stock. These repurchases have been and
will be made through open market purchases at prevailing market prices. The
timing of any repurchases will depend upon market conditions, the market price
of our common stock and management's assessment of our liquidity and cash flow
needs. As of April 30, 2001, we have repurchased approximately 1.6 million
shares of common stock at a cost of approximately $5.6 million.
On December 15, 1997, Logility's Board of Directors approved a resolution
authorizing it to repurchase up to 350,000 shares of its common stock through
open market purchases at prevailing market prices. Logility completed this
repurchase plan in November 1998, at which time Logility adopted an additional
repurchase plan for up to 800,000 shares. The timing of any repurchases depends
on market conditions, the market price of Logility's common stock an
management's assessment of its liquidity and cash flow needs. For both plans,
through July 6, 2001, Logility had repurchased a cumulative total of 631,700
shares at a total cost of $4.5 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Foreign Currency. In the fiscal year ended April 30, 2001, the Company
generated 10% of its revenues outside the United States. International sales
usually are made by our foreign subsidiaries or our Logility subsidiary 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 us in fiscal
2001 was not material.
Interest rates and other market risks. We manage our 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 our Board of
Directors. These instruments are denominated in U.S. dollars. The fair market
value of securities as of April 30, 2001 was approximately $21 million.
Interest income on our investments is carried in "Other income/(expense)."
We also hold 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 our investments carry a degree of interest rate risk. When interest
rates fall, our income from investments in variable-rate securities declines.
When interest rates rise, the fair market value of our investments in fixed-
rate securities declines. In addition, our investments in equity securities are
subject to stock market volatility. Due in part to these factors, our future
investment income may fall short of expectations or we may suffer losses in
principal if forced to sell securities, which have seen a decline in market
value due to changes in interest rates. We attempt to mitigate risk by holding
fixed-rate securities to maturity, but, if our liquidity needs force us to sell
fixed-rate securities prior to maturity, we may experience a loss of principal.
We believe that a 10% fluctuation in interest rates would not have a material
effect on our accompanying statement of operations.
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."
45
Statement No. 138 will be effective for the Company beginning May 1, 2001.
Statement No.138 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.
We have not invested in derivative instruments nor participated in hedging
activities and, accordingly there was no impact on the results of operations or
financial position from the adoption of Statement No 133.
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. These factors include, but are not limited to, changes
in general economic conditions, technology and the market for our products and
services, including economic conditions within the e-commerce markets, the
timely availability and market acceptance of these products and services, the
effect of competitive products and pricing, the continued viability and
effectiveness of strategic alliances, and the irregular pattern of our
revenues, as well as a number of other risk factors that could affect our
future performance.
46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated Balance Sheets as of April 30, 2001 and 2000................. 48
Consolidated Statements of Operations for the Years ended April 30, 2001,
2000 and 1999............................................................ 49
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the Years ended April 30, 2001, 2000 and 1999........................ 50
Consolidated Statements of Cash Flows for the Years ended April 30, 2001,
2000 and 1999............................................................ 51
Notes to the Consolidated Financial Statements............................ 52
Independent Auditors' Report.............................................. 69
47
AMERICAN SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
April 30, 2001 and 2000
2001 2000
-------- --------
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 10,057 $ 12,910
Investments--current..................................... 15,118 21,457
Trade accounts receivable, less allowance for doubtful
accounts of $1,656 in 2001 and $1,739 in 2000:
Billed................................................. 12,303 15,233
Unbilled............................................... 3,321 5,143
Deferred income taxes.................................... 1,280 1,975
Prepaid expenses and other current assets................ 1,579 2,099
-------- --------
Total current assets................................. 43,658 58,817
Investments--noncurrent.................................... 5,926 9,878
Property and equipment, less accumulated depreciation...... 16,842 18,614
Intangible assets, less accumulated amortization........... 13,913 23,391
Other assets............................................... 1,728 2,347
-------- --------
$ 82,067 $113,047
======== ========
LIABILITIES AND SHAREHOLDER' EQUITY
-----------------------------------
Current liabilities:
Current portion of obligations under capital leases...... $ 1,587 $ 1,493
Accounts payable......................................... 2,658 3,505
Accrued compensation and related costs................... 3,523 4,545
Income tax payable....................................... 1,126 3,122
Other current liabilities................................ 5,530 7,012
Deferred revenue......................................... 13,633 15,936
-------- --------
Total current liabilities............................ 28,057 35,613
Obligations under capital leases, net of current portion... 1,045 907
Deferred income taxes...................................... 1,280 1,975
-------- --------
Total liabilities.................................... 30,382 38,495
-------- --------
Minority interest.......................................... 3,834 4,846
Shareholders' equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000 shares;
issued 21,622,290 shares in 2001 and 21,476,284 shares
in 2000............................................... 2,162 2,148
Class B, $.10 par value. Authorized 10,000,000 shares;
issued and outstanding 4,082,289 shares in 2001 and
4,086,289 shares in 2000; convertible into Class A
shares on a one-for-one basis......................... 409 409
Additional paid-in capital............................. 65,956 65,241
Other comprehensive income............................. 243 247
Retained earnings (accumulated deficit)................ (3,415) 19,165
Class A treasury stock, 2,925,188 shares as of April
30, 2001 and 2000..................................... (17,504) (17,504)
-------- --------
Total shareholders' equity........................... 47,851 69,706
Commitments and contingencies..............................
-------- --------
$ 82,067 $113,047
======== ========
See accompanying notes to consolidated financial statements.
48
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Years ended April 30, 2001, 2000, and 1999
2001 2000 1999
----------- ---------- ----------
Revenues:
License fees........................... $ 12,778 20,572 19,602
Services............................... 52,064 59,740 63,572
Maintenance............................ 23,865 25,198 26,003
----------- ---------- ----------
Total revenues....................... 88,707 105,510 109,177
----------- ---------- ----------
Cost of revenues:
License fees........................... 5,681 5,177 8,254
Services............................... 44,289 45,999 45,344
Maintenance............................ 5,225 9,750 10,337
----------- ---------- ----------
Total cost of revenues............... 55,195 60,926 63,935
----------- ---------- ----------
Research and development costs........... 15,573 20,121 22,413
Less capitalizable software.............. (3,949) (10,446) (10,902)
Marketing and sales expense.............. 22,588 23,985 28,859
General and administrative expenses...... 13,555 13,365 14,427
Provision for doubtful accounts.......... 1,627 385 1,880
Charge for asset impairment, purchased
R&D, and restructuring.................. 10,458 -- 26,563
----------- ---------- ----------
Operating loss........................... (26,340) (2,826) (37,998)
Other income (expense):
Interest income........................ 1,993 2,135 2,094
Minority interest...................... 914 (261) 1,396
Other, net............................. (1,565) (140) (75)
----------- ---------- ----------
Loss before income taxes................. (24,998) (1,092) (34,583)
Income tax (benefit) expense............. (2,418) 150 (1,766)
----------- ---------- ----------
Net loss................................. $ (22,580) (1,242) (32,817)
=========== ========== ==========
Net earnings (loss) per common share:
Basic.................................. $ (0.99) (0.06) (1.48)
=========== ========== ==========
Diluted................................ $ (0.99) (0.06) (1.48)
=========== ========== ==========
Shares used in the calculation of net
earnings (loss) per common share:
Basic.................................. 22,730,101 21,701,669 22,230,656
=========== ========== ==========
Diluted................................ 22,730,101 21,701,669 22,230,656
=========== ========== ==========
See accompanying notes to consolidated financial statements.
49
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years ended April 30, 2001, 2000, and 1999
Common stock
----------------------------------------- Accumulated Retained
Class A Class B Additional other earnings Total
--------------------- ------------------- paid-in comprehensive (accumulated Treasury shareholders'
Shares Amount Shares Amount capital income deficit) stock equity
---------- ---------- --------- -------- ---------- ------------- ------------ ----------- -------------
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 1998....
---------- ---------- --------- -------- ---------- ------- ----------- ----------- -----------
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 1999....
---------- ---------- --------- -------- ---------- ------- ----------- ----------- -----------
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
Proceeds from
stock options
exercised...... 125,398 12,540 -- -- 383,127 -- -- -- 395,667
Conversion of
Class B shares
into Class A
shares......... 4,000 400 (4,000) (400) -- -- -- -- --
Noncash stock
compensation... -- -- -- -- 265,085 -- -- -- 265,085
Issuance of
16,608 Class A
shares under
Dividend
Reinvestment
and Stock
Purchase Plan.. 16,608 1,661 -- -- 37,975 -- -- -- 39,636
Decrease in
minority
interest in
subsidiary,
resulting from
purchase of
stock.......... -- -- -- -- 24,734 -- -- -- 24,734
Net loss........ -- -- -- -- -- -- (22,580,504) -- (22,580,504)
Translation
adjustments.... -- -- -- -- -- 533 -- -- 533
Comprehensive
income for
fiscal 2000.... -- -- -- -- -- -- -- -- --
---------- ---------- --------- -------- ---------- ------- ----------- ----------- -----------
Balance at April
30, 2001....... 21,622,290 $2,162,229 4,082,289 $408,229 65,952,049 247,442 (3,415,555) (17,503,569) 47,850,825
========== ========== ========= ======== ========== ======= =========== =========== ===========
Comprehensive
income
--------------
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 1998.... $ (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 1999.... $ (1,240,781)
==============
Balance at April
30, 2000.......
Proceeds from
stock options
exercised......
Conversion of
Class B shares
into Class A
shares.........
Noncash stock
compensation...
Issuance of
16,608 Class A
shares under
Dividend
Reinvestment
and Stock
Purchase Plan..
Decrease in
minority
interest in
subsidiary,
resulting from
purchase of
stock..........
Net loss........ $ (22,580,504)
Translation
adjustments.... 533
--------------
Comprehensive
income for
fiscal 2000.... $ (22,579,971)
==============
Balance at April
30, 2001.......
See accompanying notes to consolidated financial statements.
50
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended April 30, 2001, 2000, and 1999
2001 2000 1999
--------- ------- -------
Cash flows from operating activities:
Net loss........................................ $ (22,580) (1,242) (32,817)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Charge for asset impairment and purchased
R&D.......................................... 9,446 -- 26,389
Depreciation and amortization................. 11,377 10,034 11,846
Net loss (gain) on investments................ 65 (250) 833
Loss on disposal of property.................. -- 73 --
Minority interest in net (loss) earnings of
subsidiary................................... (914) 261 (1,396)
Grants of compensatory stock options.......... 266 208 24
Deferred income taxes......................... -- -- (5,437)
Changes in operating assets and liabilities:
Purchases of trading securities............. (1,591) (7,998) (3,471)
Proceeds from sale of trading securities.... 5,711 7,894 3,421
Proceeds from maturities of trading
securities................................. 273 3,455 2,152
Accounts receivable......................... 4,752 697 6,641
Prepaid expenses and other current assets... 27 (508) 2,025
Accounts payable and other current
liabilities................................ (4,850) 1,517 5,610
Deferred revenue............................ (2,304) (362) (1,641)
--------- ------- -------
Net cash (used in) provided by operating
activities............................... (322) 13,779 14,179
--------- ------- -------
Cash flows from investing activities:
Capitalized software development costs.......... (3,949) (10,446) (10,902)
Purchased software.............................. (587) (603) (93)
Purchase of majority interest in subsidiaries,
net of cash received........................... -- (658) (1,929)
Minority investment and additional funding in
business....................................... (517) (601) (857)
Purchases of property and equipment............. (1,571) (2,178) (1,647)
(Purchases) sales of investments, net........... 5,833 (7,139) 15,534
Purchases of common stock by subsidiary......... (105) (768) (1,660)
--------- ------- -------
Net cash used in investing activities..... (896) (22,393) (1,554)
--------- ------- -------
Cash flows from financing activities:
Repayment of long-term debt..................... -- (950) --
Payments of capital lease obligations........... (2,075) (2,268) (2,266)
Repurchases of common stock..................... -- (1,256) (3,510)
Proceeds from Dividend Reinvestment Plan........ 44 10 23
Proceeds from exercise of stock options......... 396 4,421 229
--------- ------- -------
Net cash used in financing activities..... (1,635) (43) (5,524)
--------- ------- -------
Net change in cash and cash equivalents... (2,853) (8,657) 7,101
Cash and cash equivalents at beginning of year.... 12,910 21,567 14,466
--------- ------- -------
Cash and cash equivalents at end of year.......... $ 10,057 12,910 21,567
========= ======= =======
Supplemental disclosures of cash paid during the
year for:
Income taxes.................................... $ 131 248 219
========= ======= =======
Interest........................................ $ 365 106 226
========= ======= =======
Supplemental disclosures of noncash operating,
investing, and financing activities:
Net assets acquired............................. $ -- -- 2,579
========= ======= =======
Assumption of capital lease obligations for
property and equipment......................... $ 2,443 2,289 1,941
========= ======= =======
See accompanying notes to consolidated financial statements.
51
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2001, 2000 and 1999
(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.
(d) Investments
Investments at April 30, 2001 and 2000 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
52
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
"held-to-maturity" in 2001 and 2000. "Trading" securities are bought and held
principally for the purpose of 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 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 over three years.
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 2001, goodwill additions of $513,000 and $106,000 relate to the
purchase of additional interests in New Generation Computing and Logility,
Inc., respectively.
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 2001, goodwill additions of $513,000 and $106,000 relate to the
purchase of additional interests in New Generation Computing and Logility,
Inc., respectively.
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
53
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
development costs, total amortization of purchased computer software costs and
write-off of capitalized computer software costs are as follows:
Years ended April 30,
-----------------------
2001 2000 1999
------- ------- -------
(in thousands)
Total capitalized computer software development
costs............................................. $ 3,949 $10,446 $10,902
Total research and development expense............. 11,624 9,675 11,511
------- ------- -------
Total research and development expense and
capitalized computer software development costs... $15,573 $20,121 $22,413
======= ======= =======
Total amortization of capitalized computer software
development costs................................. $ 3,790 $ 3,632 $ 6,104
------- ------- -------
Total amortization of purchased computer software
costs and goodwill................................ 1,461 346 924
------- ------- -------
Write-off of capitalized software costs as a result
of net realizable value analyses.................. $ 9,446 $ -- $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 Loss Per Common Share
Basic 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 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.
54
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
The numerator in calculating both basic and diluted loss per common share
for each year is the same as net loss. The denominator is based on the
following number of common shares:
Years ended April 30,
----------------------------
2001 2000 1999
--------- ------- --------
(in thousands)
Common shares:
Weighted-average common shares outstanding:
Class A shares............................. 18,648 17,016 17,463
Class B shares............................. 4,082 4,706 4,768
--------- ------- --------
Basic weighted-average common shares
outstanding................................. 22,730 21,722 22,231
Dilutive effect of outstanding Class A common
stock options outstanding................... -- -- --
--------- ------- --------
Total........................................ 22,730 21,722 22,231
========= ======= ========
Net loss..................................... $ (22,580) $(1,242) $(32,817)
========= ======= ========
Net loss per common share:
Basic...................................... $ (.99) $ (.06) $ (1.48)
========= ======= ========
Diluted.................................... $ (.99) $ (.06) $ (1.48)
========= ======= ========
For the years ended April 30, 2001, 2000, and 1999 approximately 3,775,000,
2,750,000 and 3,418,796 stock options, respectively, were excluded from the
computation of diluted 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.
(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
55
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
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 2000 and 1999 consolidated
financial statements to conform to the presentation adopted in 2001.
(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.
(2) Investments
Investments consist of the following:
April 30,
--------------
Trading 2001 2000
------- ------ -------
(in thousands)
Debt securities:
U.S. Treasury securities................................... $ -- $ 579
Tax-exempt state and municipal bonds....................... 2,416 5,865
------ -------
Total debt securities.................................... 2,416 6,444
Equity securities............................................ 3,298 3,729
------ -------
$5,714 $10,173
====== =======
56
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
April 30, 2001
---------------------------
Unrealized
Carrying Fair gain
Held-to-maturity value value (loss)
---------------- -------- ------- ----------
(in thousands)
Government securities............................ $ 2,749 $ 2,778 $ 29
Commercial paper................................. 7,175 7,175 --
Corporate bonds.................................. 5,406 5,507 101
------- ------- ----
$15,330 $15,460 $130
======= ======= ====
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)
======= ======= ====
The total carrying value of all investments on a consolidated basis was
$21,044,000 and $31,335,000 at April 30, 2001 and 2000, respectively, of which
$5,926,000 mature beyond April 30, 2002 and are classified as noncurrent,
accordingly, at April 30, 2001.
In 2001, 2000, and 1999, the Company's investment portfolio of trading
securities experienced net unrealized holding gains (losses) of approximately
$(1,073,143), $(1,415,642), and $(878,000), respectively, which have been
included in other income, net in the 2001, 2000, and 1999 consolidated
statements of operations.
At April 30, 2001, 96% 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; and other current liabilities. 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, 2001 and 2000
(in thousands):
2001 2000
------- --------
Buildings and leasehold improvements........................ $17,850 $ 20,982
Computer equipment.......................................... 13,923 32,387
Office furniture and equipment.............................. 10,429 4,742
------- --------
42,202 58,111
Less accumulated depreciation and amortization.............. 25,360 39,497
------- --------
$16,842 $ 18,614
======= ========
57
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
(5) Intangible Assets
Intangible assets consist of the following at April 30, 2001 and 2000 (in
thousands):
2001 2000
------- -------
Capitalized computer software development costs............. $23,404 $56,666
Purchased computer software costs........................... 5,205 6,956
Goodwill.................................................... 7,014 6,395
------- -------
35,623 70,017
Less accumulated amortization............................... 21,710 46,626
------- -------
$13,913 $23,391
======= =======
(6) Income Taxes
Income tax expense (benefit) consists of the following:
Years ended April
30,
---------------------
2001 2000 1999
------- ---- -------
(in thousands)
Current:
Federal............................................. $(2,418) $-- $ 3,453
State............................................... -- 150 218
------- ---- -------
(2,418) 150 3,671
------- ---- -------
Deferred:
Federal............................................. -- -- (4,862)
State............................................... -- -- (575)
------- ---- -------
-- -- (5,437)
------- ---- -------
$(2,418) $150 $(1,766)
======= ==== =======
The Company's effective income tax rate of 10%, 14%, and 5% for the years
ended April 30, 2001, 2000, and 1999, 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,
------------------------
2001 2000 1999
------- ----- --------
(in thousands)
Computed "expected" income tax expense (benefit).. $(8,500) $(371) $(11,758)
Increase (decrease) in income taxes resulting
from:
State income taxes, net of Federal income tax
effect......................................... (1,092) 57 (235)
IRS settlement.................................. (2,957) -- 650
Tax-exempt interest income...................... (54) (64) (161)
Change in the beginning-of-the year balance of
the valuation allowance for deferred tax assets
allocated to income tax benefit................ 10,625 404 4,416
Estimated liabilities........................... -- -- 3,020
Permanent differences........................... (269) 179 1,310
Other........................................... (171) (55) 992
------- ----- --------
$(2,418) $ 150 $ (1,766)
======= ===== ========
58
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
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, 2001, 2000,
and 1999 are as follows:
Years ended April 30,
------------------------
2001 2000 1999
-------- ----- -------
(in thousands)
Deferred tax (benefit) expense................... $(10,625) $(404) $(9,853)
Increase in beginning-of-the year balance of the
valuation allowance for deferred tax assets..... 10,625 404 4,416
-------- ----- -------
$ -- $ -- $(5,437)
======== ===== =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 30,
2001 and 2000, are presented as follows:
April 30,
-----------------
2001 2000
-------- -------
(in thousands)
Deferred tax assets:
Expenses, due to accrual for financial reporting
purposes............................................. $ 1,048 $ 1,700
Accounts receivable, due to allowance for doubtful
accounts............................................. 642 674
Compensation expense related to grants of nonqualified
stock options........................................ 275 175
Net operating loss carryforwards...................... 16,567 8,838
Foreign tax credit carryforwards...................... 777 777
Intangible asset amortization......................... 922 922
Gain on investments not recognized for tax purposes... 1,272 865
Other................................................. 64 718
Credits............................................... 718 --
-------- -------
Total gross deferred tax assets..................... 22,285 14,669
Less valuation allowance.............................. (17,425) (6,800)
-------- -------
Net deferred tax assets............................. 4,860 7,869
-------- -------
Deferred tax liabilities:
Capitalized computer software development costs....... (1,800) (4,976)
Property and equipment, primarily due to differences
in depreciation...................................... (1,378) (1,629)
Stock and bond valuation.............................. (1,013) (1,196)
Other................................................. (669) (68)
-------- -------
Total gross deferred tax liabilities................ (4,860) (7,869)
-------- -------
Net deferred tax liability.......................... $ -- $ --
======== =======
In assessing the recoverability 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
59
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
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, 2001 and 2000.
At April 30, 2001, the Company has net operating loss carry forwards for
federal income tax purposes of approximately $43.0 million which are available
to offset future federal taxable income, if any, through 2022. 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% majority 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 which was recorded as
goodwill.
In January 1996, the Company acquired a 60% interest in Intellimedia
Commerce, Inc. ("Intellimedia"), 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 in
2000. 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.
In January 2001, the Intellimedia board of directors declared to wind down
the Company due to a substantial slowdown in their industry. The Company wrote
off the investment in Intellimedia, including all of their assets in January
2001. The total amount written off in January was $975,000.
(8) Asset Impairment and Restructuring
During October 2000, the Company incurred a charge against earnings of $9.5
million related to the write-off of certain capitalized software development
costs. This write-off was the result of lower than anticipated sales of the
Company's ERP products in recent periods. The Company also experienced a
restructuring charge of approximately $970,000, which was a result of severance
expenses for involuntarily terminated employees in Sales, Marketing, Services,
and Research and Development. Included in the charge was a noncash charge of
approximately $270,000 related to the accelerating of vesting of stock options
for the severed employees. As of April 30, 2001 there were no outstanding costs
to be incurred related to the restructuring plan.
60
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
(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.
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, 2001, shares issued under the
Purchase Plan were 36,350.
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, 2001, shares issued under the Purchase Plan
were 48,397.
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 no options
outstanding under these plans at April 30, 2001. These plans were replaced with
the 1991 Employee Stock Option Plan ("1991 Plan") and the Director and Officer
Stock Option Plan ("D & O Plan"). Under the 1991 Plan, the Board of Directors
was 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.
61
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
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 &O Plan, the Board of Directors is
authorized to grant directors and officers options to purchase up to one
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 & O Plan could issue either incentive stock options or
nonqualified stock options. Both the 1991 Plan and D & O Plan terminated
September 1, 2000 and no further option grants will be made pursuant to these
plans.
On August 29, 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 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 2001 and 2000 and created a
compensation charge of $265,000 and $208,000, respectively, 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 the right was granted.
On May 16, 2000, the Company established the American Software, Inc. 2001
Stock Option Plan (the "2001 Plan," which became effective on September 1,
2000. Under the 2001 Plan, the Company is authorized to grant executive
officers and other key employees options to purchase up to 2.0 million shares
of Class A common stock. All option grants since September 1, 2000 have been
made under the 2001 Plan.
Incentive and nonqualified options exercisable at April 30, 2001 are 966,182
and 375,250 shares, respectively. Options available for grant at April 30,
2001, for the 2001 Plan are 1,524,088 shares.
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 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 loss and diluted loss per share would have been increased to the pro forma
amounts indicated below: (including amount for Subsidiary Stock Plan).
Years ended April 30,
---------------------------
2001 2000 1999
-------- ------- --------
(in thousands,
except per share data)
Net loss:
As reported................................... $(22,580) $(1,242) $(32,817)
Pro forma..................................... (27,121) (5,154) (36,076)
Diluted loss per share:
As reported................................... (.99) (.06) (1.48)
Pro forma..................................... (1.19) (.23) (1.62)
62
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
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:
2001 2000 1999
------- ------- -------
Dividend yield.................................... 0% 0% 0%
Expected volatility............................... 121.2% 104.9% 85.9%
Risk-free interest rate........................... 5.9% 5.6% 5.6%
Expected life..................................... 8 years 8 years 8 years
A summary of the status of the Company's stock option plans as of April 30,
2001, 2000, and 1999, and changes during the years ended on those dates is
presented below:
2001 2000 1999
--------------------- ---------------------- ----------------------
Weighted- Weighted- Weighted-
average average average
Fixed options Shares price Shares price Shares price
------------- ---------- --------- ----------- --------- ----------- ---------
Outstanding at beginning of
year............................ 2,746,451 $3.76 3,418,796 $3.10 3,283,204 $4.84
Granted.......................... 1,828,400 3.64 1,116,650 4.80 2,756,668 3.13
Exercised........................ (125,398) 3.02 (1,321,995) 3.25 (69,649) 3.29
Forfeited/canceled............... (681,304) 4.28 (467,000) 2.94 (2,551,427) 5.39
---------- ----------- -----------
Outstanding at end of year....... 3,768,149 3.64 2,746,451 3.76 3,418,796 3.10
========== =========== ===========
Options exercisable at year-end
................................ 1,341,932 4.10 743,879 5.07 1,410,227 3.46
========== =========== ===========
Weighted-average fair value of
options granted during the year.. $ 3.64 $ 4.38 $ 1.43
========== =========== ===========
The following table summarizes information about fixed stock options
outstanding at April 30, 2001:
Options outstanding Options exercisable
-------------------------------------------- ---------------------------
Weighted- Weighted- Weighted-
Number average average Number average
Range of outstanding remaining exercise exercisable exercise
exercise prices at April 30, 2001 contractual life price at April 30, 2001 price
--------------- ----------------- ---------------- --------- ----------------- ---------
$ 0.00-
1.69 31,500 9.9 $ 1.47 -- $ 0.00
1.70-
3.38 2,114,954 6.8 2.63 845,733 2.79
3.39-
5.06 1,192,088 7.9 3.97 260,825 3.98
5.07-
6.75 135,732 7.8 5.55 57,500 5.64
6.76-
8.44 198,375 8.2 7.31 85,124 7.57
8.45-
10.13 10,500 6.3 8.75 7,750 8.75
10.14-
11.81 15,000 6.5 11.75 15,000 11.75
11.82-
13.50 70,000 8.9 12.75 70,000 12.75
--------- ---------
3,768,149 7.3 3.64 1,341,932 4.10
========= =========
63
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
A summary of the status of the Subsidiary's Stock Plan as of April 30, 2001
and 2000, and changes during the years then ended is presented below:
2001 2000 1999
------------------- ------------------- -------------------
Weighted- Weighted- Weighted-
average average average
Fixed options Shares price Shares price Shares price
------------- -------- --------- -------- --------- -------- ---------
Outstanding at beginning
of year................ 764,089 $4.73 555,446 $4.22 262,070 $12.96
Granted................. 132,000 3.17 415,400 5.04 600,130 2.93
Exercised............... (5,260) 2.75 (43,454) 2.96 -- --
Forfeited/canceled...... (111,808) 5.53 (163,303) 4.28 (306,754) 8.78
-------- -------- --------
Outstanding at year
end.................... 779,021 4.37 764,089 4.73 555,446 4.22
======== ===== ======== ===== ======== ======
Options exercisable at
year end............... 326,841 4.87 126,438 6.17 28,150 11.76
======== ===== ======== ===== ======== ======
Weighted-average fair
value of options
granted during the
year................... 2.94 2.63 1.71
===== ===== ======
The following table summarizes information about fixed stock options
outstanding at April 30, 2001 under the Subsidiary Stock Plan:
Options
Options outstanding exercisable
-------------------------------------------- -----------------
Weighted- Weighted- Weighted-
Number average average Number average
Range of outstanding remaining exercise exercisable exercise
exercise prices at April 30, 2001 contractual life price at April 30, 2001 price
--------------- ----------------- ---------------- --------- ----------------- ---------
$1.69-
3.25 359,706 7.0 $ 2.71 170,781 $ 2.78
3.26-
4.87 301,225 8.0 3.97 92,498 4.10
4.88-
16.25 118,090 6.8 10.43 63,562 11.58
------- -------
779,021 7.3 4.37 326,841 4.87
======= =======
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 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 $8.5 million or 10%, $7.8 million or 7%,
and $11.4 million or 10% of consolidated revenues for the years ended April 30,
2001, 2000, and 1999, respectively, and were primarily from customers in Canada
and Europe.
64
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
(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, 2001, the amount of equipment and related accumulated
amortization recorded under capital leases was as follows:
Machinery and equipment............................................ $ 13,307
Less accumulated amortization...................................... (10,565)
--------
$ 2,742
========
Amortization of assets held under capital leases is included with
depreciation expense.
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 extension 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, 2001,
2000, and 1999 approximated $300,000.
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 $7.6 million, $6.4 million,
and $5.5 million for the years ended April 30, 2001, 2000, and 1999,
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, 2001 are as follows:
Year ending Capital Operating
April 30, leases leases
----------- ------- ---------
2002..................................................... $1,573 $2,073
2003..................................................... 945 1,245
2004..................................................... 179 469
2005..................................................... -- 209
2006..................................................... -- 13
------ ------
Total minimum lease payments............................. 2,697 $4,009
======
Less amount representing interest (at rates of 7.90%).... 65
------
Present value of net minimum capital lease payments...... 2,632
Less current installments of obligations under capital
leases.................................................. 1,587
------
Obligations under capital leases,excluding current
installments............................................ $1,045
======
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)
65
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
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 2001,
2000, or 1999.
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 $404,230, and $488,942 for 2001 and 2000.
(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.
(13) Segment information
On May 1, 1999, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information. 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 (EFP) 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.
66
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
2001 2000 1999
------- ------- -------
Revenues:
Enterprise resource planning....................... 34,115 45,422 57,761
Business-to-business collaborative commerce........ 28,206 32,289 27,017
Managed service provider:
External customers............................... 15,958 18,617 14,502
Intersegment revenues............................ 3,588 3,978 4,639
Elimination of intersegment revenues............... (3,588) (3,978) (4,639)
Other.............................................. 10,428 9,182 9,897
------- ------- -------
88,707 105,510 109,177
Operating loss before intersegment eliminations:
Enterprise resource planning....................... (14,669) (4,429) (29,129)
Business-to-business collaborative commerce........ (5,692) 1,251 (9,282)
Managed service provider........................... (5,707) (620) 670
Other.............................................. (273) 972 (257)
------- ------- -------
(26,340) (2,826) (37,998)
Intersegment eliminations:
Enterprise resource planning....................... (642) 754 1,546
Business-to-business collaborative commerce........ 2,682 2,156 2,131
Managed service provider........................... (2,040) (2,910) (3,677)
Other.............................................. 0 0 0
------- ------- -------
0 0 0
Operating loss after intersegment eliminations:
Enterprise resource planning....................... (15,311) (3,675) (27,583)
Business-to-business collaborative commerce........ (3,010) 3,407 (7,151)
Managed service provider........................... (7,747) (3,530) (3,007)
Other.............................................. (273) 972 (257)
------- ------- -------
(26,340) (2,826) (37,998)
Capital expenditures:
Enterprise resource planning....................... 684 623 583
Business-to-business collaborative commerce........ 300 538 755
Managed service provider........................... 576 1,012 302
Other.............................................. 11 5 7
------- ------- -------
1,571 2,178 1,647
Capitalized Software:
Enterprise resource planning....................... 983 7,073 6,950
Business-to-business collaborative commerce........ 2,966 3,373 3,952
Managed service provider........................... 0 0 0
Other.............................................. 0 0 0
------- ------- -------
3,949 10,446 10,902
Depreciation and amortization:
Enterprise resource planning....................... 4,749 3,549 5,173
Business-to-business collaborative commerce........ 3,511 3,485 3,862
Managed service provider........................... 2,830 2,671 2,491
Other.............................................. 287 329 320
------- ------- -------
11,377 10,034 11,846
April 30, April 30, April 30,
2001 2000 2000
--------- --------- ---------
Identifiable assets:
Enterprise resource planning.................... 30,471 59,137 59,596
Business-to-business collaborative commerce..... 40,346 42,330 40,678
Managed service provider........................ 7,267 7,016 5,858
Other........................................... 3,983 4,564 3,604
------ ------- -------
82,067 113,047 109,736
67
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
April 30, 2001, 2000, and 1999
(14)Financial Statements and Supplementary Data
The following schedule represents results for each quarter in the years
ended April 30, 2001 and 2000 (in thousands, except per share amounts):
Net Earnings (Loss) Diluted net
Total Operating Attributable to earnings (loss)
Revenue Income Common Shareholders per share
-------- --------- ------------------- ---------------
Quarter ended:
July 31, 2000........... $ 22,044 $ (3,979) $ (3,692) $ (0.16)
October 31, 2000........ 21,529 (16,896) (15,914) (0.70)
January 31, 2001........ 21,882 (5,794) (3,192) (0.14)
April 30, 2001.......... 23,252 329 218 0.01
-------- --------- --------- -------
Year ended April 30,
2001................... $ 88,707 $ (26,340) $ (22,580) $ (0.99)
======== ========= ========= =======
Quarter ended:
July 31, 1999........... $ 28,235 $ 585 $ 904 $ 0.04
October 31, 1999........ 28,182 520 1,003 0.05
January 31, 2000........ 25,803 (871) (418) (0.02)
April 30, 2000.......... 23,290 (3,060) (2,731) (0.13)
-------- --------- --------- -------
Year ended April 30,
2000................... $105,510 $ (2,826) $ (1,242) $ (0.06)
======== ========= ========= =======
68
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, 2001 and 2000, 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, 2001. 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 of America. 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, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-
year period ended April 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG, LLP
June 14, 2001 Atlanta, Georgia
69
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...... 66 President, Chief Executive Officer, Treasurer and Director; Chairman of the
Board of Directors of Logility, Inc.
Thomas L. Newberry...... 68 Chairman of the Board of Directors
J. Michael Edenfield.... 43 Director, Executive Vice President, President and Director of Logility, Inc.
David H. Gambrell....... 71 Director
Dennis Hogue............ 48 Director
John J. Jarvis.......... 59 Director
Thomas L. Newberry, V... 34 Director
Thomas R. Williams...... 72 Director
Jeffrey W. Coombs....... 49 Executive Vice President of American Software USA, Inc.
Vincent C. Klinges...... 38 Chief Financial Officer
James R. McGuone........ 54 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 one of our a co-founders and has served as our
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 American Software, 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.,
our majority owned subsidiary.
Dr. Newberry is one of our co-founders of and has served as our 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
American Software, 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.
70
Mr. J. Michael Edenfield was elected as a Director of American Software on
June 1, 2001. He has served as our Executive Vice President since June 1994. In
January 1997, Mr. Edenfield was elected to President of Logility, Inc., a
majority owned subsidiary of ours. 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, our
Chief Executive Officer.
Mr. Gambrell has served as a Director of American Software 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 us. 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. Hogue was elected as a Director of American Software on June 1, 2001.
Mr. Hogue became Chief Executive Officer of Global Food Exchange in January
2001. Prior to joining Global Food Exchange, Mr. Hogue served as President and
Chief Executive Officer of E3 Corporation from December 1999 to December 2000.
Prior to serving as President and Chief Executive Officer of E3, Mr. Hogue
served as Vice President of Sales from November 1996 until April 1997 and
President of North America from April 1997 until December 1999. He earned a
Bachelor of Science degree in Psychology from Florida State University in 1974.
Dr. Jarvis was elected as a Director of American Software on June 1, 2001.
He is currently Chair of the School of Industrial and Systems Engineering at
the Georgia Institute of Technology, where has been a member of the faculty
since 1968. Dr. Jarvis was co-founder of CAPS Logistics, Inc., a provider of
software and consulting services in logistics, which was acquired by Baan NV in
1998. Dr. Jarvis has served as President of the Institute of Industrial
Engineers (IIE), President of TIMS and Secretary of ORSA. He has served on the
Councils of ORSA and TIMS and on the Boards of the Institute for Operations
Research and Management Sciences (INFORMS) and IIE. Dr. Jarvis currently holds
a Bachelor and Masters of Science degree in Industrial Engineering from the
University of Alabama and a Ph.D. from Johns Hopkins University.
Mr. Newberry, V was elected as a Director of American Software on June 1,
2001. He is the founder of The 1% Club, Inc. and has acted as its Chief
Executive Officer since its founding. He is also the author of motivational
books and audio programs dedicated to improving performance in business
operations and salesmanship. Mr. Newberry, V currently holds a Bachelor of
Science degree from Georgia State University.
Mr. Williams has served as a Director of American Software 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. He also
served as a trustee of Fidelity Group of Mutual Funds from 1987 to 2000. 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.
Mr. Jeffrey W. Coombs first joined American Software in January 1985. In
1988 he was elected Vice President of Professional Services. From May 1994 to
February 1996, Mr. Coombs was employed by Indus International, Inc. (formerly
known as TSW International, Inc.) as Senior Vice President. Mr. Coombs rejoined
us in February 1996 as Senior Vice President of Professional Services. In April
2001, Mr. Coombs was promoted to Executive Vice President of American Software
USA, Inc. From March 1978 to June 1984 Mr. Coombs was employed by Saudi Arabian
Airlines as a Project Manager in Information Technology. Prior to that time Mr.
Coombs held various positions with the Northern Bank Ltd., Belfast.
71
Mr. Klinges joined American Software 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 as our Secretary in May 1988. He has been a
practicing attorney since 1972, and is a partner with the law firm of Holland &
Knight, L.L.P., counsel to American Software. 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 our officers
and directors, and persons who own more than 10% of a registered class of our
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission (the "SEC"). Officers, directors and
holders of more than 10% of the Common Stock are required by regulations
promulgated by the SEC pursuant to the Exchange Act to furnish us with copies
of all Section 16(a) forms they file. We assist 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,
all Section 16(a) filing requirements applicable to our directors, officers and
greater than 10% beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
This information is set forth under the caption "Certain Information
Regarding Executive Officers and Directors" in the Company's 2001 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, we completed an initial public offering of 2,200,000
shares of common stock in our subsidiary, Logility, Inc. ("Logility"). Prior to
that time, Logility was a wholly-owned subsidiary of ours, operating as the
supply chain planning software group, warehouse management software group and
transportation management group. In anticipation of such offering, American
Software 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 our ownership interest in Logility, the terms
of such agreements were not the result of arms-length negotiation.
Services Agreement
American Software and Logility have entered into a Services Agreement (the
"Services Agreement") with respect to certain services to be provided by us (or
our subsidiaries) to Logility. The Services Agreement provides that such
services are provided in exchange for fees which management believes would not
exceed fees that would be paid if such services were provided by independent
third parties. The services initially provided by us to Logility under the
Services Agreement include, among other things, certain accounting, audit,
72
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, we have agreed to
allow eligible employees of Logility to participate in certain employee benefit
plans. Logility has agreed to reimburse us 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 our
benefit plans.
The Services Agreement has an initial term of three years and is renewed
automatically thereafter for successive one-year terms unless either American
Software or Logility elects not to renew its term by giving proper notice.
Logility will indemnify us against any damages that we may incur in connection
with its performance of services under the Services Agreement (other than those
arising from our gross negligence or willful misconduct), and we will indemnify
Logility against any damages arising out of our gross negligence or willful
misconduct in connection with its rendering of services under the Services
Agreement. For the fiscal years ended 2001 and 2000 the services related to
this agreement were valued at $1.5 and $1.0 million, respectively.
Facilities Agreement
American Software 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 us (or our subsidiaries).
The Facilities Agreement has an initial term of two years and is renewed
automatically thereafter for successive one-year terms unless either American
Software or Logility elects not to renew its term. The Facilities 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 American Software and a landlord with respect to any
facility leased by American Software and by the disposition by American
Software of any facility owned by American Software. For the fiscal years ended
2001 and 2000 the services related to this agreement were valued at $763,000
and $418,000, respectively. Included in these costs are lease expense,
utilities expense, telephone expense, and security expense.
Tax Sharing Agreement
Logility is included in our federal consolidated income tax group, and
Logility's federal income tax liability will be included in the consolidated
federal income tax liability of American Software and its subsidiaries.
Logility and American Software have entered into a Tax Sharing Agreement (the
"Tax Sharing Agreement") pursuant to which American Software 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 American Software. 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 American Software, 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 American Software. For
that purpose, all losses of American Software and its consolidated income tax
group will be deemed utilized in the order in which they are recognized.
Logility will pay American Software a fee intended to reimburse American
Software for all direct and indirect costs and expenses incurred with respect
to our share of the overall costs and expense incurred by us with respect to
tax related services.
Technology License Agreement
American Software and Logility have entered into a Technology License
Agreement (the "Technology License Agreement") pursuant to which Logility has
granted us a non-exclusive, worldwide license to use, execute, reproduce,
display, modify, and prepare derivatives of the Logility Voyager Solutions
product line,
73
provided such license is limited to maintaining and supporting users that have
licensed Logility Voyager Solutions products from us. Pursuant to the
Technology License Agreement, American Software 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 we 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 American Software
revert to Logility, while all rights to enhancements and improvements made by
American Software to Logility Value Chain Solutions products revert to us.
Marketing License Agreement
American Software USA, Inc. ("USA"), a wholly-owned subsidiary of American
Software, 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 American Software 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 2001 and 2000 the services related
to this agreement were valued at $367,000 and $731,000, respectively.
74
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...................................... 77
Schedule II--Consolidated Valuation Accounts--for the three years
ended April 30, 2001............................................... 78
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:
The Company's Amended and Restated Articles of Incorporation, and
3.1 amendments thereto. (1)
The Company's Amended and Restated By-Laws dated November 13, 1989.
3.2 (2)
Amended and Restated 1991 Employee Stock Option Plan dated February
10.1 14, 2000. (3)
Amended and Restated Directors and Officers Stock Option Plan
10.2 effective August 26, 1999. (4)
American Software, Inc. 401(k)/Profit Sharing Plan and Trust
10.3 Agreement. (5)
Lease Agreement dated December 15, 1981, between Company and Newfield
10.4 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)
Services Agreement between the Company and Logility, Inc., dated
10.7 August 1, 1997. (7)
Facilities Agreement between the Company and Logility, Inc., dated
10.8 August 1, 1997. (7)
Tax Sharing Agreement between the Company and Logility, Inc., dated
10.9 January 23, 1997. (7)
Stock Option Agreement between the Company and Logility, Inc., dated
10.10 August 1, 1997. (7)
10.11 Technology License Agreement between the Company and Logility, Inc.,
as amended, dated August1, 1997. (7)
10.12 Marketing License Agreement between USA and Logility, Inc., as
amended, dated August 1, 1997. (7)
The Company's Employee Stock Purchase Plan dated September 30, 1998.
10.13 (8)
Logility, Inc.'s Amended and Restated 1997 Stock Plan dated August 26,
10.14 1998. (9)
Logility, Inc.'s Employee Stock Purchase Plan dated September 30,
10.15 1998. (9)
75
10.16 Split-Dollar Agreement between the Company and the J&N Edenfield
Trust, dated November 30, 1999. (10)
10.17 The Company's 2001 Stock Option Plan. (11)
21.1 List of Subsidiaries.
23.1 Independent Auditors' Consent.
--------
(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. 333-55214 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.
(10) 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,
2000.
(11) Incorporated by reference herein. Filed by the Company as an exhibit to
its Registration Statement No. 333-44744 filed on form S-8 on August 29,
2000.
(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.
76
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders American Software, Inc.:
Under date of June 14, 2001, we reported on the consolidated balance sheets
of American Software, Inc. and subsidiaries as of April 30, 2001 and 2000, 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, 2001, which are included in the April 30, 2001 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,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG, LLP
June 14, 2001 Atlanta, Georgia
77
SCHEDULE II
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED VALUATION ACCOUNTS
Years ended April 30, 2001, 2000, and 1999
Allowance for Doubtful Accounts
Additions
Balance at charged to Balance at
beginning costs and end of
Year ended of year expenses Deductions(1) year
---------- ---------- ---------- ------------- ----------
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
April 30, 2001................ 1,739,000 1,627,000 1,710,000 1,656,000
--------
(1) Write-offs of accounts receivable
Deferred Income Tax Valuation Allowance
Additions
Balance at charged to Balance at
beginning costs and end of
Year ended of year expenses Deductions(1) year
---------- ---------- ---------- ------------- ----------
April 30, 1999................ $1,980,000 4,416,000 -- 6,396,000
April 30, 2000................ 6,396,000 404,000 -- 6,800,000
April 30, 2001................ 6,800,000 10,625,000 -- 17,425,000
78
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 23, 2001
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.
Signatures Title Date
---------- ----- ----
/s/ James C. Edenfield President, Chief Executive July 23, 2001
______________________________________ Officer, Treasurer and
James C. Edenfield Director
/s/ Thomas L. Newberry Chairman of the Board of July 23, 2001
______________________________________ Directors
Thomas L. Newberry
/s/ J. Michael Edenfield Director, Executive Vice July 23, 2001
______________________________________ President
J. Michael Edenfield
/s/ David H. Gambrell Director July 23, 2001
______________________________________
David H. Gambrell
/s/ Dennis Hogue Director July 23, 2001
______________________________________
Dennis Hogue
/s/ John J. Jarvis Director July 23, 2001
______________________________________
John J. Jarvis
/s/ Thomas L. Newberry, V. Director July 23, 2001
______________________________________
Thomas L. Newberry, V.
/s/ Thomas R. Williams Director July 23, 2001
______________________________________
Thomas R. Williams
/s/ Vincent C. Klinges Chief Financial Officer July 23, 2001
______________________________________
Vincent C. Klinges
/s/ Deirdre J. Lavender Controller and Principal July 23, 2001
______________________________________ Accounting Officer
Deirdre J. Lavender
79