-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ACVuf5RZoRGpNIAkq362aVraUHXVrvgj2QgcRtRYoFs0B6BTQwbFliT+QZ6TVZvD XcbaHc57skhQg6F00cx8eA== 0000931763-97-001258.txt : 19970805 0000931763-97-001258.hdr.sgml : 19970805 ACCESSION NUMBER: 0000931763-97-001258 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970804 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SOFTWARE INC CENTRAL INDEX KEY: 0000713425 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 581098795 STATE OF INCORPORATION: GA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-12456 FILM NUMBER: 97651049 BUSINESS ADDRESS: STREET 1: 470 E PACES FERRY RD NE CITY: ATLANTA STATE: GA ZIP: 30305 BUSINESS PHONE: 4042614381 MAIL ADDRESS: STREET 1: 470 EAST PACES FERRY ROAD NE CITY: ATLANTA STATE: GA ZIP: 30305 10-K405/A 1 AMENDMENT NO. 1 TO FORM 10-K405 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-KA (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, 1997 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 AMERICAN SOFTWARE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) GEORGIA 58-1098795 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 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:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS 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-KA or any amendment to this Form 10-KA. [X] At July 22, 1997, 17,759,779 Class A Common Shares and 4,819,289 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 24, 1997) of the Class A shares held by nonaffiliates was approximately $127 million. DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-KA 1. 1997 Proxy Statement into Part III. 2. Form S-1 Registration Statement No. 2-81444 into Part IV. 3. Form S-8 Registration Statement No. 33-55214 into Part IV. 4. Form 10-K's for fiscal years ended April 30, 1984, 1985, 1990, 1995 and 1996 into Part IV. 5. Form 10-Q's for the quarters ended January 31, 1990, October 31, 1990 and October 31, 1996 into Part IV. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS A. GENERAL American Software, through its subsidiaries, develops, markets and supports a portfolio of application software solutions that enable businesses to respond to today's dynamic global marketplace. The Company's software solutions are designed to automate many planning and operational functions principally in the areas of: (i) Value Chain Planning, (ii) warehouse management, (iii) manufacturing, and (iv) Enterprise Resource Planning (ERP). The Company's products are designed to provide rapid return on investment while offering maximum scaleability. The Company also provides support for its software products, such as software enhancements, documentation updates, customer education, consulting, systems integration services and maintenance. Value Chain Planning involves the proactive use of information to ensure that the right products are delivered to the right place at the right time. This planning process is focused on demand forecasting, inventory management, replenishment and manufacturing planning, manufacturing scheduling as well as transportation management. Value Chain Planning solutions are developed and provided by Logility, Inc, a wholly owned subsidiary of American Software. The Logility Planning Solutions product suite consists of software that enables suppliers, manufacturers, distributiors and wholesalers to more effectively manage their value chains. Warehouse management solutions refer to the management of activities necessary to operate a warehouse or distribution center. Key warehouse management functions include the storage of newly received goods, picking goods from warehouse storage for shipment to a customer, and packing items for shipment. WarehousePRO is the Company's integrated solution for automating warehouse operations. Flow Manufacturing is a solution which is designed to automate the manufacture of discrete products. Flow Manufacturing is designed around a new manufacturing paradigm which states that goods should be "pulled through" the manufacturing process based on customer demand instead of "pushing" products based on safety stock needs. Flow Manufacturing can co-reside with traditional manufacturing solutions or it can completely replace traditional manufacturing. Flow Manufacturing is also known as Agile or Lean Manufacturing. ERP is an integrated suite of products designed to automate many of the daily operational tasks of a global enterprise. ERP is responsible for the execution of many key business processes including the physical movement of and accounting for goods throughout the value chain. ERP functions may include inventory management, order management, purchasing and finance. The Company markets and supports its application software products to a wide range of end users, including manufacturers of chemicals, consumer products, electronics, food and beverage products, pharmaceuticals, pulp and paper, steel, and textiles, as well as retailers, wholesale distributors, and the health and beauty care industry, petroleum producers, public utilities and the transportation industry. B. INDUSTRY BACKGROUND Many dynamics are occuring in industrial businesses which are forcing companies to re-engineer the way they develop products and deliver services. Changes in markets, products, partnerships and competition impact business plans on a daily basis. Competitive pressures are forcing companies to shorten their product life cycles, which creates significant risks. Retailers and consumers are becoming more demanding because of the broad range of choices available. Many companies are aquiring other businesses or even being acquired in order to assemble a competitive portfolio of products and services. This means a constant flux in business structures and organizational models. Manufacturing is also now a global operation, and it is not uncommon to have an enterprise sourcing supplies in one country, conducting pre-assembly in another country and performing final assembly in yet a third country. All of these dynamics mean that swift, accurate decision making is critical to survival. 2 Effective information technology (IT) solutions which support not only the operational aspects of the business but also support intelligent decision making can often mean increased competitive advantage. IT solutions which provide the ability to quickly respond to market opportunities, customer needs and/or value chain constraints can often lead to increased market share, increased profitabilty and improved shareholder returns. All of the Company's software solutions are designed to support either a company's operational requirements or its decision support needs. Companies rely on ERP systems to conduct the daily transactions vital to running a business, from taking an order, to sending a purchase order to a supplier, to collecting monies from customers. The systems which manage these operational aspects of running an enterprise are the province of ERP systems. Warehouse Management systems are concerned with the physical movement of goods within a warehouse or distribution center. Flow Manufacturing is designed to deliver optimal conversion of raw materials into finished products. Value Chain Planning allows companies to proactively synchronize their supply activities and manufacturing schedules so that inventories plans are sufficient to meet customer demand. C. PRODUCTS The Company's strategy has been to create an integrated line of standard application software operating on four strategic computer platforms: (1) IBM System/390 Mainframe or compatible, (2) IBM Midrange--AS/400, (3) UNIX--HP 9000, IBM RS/6000 and other Unix platforms and (4) Intel -based servers and clients that operate Windows 3.1, Windows NT and OS/2. The products are written in various standard programming languages utilized for business application software, including ANS COBOL, COBOL II, Micro Focus COBOL, C, C++, Visual Basic and other programming languages, and many have both on-line and batch capabilities. An integral part of this strategy has been to integrate unique characteristics of personal computers as workstations or clients in the products provided by the Company. ES/9000, RS/6000 and AS/400 are registered trademarks of the International Business Machine Corporation. HP 9000 is a registered trademark of Hewlett Packard Corporation. The following is a summary of the Company's main software solutions. VALUE CHAIN PLANNING SOFTWARE The Company's wholly owned subsidiary, Logility, has a portfolio of software products for Value Chain Planning, Logility Planning SolutionsTM. The Logility Planning Solutions product line consists of advanced collaborative planning software that enables suppliers, manufacturers, distributors and wholesalers to more effectively manage their respective value chains. Logility Planning Solutions is composed of a suite of integrated modules whose flexibility, decision support and other capabilities reduce cycle times, optimize manufacturing execution, control costs and increase an organization's responsiveness to its customers. Logility Planning Solutions consists of seven integrated modules organized into three solution groups: Demand Chain Planning, Supply Chain Planning and Resource Chain Voyager. These modules perform primarily the following functions: DEMAND CHAIN PLANNING Demand Chain Planning is designed to plan for all aspects of customer demand across the entire value chain. Demand Chain Planning provides capabilities to balance demand with inventory policies and customer service requirements as well as perform life cycle analysis and incorporate event and promotion plans. The Demand Chain Planning product group consists of the following modules: 1. Demand Planning 2. Inventory Planning SUPPLY CHAIN PLANNING Supply Chain Planning enables the user to create a comprehensive plan to have the right amount of products manufactured, replenished and shipped on a timely and cost-effective basis. Using this solution, companies can 3 optimize production and supply constraints in concert with demand opportunities. Supply Chain Planning also lets companies implement continuous replenishment strategies with their customers. Supply Chain Planning provides facilities for both long range planning as well as short term operational planning and scheduling. The Supply Chain Planning product group consists of the following modules: 1. Replenishment Planning 2. Manufacturing Planning 3. Transportation Management RESOURCE CHAIN VOYAGER Resource Chain Voyager extends the reach of demand and replenishment planning by enabling companies to collaboratively plan with their customers, suppliers, distributors or other trading partners using the Internet, a corporate Intranet, or extranet. This allows demand or replenishment plans to be shared with and updated by value chain partners in a real-time fashion. The Resource Chain Voyager product group consists of the following modules: 1. Demand Chain Voyager 2. Supply Chain Voyager The key benefits of Logility Planning Solutions include the following: Comprehensive Demand Chain Planning Solution. A key component of Logility Planning Soulutions is emphasis on addressing the full range of complex demand planning requirements of its customers, including comprehensive forecasting capabilities. The demand chain planning products provide enhanced forecast accuracy through the use of advanced algorithms that take into account the unique requirements of each user's value chain. Collaborative Planning. Logility Planning Solutions allow for collaboration both among the various levels within an organization and among external constituents throughout the value chain. The architecture of Logility Planning Solutions enables each constituent to participate in the planning process by providing inputs that are synchronized to create one consensus plan. This approach to collaborative planning is further enhanced with the Resource Chain Voyager module, which leverages Internet technology to facilitate information sharing. End-to-End Solution Suite. Logility Planning Solutions provides functionality to address both demand and supply planning needs. This solution is comprised of demand, inventory, manufacturing and replenishment planning modules which balance supply constraints with demand opportunities through the synchronization of all value chain participants. Rapid Deployment. Logility Planning Solutions utilizes a highly modular design which allows customers to select modules that address their specific individual needs, thereby streamlining implementation. Individual modules generally can be deployed within three to four months, allowing organizations to achieve benefits in a relatively short time frame. Open, Scaleable, Client/Server Architecture. Logility Planning Solutions has been designed to integrate with existing in-house and third-party software systems and a variety of client/server operating environments and platforms. The software is scaleable to manage complex processes involving tens of thousands of products across multiple sites. WAREHOUSE MANAGEMENT SOFTWARE The Company's WarehousePROTM software consists of an integrated system which automates all aspects of a warehouse. It contains support for automated bar coding and RF technologies. The object oriented architecture combined with WarehousePROTM workflows provide for easy configuration and customization of the system. The system performs primarily the following functions: 4 1. Receiving 2. Setup and Administration 3. Product Storage 4. Picking and Shipping 5. Barcode Integrator 6. Performance Analysis Key benefits of WarehousePRO include the following: Object Oriented Technology. WarehousePRO is designed with object oriented technology which allows companies to customize the system to their unique requirements without requiring specialized services for programming changes. Configurable Workflow Technology. WarehousePRO comes standard with a library of workflows, which are pre-built series of activities which direct any warehouse operation. The WarehousePRO workflow library contains industry templates which are built around selected industry best practices. When procedures are changed or the order of work steps are modified, the workflow templates can be easily modified by the user. Integrated Performance Analysis Tools. Integrated performance analysis tools are provided with WarehousePRO which enables warehouse management to spot trends and isolate efficiency and inventory issues and take the necessary proactive action. User Configurable Bar Code/Scanner Integration. Built into WarehousePRO are standard interfaces to all major radio frequency collection systems. The seamless interfaces allow companies to easily add new devices and change bar code configurations without relying on costly services support. Rapid Deployment. The WarehousePRO architecture is designed so many systems changes are user configurable. A user configurable solution means that detailed programming changes are not required to modify processes, work steps or material handling instructions. Fewer software modifications allow many warehouses to experience rapid deployment. FLOW MANUFACTURING SOFTWARE The Flow Manufacturing solution is designed to operate with the Company's Enterprise Solution or with an enterprise solution provided by other companies. Flow Manufacturing can be used in conjunction with Traditional Manufacturing or it can be the sole manufacturing solution deployed throughout an enterprise. The solution is designed to support complex multi-plant global manufacturing requirements. The solution is comprised of the following modules: 1. Kanban Management 2. Line Design 3. Demand Smoothing 4. Product Costing 5. Engineering Change 6. Method Sheets Key benefits of Flow Manufacturing include the following: Market Leadership. After several years of working with companies developing custom Flow solutions, the Company believes it is first-to-market with a comprehensive packaged software solution that meets the requirements of discrete manufacturing. 5 Scaleable Implementation. Flow Manufacturing can be scaled to hande 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 such that Flow Manufacturing can be used for some portions of production and assembly while traditional manufacturing is maintained for others. The Company believes that this hybrid approach to the implementation of Flow Manufacturing offers companies significant flexibility. Integration. Flow Manufacturing can be licensed in conjunction with the Company's other enterprise solutions or it can be licensed to companies that are using other vendors enterprise solutions. Industry-standard data formats, interfaces and protocols facilitate this integration. ENTERPRISE SOLUTIONS SOFTWARE The Company's enterprise solutions are comprehensive applications designed to operate complex, multi-site, multi-national enterprises. Most applications can operate on a stand-alone basis, integrated with one or other solutions offered by the Company and/or integrate with systems from other vendors. The Company's Enterprise Solutions are comprised of the following module groups: Manufacturing, Logistics and Financials. MANUFACTURING MODULES Companies may chose either the Company's Traditional Manufacturing solution or Flow Manufacturing solution. The modules listed below are the solution components within Traditional Manufacturing: 1. Master Scheduling 2. Material Requirements Planning II 3. Bill of Materials 4. Capacity Planning 5. Production Order Status 6. Route and Work Center Maintenance 7. Shop Floor Control LOGISTICS MODULES The Company's logistics solution consists of an integrated system of six modules which provides information concerning the status of purchasing activities, customer orders, inventory position and internal inventory requisition requirements. These modules perform primarily the following functions: 1. Inventory Control and Accounting 2. Purchasing 3. Material Request 4. Item Information Management System 5. Bid (Request for Quotation) 6. Customer Order Management FINANCIAL MODULES The Company's comprehensive financial solutions provide functions such as financial reporting, budgeting, asset management, cash management, credit management and receivables management. These systems assist in resolving customers' specific financial control issues faster and more effectively. The specific applications available are: 1. General Ledger and Budgeting 2. Accounts Receivable 6 3. Accounts Payable 4. Capital Project Accounting 5. Fixed Asset Accounting 6. Continuing Property Records Key benefits of Enterprise Solutions include the following: Modular, Scaleable Solution. Companies may purchase one or modules for point solution(s), which can be integrated with other enterprise software. They may also purchase an integrated product suite to handle increased requirements for storage, processing and/or transactions. Year 2000 compliance. All Enterprise Solutions are year 2000-enabled, which means that the applications have been modified and tested to handle dating logic beyond the year 2000. The Company believes that Year 2000 compliant applications will be sold to both existing customers as well as new companies. Broad Product Offering. The Company's long-term market presence has enabled it to develop an extensive portfolio of solutions. The Company believes that the combined offerings of all product lines are among the broadest range of soutions in the marketplace today. Users that only license one application module typically are candidates to license other applications offered by the Company. Extensive Functionality. The Company's enterprise software provides extensive strategic and tactical functionality to facilitate operations and/or support decision-making across one or multiple sites. This functionality includes multi-currency, multi-language as well as support of multiple databases and extensive analytical capabilities. D. STRATEGY Continue to Expand Product Line Focused Organizations. In May 1996, the Company began the process of specializing its sales force to focus on specific vertical markets. By continuing and expanding this strategy, the Company believes it will continue to enhance its productivity and better penetrate particular markets. Leverage and Expand Installed Base of Customers. The Company's modular-based product line allows initial sales to create significant opportunities for additional product licensing. These expanded sales could come from licensing additional modules not purchased in original transactions or from broadening the use of the products to additional divisions or users. Continued Investment in ISO 9001 Certified Research & Development. The company has received ISO 9001 certification, an international standard for product and operational quality. The Company will continue to make substantial investments in research and development to develop new products, enhance existing products and incorporate new technologies such as the Internet. Customer Satisfaction. The Company continues to have the highest corporate commitment to superior, rapid implementations and ongoing customer service. The Company has made substantial investments in its help desk, Internet-based support and other areas, and will continue its emphasis on quality and responsiveness. E. INTEGRATED SYSTEM DESIGN While the Company's software applications can be used individually, they are designed to be combined as integrated systems to meet unique customer requirements. The user may select virtually any combination of modules to form an integrated solution to a particular business problem. The license fee for such a solution could range from $7,000 for a single module to in excess of $7,000,000 for a multi-module, multiple-user solution incorporating the full range of Company products. 7 Customers frequently require services beyond those provided by the Company's standard arrangements. To meet those customers' needs, the Company established a separate professional services division which provides specialized business and software implementation consulting, custom programming, on-site installation, system-to-system interfacing and extensive training. These services, frequently referred to as systems integration services, are provided for an additional fee normally under a separate contract, based upon time and materials utilized. F. MARKETING AND SALES Typically, the Company's customers are medium-sized companies or divisions of larger companies with substantial data processing budgets. The Company has licensed its application software to approximately 1,700 customers. No single customer accounted for more than ten percent of the Company's revenues in fiscal 1997. First-time customers may license a single module or a system composed of several modules. These customers often license other modules to expand the range of software available to them, and may also license additional modules or systems similar to those already licensed for use at additional locations. The Company sells its products directly to the end-user through its sales and presales staff of approximately 100 persons located in six (6) areas worldwide: Mid U.S. (23), Northeast U.S.(17), Southern U.S. (27), Western U.S. (9), Europe (14), and Canada (3). The presales staff provides consultation, advice and assistance to the sales executives and the customer in selecting an appropriate configuration of application software modules to address the user's needs. The Company obtains sales leads from its advertising in trade publications, its participation in computer industry trade shows and exhibitions, Company-conducted seminars and telemarketing activities, and referrals from existing customers. In 1997, the Company continued its program, begun in fiscal 1988, to develop a network of sales agents to support its sales internationally. These agents along with a designated American Software employed Country Manager are establishing a national presence for the Company in targeted countries throughout Asia-Pacific, Europe and the Middle East. G. LICENSES American Software, like many business application software firms, typically enters into license agreements which grant non-exclusive rights to use its products. The Company's standard license agreements contain provisions designed to prevent disclosure and unauthorized use of the Company's software. These agreements warrant that the Company's products will function in accordance with the specifications set forth in its product documentation. These licenses are generally granted for a term of ninety-nine years and provide that, for a one-time fee, the customer may use the software to process its data at a single facility for a specified division or divisions. A significant portion of the license fee is generally payable upon the delivery of product documentation, with the balance due upon installation. H. INSTALLATION, MAINTENANCE AND SUPPORT As additional services to its customers, the Company provides Implementation Services and customized support. Implementation services and customized support include installation of the Company's software, project planning and management, and training of the customer's user and systems personnel on the use of the software system. The customer receives documentation manuals which describe the system's features and its method of operation. The user is normally entitled to software product enhancements and maintenance for a period of six months at no additional charge. The Company's software products are continually enhanced and improved to accommodate technological changes and other factors which may affect the customer's information requirements. To receive maintenance, which includes enhancements, from the Company after the initial period, customers pay fees which are based on the then-current price of the product. 8 As a part of its support service, the Company provides experienced application and data processing personnel to answer telephone inquiries on a 24-hours-a-day, seven days-a-week basis, and furnishes consulting support in implementing and maintaining the systems. In addition, training courses and documentation materials are available to train customers' personnel and to update them on new system features. In fiscal 1992, the Company began to market its professional and data processing resources on a network management basis. Network management is the provision of data processing services, normally under long-term contract, by outside providers. As of July 12, 1997, the Company had entered into 47 network management contracts to provide data processing and support services on terms of up to five years. The Company believes network management represents a growth opportunity by providing a basis for predictable long-term recurring revenues. To complement customer support, the Company and its product users actively participate in its User Group Association. Established in 1980, the User Group exchanges ideas and techniques for use of the Company's products and provides a forum for customers' suggestions for product development and enhancement. User Group meetings include guest speakers who are recognized authorities in their areas of expertise. I. RESEARCH AND DEVELOPMENT American Software is committed to the development and acquisition of new products and to the continued enhancement of its existing products. During fiscal 1997, 1996, and 1995, the Company expensed approximately $2,300,000, $3,350,000, and $5,200,000, respectively, for research and development. In addition, the Company capitalized $9,897,680, $12,750,536, and $7,352,301 in software development costs during fiscal years 1997, 1996, and 1995, respectively, in accordance with the Statement of Financial Accounting Standards No. 86. The Company's new internal product development and enhancements of existing products include two categories: research and development expenditures and additions to capitalized computer software development costs. These combined categories totaled $12,200,000, $16,101,000, and $12,552,000 in fiscal years 1997, 1996 and 1995, respectively, and represented 41%, 67%, and 60%, respectively, of total license fee revenues in those years. The Company believes that its client/server solutions which utilize the latest technologies will be important for its long-term growth. The Company employs approximately 200 persons in research, development and enhancement activities. J. COMPETITION The computer application software industry is highly competitive. In the application software market, the Company competes directly with a number of firms, including computer manufacturers, large diversified computer service companies and independent suppliers of software products. Approximately six firms that market mainframe application software products and thirty firms that market midrange and client/server application software products are significant competitors for one or more of the Company's products. A number of these competitors have financial, marketing, management and technical resources substantially greater than those of the Company. The Company's primary market for its software is finished goods distributors and manufacturers, industrial manufacturers, utilities, public transportation and health care providers 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 NT and OS/2. The Company believes that purchasers of software products are principally concerned with the range of product modules available, ease of integration, variety of features, performance, simplicity of use, documentation, technical support and training. The Company further believes that its software products and services are competitive in these areas. Price considerations are a key factor and the Company believes its pricing is competitive in its market. The Company believes the market trend to open systems, allowing software to 9 operate across hardware platforms, will increase the number of competitors and intensity of competition. Management believes that it is necessary for the Company to expend significant development monies annually to remain competitive in the marketplace. K. TRADEMARKS AND COPYRIGHTS The Company seeks to protect its proprietary interest in software products and trade secrets. It maintains non-disclosure and confidentiality agreements and other contractual arrangements with customers, consultants, employees, and others. While the strict enforceability of such agreements cannot be assured, the Company believes that they provide a deterrent to the use of information which may be proprietary to the Company, and in the event of any breach of such agreements, the Company intends to take appropriate legal action. It also copyrights its programs and software documentation related to these programs. In addition, certain trademarks of the Company have been registered, and others have registration applications pending. Management believes that the competitive position of the Company depends primarily on the technical competence and creative ability of its personnel and that its business is not materially dependent on copyright protection or trademarks. L. EMPLOYEES At April 30, 1997, the Company had 610 full-time employees, including 329 in product development and technical support, 131 in customer support and professional services, 120 in marketing, sales and sales support, and 30 persons in accounting and administration. The Company believes that its continued success will depend in part on its ability to continue to attract and retain highly skilled technical, marketing and management personnel, who are in great demand. The Company has never had a work stoppage and no employees are represented under collective bargaining arrangements. The Company considers its employee relations to be excellent. M. INTERNATIONAL SALES See note 6 of Notes to Consolidated Financial Statements included as a part of the Company's Annual Report on Form 10-KA for the fiscal year ended April 30, 1997 for a discussion of international revenues. ITEM 2. PROPERTIES The Company's corporate headquarters are located in an approximately 100,000 square foot office building owned by the Company at 470 East Paces Ferry Road, N.E., Atlanta, Georgia. The Company also leases a two-story 17,500 square foot building at 443 East Paces Ferry Road, N.E. Atlanta, Georgia, which is used primarily for financial administration. This building is owned by a limited partnership of which Thomas L. Newberry and James C. Edenfield, the principal shareholders, are the sole partners. The term of the lease expired December 31, 1996, and has been continued on a month-to-month basis at a base rental of $17.00 per square foot through the end of calendar 1997, pending negotiation of a new lease. In January, 1989, the Company acquired a four-story 42,000 square foot building used for additional office space at 3110 Maple Drive, N.E., Atlanta, Georgia, along with a one-story 1,400 square foot building at 3116 Maple Drive used for office space, and a one-story 14,000 square foot building at 3120 Maple Drive which is used for office space. In May, 1990, the Company acquired a two-story 10,000 square foot building used for additional office space at 480 East Paces Ferry Road, N.E. Atlanta, Georgia, along with a one-story 4,000 square foot building at 490 East Paces Ferry Road which is under lease to a restaurant. The Company has entered into leases for sales offices located in various cities in the U. S. and overseas. Normally, these leases are for terms of less than five years and average 3,000 square feet of leasable space. 10 The Company owns a variety of electronic and computer equipment, including seven mid-sized computers, consisting of one IBM 9370, five IBM AS/400s, and one IBM 4381 and leases two IBM AS/400s, two IBM 3090 600Es, one IBM 3090- 400J, one IBM 962 R31 and one IBM 9121 210, all of which are used for program development and testing, network management and product demonstrations. ITEM 3. LEGAL PROCEEDINGS No legal proceedings required to be disclosed. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of shareholders during the fourth quarter of the Company's recently completed fiscal year. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS NASDAQ SYMBOL The Company's Class A Common Shares are listed on the NASDAQ Stock Market-- National Market. There were 1,113 shareholders of record of the Company's Class A Common Shares and 2 shareholders of the Company's Class B Common Shares as of July 11, 1997. The payment of future cash dividends will be at the sole discretion of the Board of Directors and will depend upon the Company's profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. MARKET PRICE INFORMATION The table below presents the high and low sales prices for American Software, Inc. common stock as reported by NASDAQ, for the Company's last two fiscal years (1996 and 1997).
HIGH LOW -------- ------ FISCAL YEAR 1997 First Quarter............................................ $5 5/8 $3 3/4 Second Quarter........................................... 7 1/8 4 Third Quarter............................................ 7 13/16 4 5/8 Fourth Quarter........................................... 7 13/16 5 3/8
11
HIGH LOW -------- ------ FISCAL YEAR 1996 First Quarter............................................ $5 7/8 $3 1/2 Second Quarter........................................... 8 3/8 5 1/4 Third Quarter............................................ 8 3/4 3 Fourth Quarter........................................... 5 1/2 3 5/8
The closing price on July 21, 1997 was 7 3/8. Cash Dividends FISCAL YEAR 1997 First Quarter................................................ $ -- $ -- Second Quarter............................................... -- -- Third Quarter................................................ -- -- Fourth Quarter............................................... -- -- FISCAL YEAR 1996 First Quarter................................................ $ -- $ -- Second Quarter............................................... -- -- Third Quarter................................................ -- -- Fourth Quarter............................................... -- --
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
1997 1996 1995 1994 1993 ------- ------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) For year ended April 30: Revenues......................... $84,711 $77,557 $ 79,462 $ 94,222 $106,844 Total costs and expenses......... 83,030 92,886* 93,049 108,328 103,558 ------- ------- -------- -------- -------- Operating earnings (loss)...... 1,681 (15,329) (13,587) (14,106) 3,286 Other income..................... 1,744 2,569 2,245 2,428 3,459 ------- ------- -------- -------- -------- Earnings (loss) before income taxes........................... 3,425 (12,760) (11,342) (11,678) 6,745 Income tax expense (benefit)..... 1,093 (3,011) (4,653) (5,090) 1,635 ------- ------- -------- -------- -------- Net earnings (loss)............ $ 2,332 $(9,749) $ (6,689) $ (6,588) $ 5,110 ======= ======= ======== ======== ======== Net earnings (loss) per common and common equivalent share..... $ .10 $ (.44) $ (.30) $ (.30) $ .23 Cash dividends per share......... $ -- $ -- $ .16 $ .32 $ .31 Cash dividends paid.............. $ -- $ -- $ 3,570 $ 7,148 $ 6,990 As of April 30: Working capital.................. $21,492 $21,511 $ 36,407 $ 46,328 $ 61,839 Total assets..................... $97,112 $90,782 $107,792 $117,641 $131,540 Long-term debt................... $ -- $ -- $ -- $ -- $ -- Shareholders' Equity............. $67,152 $64,255 $ 74,037 $ 84,268 $ 98,031
- -------- * The 1996 total costs and expenses includes fourth quarter write-downs of $6.1 million to net realizable value for certain capitalized computer software development costs and purchased computer software costs and $2.7 million to the provision for doubtful accounts. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS American Software develops, markets, and supports integrated supply chain management and enterprise resource planning solutions. The product line encompasses integrated business applications such as demand 12 forecasting, logistics planning, warehouse management, order management, financials, manufacturing, and transportation solutions. The Company offers professional services to its customers in support of its products. These services include training, system implementation, consulting, custom programming, network management, millennium conversion, and telephonic support services. REVENUES The Company's license fee revenues grew 25% in the fiscal year ended April 30, 1997 and 16% in fiscal year 1996. Logility Planning Solutions software has been the principal factor in American Software's license fee growth, constituting approximately 40%, 41% and 19% of license fee revenues in 1997, 1996 and 1995 respectively. License fees from the company's Enterprise Solutions increased 26% from 1996 to 1997 and decreased 11% from 1995 to 1996. Services revenues, which are composed primarily of consulting, custom programming, and network management services (formerly referred to as outsourcing), increased 6% from 1996 to 1997 due to increased network management revenues, which increased 26% to $13.0 million in 1997. Services revenues decreased 15% from 1995 to 1996 due primarily to the fact that license fee revenues trended down in 1995. This decrease reflected the fact that services revenues generated in connection with new software licenses typically trail those license fee revenues by two to three quarters. The decrease from 1995 to 1996 was partially offset by an increase in network management revenues, which increased 12% to $10.3 million in 1996 from $9.2 million in 1995. Network management services consists generally of assisting customers with their data processing functions by processing their software on the Company's equipment. The Company began using the term network management services to better describe the services it provides. Maintenance revenues, which consist of product support activities and on- going product enhancements provided to customers who license the Company's products and purchase maintenance agreements increased 1% to $22.8 million in 1996 and decreased 3% to $22.0 million in 1997. Maintenance revenues trended up in 1997 on a quarterly basis and trended down in 1996. Maintenance revenues generally follow license fee revenues which serve as the source of new maintenance customers. The Company believes that revenues trended up in 1997 in all three categories due to the increase in new products from Logility Planning Solutions being introduced in the market place and because of the need of businesses to insure that their software solutions will operate in the new millennium. In the area of license fees, the Company offers year 2000 enabled solutions to new customers; in the area of services the Company offers both its existing customers and new customers assistance in preparing their total enterprise solutions to operate into the next millennium; and in the area of maintenance revenues the Company has greater opportunities to retain customers on maintenance who must insure that their existing solutions are year 2000 enabled. The Company believes that this trend will continue in 1998, although the magnitude of this trend cannot be accurately projected. COST OF REVENUES The cost of revenues for license fees consists primarily of salaries and related employee benefits, third-party royalties, and amortization of capitalized computer software development costs. These costs decreased in 1997 due to lowered amortization expense from the write-off of $6.1 million in capitalized computer software development costs and purchased software costs in the fourth quarter of 1996, and to a lesser extent due to lower personnel costs from reduced headcount levels. These costs increased in 1996 from 1995 levels due to the costs associated with the aforementioned write-off. The cost of revenues for license fees are expected to substantially increase due to increased amortization expense when certain capitalized computer software projects currently under development are completed and become generally available. The Company believes that these projects will be completed by the end of calendar 1997. The cost of revenues for services consists of salaries and related employee benefits, contract programming, travel and living expenses and the costs of software and equipment to provide network management services. 13 These costs increased 8% in 1997 and 1% in 1996, primarily due to increased expenses related to the higher network management revenues. The cost of revenues for maintenance consists of salaries and related employee benefits and are accounted for on the basis of time spent by Company personnel performing activities relative to the maintenance agreements. These costs decreased 2% in 1997 and decreased 14% in 1996. Total operating expenses were down 11% in 1997 due primarily to certain write-offs in the fourth quarter of 1996. Excluding those write-offs, operating expenses were 10% lower in 1996 compared to 1995. Absent the fourth quarter write-offs, expenses decreased in 1996 due primarily to a 16% decrease in the average number of salaried employees. American Software wrote off approximately $8.8 million from operations in the fourth quarter of fiscal 1996. Additionally, the Company created a $2.0 million valuation allowance against certain deferred income tax assets, principally for foreign tax credits, which affected the tax benefit for both the fourth quarter and fiscal year 1996. As part of the total $8.8 million in write-offs, approximately $6.1 million of computer software costs relating to older technology products were written off. Of that, $3.6 million related to internally developed software and $2.5 million to purchased software. The software write-offs were due to insufficient projected revenues as compared to the carrying values of those products. Additionally, during the fourth quarter of 1996, the Company wrote off $2.7 million of accounts receivable directly to the provision for doubtful accounts. Over 50% of the write-offs, comprised of three accounts, related to international accounts in Eastern Europe and the Pacific Rim. The Company's research and development expenditures consist of new product development and enhancement of existing products. These expenditures totalled $12.2 million, $16.1 million, and $12.6 million in fiscal years 1997, 1996, and 1995, respectively, and represented 41%, 67%, and 60% of license fees for those fiscal years. Marketing and Sales expenses increased 2% in 1997 and decreased 2% in 1996. These small fluctuations occurred while license fees increased each year, reflecting increased productivity from the Company's sales force. Provision for doubtful accounts for 1997 decreased to $.7 million from $3.2 million in 1996 due to the aforementioned write-offs. Other income is comprised predominantly of interest income, gains and losses from sales of investments, and changes in the market value of investments, and was $1.7 million, $2.6 million, and $2.2 million, in 1997, 1996, and 1995, respectively. Cash and investments totalled approximately $24.4 million and $26.1 million, and comprised 25% and 29%, of total assets at April 30, 1997 and 1996, respectively. The income tax expense in 1997 was 32% of pretax income compared to an income tax benefit of 24% of the pretax loss in 1996, and an income tax benefit of 41% of the pretax loss in 1995. The decrease in the tax benefit rate from fiscal 1995 to fiscal 1996 was due to the establishment of a $2.0 million valuation allowance against deferred income tax assets, principally for foreign tax credits (see footnote 3 to Notes to Consolidated Financial Statements). The Company believes that inflation has not materially affected the results of its operations for the past three years. OPERATING PATTERN The Company experiences an irregular pattern of quarterly operating results, caused primarily by fluctuations in both the number and size of software license contracts received and delivered from quarter to quarter. 14 LIQUIDITY AND CAPITAL RESOURCES Cash has been provided by: operating activities through the sale of portions of the company's investment securities; by the receipt of income tax refunds in 1995 and 1996 due to operating loss carrybacks; and by the collection of accounts receivable in 1995 and 1996. The Company's operating activities provided cash of $13.1 million in 1997, $16.5 million in 1996, and $14.0 million in 1995. With the Company's adoption of SFAS 115 on May 1, 1994, its investments including money market funds are accounted for as a trading portfolio. The activities of that portfolio are included in operating activities in the consolidated statements of cash flows. Income tax refunds due to net operating loss carrybacks generated $4.6 million in fiscal 1996 and $4.1 million in fiscal 1995. Cash used for investing activities was $12.2 million in 1997, $15.7 million in 1996, and $11.2 million in 1995. These activities were primarily for purchase of property and equipment and expenditures for capitalized computer software development. The Company had no material commitments for capital expenditures as of April 30, 1997. Cash provided by financing activities was $546,408 in 1997, and cash used in financing activities was $57,000 in 1996, and $3.7 million in 1995. The reduction in cash used for financing activities in fiscal 1996 as compared to fiscal 1995 was due to the suspension of the Company's quarterly dividends after payment of two quarterly dividends in fiscal 1995. The Company's current ratio was 1.8 to 1 and cash and investments totaled 25% of total assets at April 30, 1997. The Company expects existing cash and investments, combined with cash generated from operations, to be sufficient to meet its operational needs in 1998. The Company may seek additional sources of capital to meet its growth objectives in the future. IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS It should be noted that this discussion contains forward-looking statements which are subject to substantial risks and uncertainties. There are a number of factors which could cause actual results to differ materially from those anticipated by statements made herein. Such factors include, but are not limited to, changes in general economic conditions, the growth rate of the market for the Company's products and services, the timely availability and market acceptance of new products and services, the ability of the Company to implement changes in sales strategies and organization on a timely basis, the effect of competitive products and pricing, and the irregular pattern of revenues, as well as a number of other risk factors which could effect the future performance of the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Consolidated Balance Sheets as of April 30, 1997 and 1996................. 16 Consolidated Statements of Operations for the Years ended April 30, 1997, 1996 and 1995............................................................ 18 Consolidated Statements of Shareholders' Equity for the Years ended April 30, 1997, 1996 and 1995.................................................. 19 Consolidated Statements of Cash Flows for the Years ended April 30, 1997, 1996 and 1995............................................................ 20 Notes to the Consolidated Financial Statements............................ 21 Independent Auditors' Report.............................................. 30
15 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) APRIL 30, 1997 AND 1996
1997 1996 ------- ------- ASSETS Current assets: Cash......................................................... $ 3,442 $ 1,947 Investments (note 2)......................................... 20,964 24,207 Trade accounts receivable, less allowance for doubtful accounts of $1,182 in 1997 and $1,200 in 1996........................ 15,919 14,106 Unbilled accounts receivable................................. 3,172 953 Current deferred income taxes (note 3) ...................... 1,995 1,938 Refundable income taxes...................................... 1,060 1,022 Prepaid expenses and other current assets.................... 1,766 1,881 ------- ------- Total current assets....................................... 48,318 46,054 ------- ------- Property and equipment, at cost: Buildings and leasehold improvements......................... 20,107 19,241 Computer equipment........................................... 16,992 15,786 Office furniture and equipment............................... 4,548 4,396 ------- ------- 41,647 39,423 Less accumulated depreciation and amortization................. 24,244 21,804 ------- ------- Net property and equipment................................. 17,403 17,619 ------- ------- Capitalized computer software development costs, less accumulated amortization of $31,838 in 1997 and $27,167 in 1996........... 28,171 22,944 Purchased computer software costs, less accumulated amortization of $4,833 in 1997 and $4,101 in 1996.......................... 846 1,231 ------- ------- Total computer software costs.............................. 29,017 24,175 ------- ------- Other assets, net.............................................. 2,374 2,934 ------- ------- $97,112 $90,782 ======= =======
See accompanying notes to consolidated financial statements. 16 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) APRIL 30, 1997 AND 1996
1997 1996 ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable............................................. $ 5,221 $34,940 Accrued compensation and related costs....................... 5,077 3,656 Accrued royalties............................................ 839 947 Other current liabilities.................................... 4,368 3,494 Deferred revenue............................................. 11,321 11,506 ------- ------- Total current liabilities.................................. 26,826 24,543 Deferred income taxes (note 3)................................. 3,134 1,984 ------- ------- Total liabilities.......................................... 29,960 26,527 ------- ------- Shareholders' equity (note 5): Common stock: Class A, $.10 par value. Authorized 50,000,000 shares; issued 18,972,926 shares in 1997 and 18,769,083 shares in 1996..... 1,897 1,877 Class B, $.10 par value. Authorized 10,000,000 shares; issued and outstanding 4,815,289 shares in 1997 and 4,836,889 shares in 1996; convertible into Class A shares on a one-for-one basis.................. 482 484 Additional paid-in capital................................... 31,317 30,776 Retained earnings............................................ 45,430 43,098 ------- ------- 79,126 76,235 Less Class A treasury stock, 1,330,251 shares in 1997 and 1,331,119 shares in 1996, at cost......................... 11,974 11,980 ------- ------- Total shareholders' equity................................. 67,15 264,255 ------- ------- Commitments and contingencies (notes 4, 7, and 8) $97,112 $90,782 ======= =======
See accompanying notes to consolidated financial statements. 17 CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA) YEARS ENDED APRIL 30, 1997, 1996, AND 1995
1997 1996 1995 ---------- ---------- ---------- Revenues (note 6): License fees............................. $ 30,106 $ 24,067 $ 20,780 Services................................. 32,595 30,682 36,050 Maintenance.............................. 22,010 22,808 22,632 ---------- ---------- ---------- Total revenues........................... 84,711 77,557 79,462 ---------- ---------- ---------- Cost of revenues: License fees............................. 11,797 18,317 16,240 Services................................. 27,410 25,367 25,118 Maintenance.............................. 7,972 8,139 9,489 ---------- ---------- ---------- Total cost of revenues................... 47,179 51,823 50,847 ---------- ---------- ---------- Research and development costs............. 12,198 16,094 12,552 Less: Capitalizable software............. (9,898) (12,750) (7,352) Marketing and sales expense................ 20,811 20,447 20,794 General and administrative expenses........ 12,019 14,089 16,367 Provision for (recovery of) doubtful accounts.................................. 721 3,183 (159) ---------- ---------- ---------- Operating earnings (loss).............. 1,681 (15,329) (13,587) Other income: Interest income.......................... 989 1,672 2,045 Other, net............................... 755 897 200 ---------- ---------- ---------- Earnings (loss) before income taxes.... 3,425 (12,760) (11,342) Income tax expense (benefit)--(note 3)..... 1,093 (3,011) (4,653) ---------- ---------- ---------- Net earnings (loss)........................ $ 2,332 $ (9,749) $ (6,689) ========== ========== ========== Net earnings (loss) per common and common equivalent share.......................... $ .10 $ (.44) $ (.30) ========== ========== ========== Weighted average number of common and common equivalent shares outstanding............. 23,355,094 22,261,782 22,317,899 ========== ========== ==========
See accompanying notes to consolidated financial statements. 18 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED APRIL 30, 1997, 1996, AND 1995
COMMON STOCK ----------------------------------------- CLASS A CLASS B --------------------- ------------------- ADDITIONAL TOTAL PAID-IN RETAINED TREASURY SHAREHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY ---------- ---------- --------- -------- ----------- ----------- ------------ ------------- Balance at April 30, 1994................... 18,688,728 $1,868,873 4,840,489 $484,049 $30,415,118 $63,105,879 $(11,605,438) $84,268,481 Cash dividends declared-- $.16 per share......... -- -- -- -- -- (3,569,731) -- (3,569,731) Proceeds from stock options exercised at $2.22 to $4.11 per share.................. 41,143 4,115 -- -- 46,791 -- -- 50,906 Grants of compensatory stock options.......... -- -- -- -- 194,424 -- -- 194,424 Repurchase of 85,000 Class A shares......... -- -- -- -- -- -- (296,250) (296,250) Issuance of 17,057 Class A Shares under the Dividend Reinvestment and Stock Purchase Plan................... -- -- -- -- -- -- 78,144 78,144 Net loss................ -- -- -- -- -- (6,689,162) -- (6,689,162) ---------- ---------- --------- -------- ----------- ----------- ------------ ----------- Balance at April 30, 1995................... 18,729,871 1,872,988 4,840,489 484,049 30,656,333 52,846,986 (11,823,544) 74,036,812 Proceeds from stock options exercised at $2.75 to $4.56 per share and other stock option transactions.... 35,612 3,562 -- -- 95,308 -- -- 98,870 Conversion of Class B shares into Class A shares................. 3,600 360 (3,600) (360) -- -- -- -- Grants of compensatory stock options.......... -- -- -- -- 24,563 -- -- 24,563 Repurchase of 25,000 Class A shares......... -- -- -- -- -- -- (160,000) (160,000) Issuance of 824 Class A shares under the Dividend Reinvestment and Stock Purchase Plan................... -- -- -- -- -- -- 4,490 4,490 Net loss................ -- -- -- -- -- (9,749,337) -- (9,749,337) ---------- ---------- --------- -------- ----------- ----------- ------------ ----------- Balance at April 30, 1996................... 18,769,083 1,876,910 4,836,889 483,689 30,776,204 43,097,649 (11,979,054) 64,255,398 Proceeds from stock options exercised at $2.75 to $5.50 per share and other stock option transactions.... 182,243 18,224 -- -- 522,906 -- -- 541,130 Conversion of Class B shares into Class A shares................. 21,600 2,160 (21,600) (2,160) -- -- -- -- Grants of compensatory stock options.......... -- -- -- -- 18,084 -- -- 18,084 Issuance of 868 Class A shares under Dividend Reinvestment and Stock Purchase Plan.......... -- -- -- -- -- -- 5,278 5,278 Net income.............. -- -- -- -- -- 2,331,857 -- 2,331,857 ---------- ---------- --------- -------- ----------- ----------- ------------ ----------- Balance at April 30, 1997................... 18,972,926 $1,897,294 4,815,289 $481,529 $31,317,194 $45,429,506 $(11,973,776) $67,151,747 ========== ========== ========= ======== =========== =========== ============ ===========
See accompanying notes to consolidated financial statements. 19 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) YEARS ENDED APRIL 30, 1997, 1996, AND 1995
1997 1996 1995 -------- -------- -------- Cash flows from operating activities: Net earnings (loss)........................... $ 2,332 $ (9,749) $ (6,689) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization................. 8,113 12,151 11,748 Net loss (gain) on investments................ (635) (873) (609) Loss on disposal of property.................. -- 19 38 Equity in loss of investee.................... 575 178 -- Capitalized software impairment charge........ -- 6,158 -- Grants of compensatory stock options.......... 18 25 194 Deferred income taxes......................... 1,093 6,074 1,026 Changes in operating assets and liabilities: Net (increase) decrease in money market funds. (2,810) 4,726 (3,325) Purchases of trading securities............... (242) (10,153) (4,055) Proceeds from sale of trading securities...... 2,567 1,833 8,948 Proceeds from maturities of trading securities................................... 4,363 11,536 6,266 Accounts receivable........................... (4,032) 1,358 3,490 Prepaid expenses and other current assets..... (466) (1,142) (375) Accounts payable and other liabilities........ 2,338 222 74 Income taxes.................................. 93 7,484 (2,187) Deferred revenue.............................. (186) (1,245) (522) -------- -------- -------- Net cash provided by operating activities..... 13,121 16,454 14,022 ======== ======== ======== Cash flows from investing activities: Capitalized software development costs........ (9,898) (12,750) (7,352) Purchase of TXbase Systems, Inc. stock........ -- -- (827) Purchase of Intellimedia Commerce, Inc........ -- (850) -- Purchases of property and equipment........... (2,275) (2,078) (3,050) -------- -------- -------- Net cash used in investing activities......... (12,173) (15,678) (11,229) -------- -------- -------- Cash flows from financing activities: Repurchases of common stock................... -- (160) (296) Proceeds from Dividend Reinvestment Plan...... 6 4 78 Proceeds from exercise of stock options....... 541 99 51 Dividends paid................................ -- -- (3,570) -------- -------- -------- Net cash provided by (used in) financing activities................................... 547 (57) (3,737) -------- -------- -------- Net change in cash.............................. 1,495 719 (944) Cash at beginning of year....................... 1,947 1,228 2,172 Cash at end of year............................. $ 3,442 $ 1,947 $ 1,228 ======== ======== ======== Supplemental disclosure of cash paid (received) during the year for income taxes............... $ 238 $ (4,369) $ (3,493) ======== ======== ========
See accompanying notes to consolidated financial statements. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1997, 1996, AND 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation The consolidated financial statements include the accounts of American Software, Inc. and its wholly owned subsidiaries and its majority-owned subsidiary (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 applications software. The Company's operations are principally in the computer software industry with a network management services business. (b) Revenue Recognition License fees in connection with license agreements for standard proprietary and tailored software are recognized upon delivery of the software provided collection is considered probable and no significant obligations remain outstanding. 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. Significant maintenance costs included in the initial license fee are accrued. Revenue related to professional services, including network management and education is recognized as the related services are performed. Maintenance revenue is recognized ratably over the term of the maintenance agreements. Deferred revenue represents advance payments to the Company by customers for services and products. (c) Investments Investments at April 30, 1997 and April 30, 1996, consist of money market funds, debt securities, and marketable equity securities. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115) as of May 1, 1994. Pursuant to the provisions of SFAS 115, the Company has classified its investment portfolio as "trading." "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. The effect of adopting SFAS 115 was not significant and has been included in other income, net, in the accompanying consolidated statement of operations. (d) 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, five years, and five years, respectively. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the lease term, whichever is shorter. (e) Capitalized Computer Software Development Costs The Company capitalizes computer software development costs by project, commencing when technological feasibility for the respective product is established and concluding when the product is ready for general release 21 to customers. The Company makes an ongoing assessment of the recoverability of its capitalized software projects by comparing the amount capitalized for each product to the estimated net realizable value (NRV) of the product. If the NRV is less than the amount capitalized, a write-down to NRV is recorded. The Company capitalized computer software development costs totaling approximately $9.9 million, $12.8 million, and $7.4 million in 1997, 1996, and 1995, respectively. The Company expensed approximately $3.6 million in 1996 as these amounts were deemed unrealizable based on future revenue projections. Capitalized computer software development costs are being amortized using the straight-line method over an estimated useful life of three years. Amortization expense was approximately $4.7 million, $7.1 million, $7.0 million in 1997, 1996, and 1995, respectively. The total of research and development costs and additions to capitalized computer software development costs were approximately $12.2 million, $16.1 million, $12.6 million in years 1997, 1996, and 1995, respectively. The Company incurred research and development costs totaling approximately $2.3 million, $3.4 million, $5.2 million, which were expensed in 1997, 1996, and 1995, respectively. (f) Purchased Computer Software Costs Purchased computer software costs represent the cost of acquiring computer software. Amortization of purchased computer software costs is calculated using the straight-line method over a period of three to five years. Amortization expense was approximately $734,000, $2.4 million and $2.3 million in 1997, 1996, and 1995, respectively. The Company expensed $2.6 million in 1996 as this amount was deemed unrealizable based on future revenue projections. (g) Income Taxes The Company accounts for income taxes using the asset and liability method of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"). 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. (h) Earnings (Loss) Per Common and Common Equivalent Share The earnings (loss) per common and common equivalent share are based on the weighted average number of Class A and B shares outstanding, since the Company considers the two classes of common stock as one class for the purposes of the per share computation, and share equivalents from dilutive stock options outstanding during each year. Share equivalents are excluded from the aforementioned computation during loss periods. Net earnings (loss) per share computed on a fully diluted basis is not significantly different than net earnings (loss) per share computed using the primary basis. (i) 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. (j) Impairment of Long-Lived Assets The Company adopted Statement of Financial Accounting Standards No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS No. 121"). SFAS No. 121 requires 22 that long-lived assets and certain identifiable intangibles held and used by a company be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 121 also requires that long-lived assets and certain identifiable intangibles held for sale, other than those related to discontinued operations, be reported at the lower of carrying amount or fair value less cost to sell. The Company's adoption of SFAS No. 121 did not have an impact on its consolidated financial statements. (k) Stock Compensation Plans Prior to May 1, 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On May 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures under the provisions of SFAS No. 123. (l) Reclassifications Certain reclassifications have been made to the 1996 and 1995 consolidated financial statements to conform to the presentation adopted in 1997. (2) INVESTMENTS As discussed in note 1, the Company adopted SFAS 115 as of May 1, 1994. The change in method of accounting for investments did not have a significant effect on the 1995 consolidated statement of operations. Prior years' financial statements have not been restated to apply the provisions of SFAS 115. Investments consist of the following:
APRIL 30, --------------- 1997 1996 ------- ------- (IN THOUSANDS) Money market funds.......................................... $ 4,137 $ 1,326 Debt securities: U.S. Treasury securities.................................. 1,096 1,491 Tax-exempt state and municipal bonds...................... 9,982 14,652 ------- ------- Total debt securities................................... 11,078 16,143 ------- ------- Equity securities......................................... 5,749 6,738 ------- ------- $20,964 $24,207 ======= =======
In 1997 and 1996, the Company's investment portfolio experienced net unrealized holding gains of approximately $635,000 and $873,000 respectively, which have been included in other income, net in the 1997 and 1996 consolidated statements of operations. At April 30, 1997, 90% of the tax-exempt state and municipal bonds related to state and municipal governments and authorities in Georgia. 23 (3) INCOME TAXES Income tax expense (benefit) consists of the following:
YEARS ENDED APRIL 30, ----------------------- 1997 1996 1995 ------ ------- ------- (IN THOUSANDS) Current: Federal........................................... $ -- $(5,429) $(5,372) State............................................. -- (768) (696) ------ ------- ------- -- (6,197) (6,068) ------ ------- ------- Deferred: Federal........................................... 949 2,993 1,192 State............................................. 144 193 223 ------ ------- ------- 1,093 3,186 1,415 ------ ------- ------- $1,093 $(3,011) $(4,653) ====== ======= =======
The Company's effective income tax rate of 32%, 24%, and 41% for the years ended April 30, 1997, 1996, and 1995, respectively, differs from the "expected" income tax expense (benefit) for those years calculated by applying the Federal statutory rate of 34% to earning (loss) before income taxes as follows:
YEARS ENDED APRIL 30, ------------------------ 1997 1996 1995 ------ ------- ------- (IN THOUSANDS) Computed "expected" income tax expense (benefit).. $1,164 $(4,338) $(3,856) Increase (decrease) in income taxes resulting from: State income taxes, net of Federal income tax effect......................................... 96 (380) (312) Foreign taxes paid.............................. 182 51 572 Foreign tax credits............................. (182) -- (572) Tax-exempt interest income...................... (280) (203) (640) Cancellation of compensatory stock options...... -- -- 227 Change in the beginning-of-the year balance of the valuation allowance for deferred tax assets allocated to income tax benefit................ -- 1,980 -- Other, net...................................... 113 (121) (72) ------ ------- ------- $1,093 $(3,011) $(4,653) ====== ======= =======
The significant components of deferred income tax expense attributable to earnings (loss) before income taxes for the years ended April 30, 1997, 1996, and 1995 are as follows:
YEARS ENDED APRIL 30, ----------------------- 1997 1996 1995 ------- ------- ------- (IN THOUSANDS) Deferred tax expense................................ $1,093 $1,206 $1,189 Cancellation of compensatory stock options.......... -- -- 226 Increase in beginning-of-the year balance of the valuation allowance for deferred tax assets........ -- 1,981 -- ------- ------- ------- $1,093 $3,187 $1,415 ======= ======= =======
24 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at April 30, 1997 and 1996, are presented as follows:
APRIL 30, ----------------- 1997 1996 -------- ------- (IN THOUSANDS) Deferred tax assets: Expenses, due to accrual for financial reporting purposes.............................................. $ 1,719 $ 1,605 Accounts receivable, due to allowance for doubtful accounts.............................................. 448 456 Compensation expense related to grants of nonqualified stock options......................................... 189 189 Deferred gain on sale of real estate option............ -- 72 Net operating loss carry forwards...................... 8,083 7,309 Foreign tax credit carry forwards...................... 1,791 1,780 Other.................................................. 236 -- -------- ------- Total gross deferred tax assets...................... 12,466 11,411 Less valuation allowance............................... (1,980) (1,980) -------- ------- Net deferred tax assets.............................. 10,486 9,431 Deferred tax liabilities: Capitalized computer software development costs........ (10,699) (8,714) Property and equipment, primarily due to differences in depreciation.......................................... (349) (370) Other.................................................. (577) (393) -------- ------- Total gross deferred tax liabilities................. (11,625) (9,477) -------- ------- Net deferred tax liability........................... $ (1,139) $ (46) ======== =======
Refundable income taxes arose primarily from the 1995 and 1994 taxable losses that were carried back to earlier profitable years to recover income taxes previously paid. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon reversal of deferred tax liabilities, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at April 30, 1997 and 1996. At April 30, 1997, the Company has net operating loss carry forwards for federal income tax purposes of approximately $20.0 million which are available to offset future federal taxable income, if any, through 2012. In addition, the Company has foreign tax credit carry forwards for federal income tax purposes of approximately $1.8 million which are available to offset future federal income taxes pursuant to the income tax laws. Such credits expire in varying amounts through 2002. (4) ACQUISITIONS In January 1996, the Company acquired a 60% interest in Intellimedia Commerce, Inc., a company which builds and maintains systems for commerce on the Internet, for $850,000. 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. The goodwill and capitalized computer software development costs are each being amortized over five-year periods. In March 1995, the Company acquired a 30% interest in TXbase Systems, Inc., a client/server-based software company, for approximately $827,000. This investment was accounted for under the equity method. 25 The excess investment over the underlying equity in net assets was amortized using the straight-line method over a period of five years. In conjunction with the purchase, the Company extended TXbase Systems, Inc. a line of credit in the amount of $800,000 providing certain financial and other requirements are met. Any outstanding advance balance is convertible into additional equity ownership at the discretion of the Company. In January 1997, the Company wrote off the remaining balance of this investment. In July 1993, the Company purchased from Coda Corporation the proprietary rights to certain computer software for $3.3 million. In 1996, the Company wrote off the remaining unamortized balance. (5) 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 earning (loss) per share computation. 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 52,576 options outstanding under these plans at April 30, 1997. These plans were replaced with the 1991 Employee Stock Option Plan ("1991 Plan") and the Director and Officer Stock Option Plan ("D and O Plan"). Under the 1991 Plan, the Board of Directors is authorized to grant key employees options to purchase up to $2.4 million shares of Class A common stock, plus any shares granted under the terminated plans that terminate or expire without being wholly exercised. These options vest in four equal annual installments commencing one year from the effective date of grant. All options must be exercised within ten years of the effective date of grant, but will expire sooner if the optionee's employment terminates. Under the D and O Plan, the Board of Directors is authorized to grant directors and officers options to purchase up to 900,000 shares of Class A common stock. These options typically are exercisable based upon the terms of such options up to 10 years after the date of grant, but will expire sooner if the optionee's employment terminates. Additionally, both the 1991 Plan and D and O Plan can issue either incentive stock options or nonqualified stock options. Both the 1991 Plan and D and O Plan will terminate on May 13, 2001. Incentive and nonqualified options exercisable at April 30, 1997, are 840,314 and 150,392 shares, respectively. Options available for grant at April 30, 1997, for the 1991 Plan and D and O Plan are 542,983 and 278,063 shares, respectively. 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 FASB Statement No. 123, the 26 Company's net earnings (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:
YEARS ENDED APRIL 30, --------------------- 1997 1996 --------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net earnings (loss)--as reported..................... $ 2,332 $ (9,749) pro forma............................................ $ 1,040 $ (10,458) Primary earnings (loss) per share--as reported....... $ .10 $ (.44) pro forma............................................ $ .04 $ (.47)
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 used for grants in 1997 and 1996: dividend yield of 0%; expected volatility of 211.9%; risk-free interest rates of 6.1%; and expected lives of 8 years for all of the Plan options. A summary of the status of the Company's stock option plans as of April 30, 1997 and 1996, and changes during the years ended on those dates is presented below:
1997 1996 ------------------------ ------------------------ WEIGHTED- WEIGHTED- FIXED OPTIONS SHARES AVERAGE PRICE SHARES AVERAGE PRICE ------------- --------- ------------- --------- ------------- Outstanding at beginning of year.................. 2,611,818 3.27 2,213,050 2.95 Granted................... 856,960 5.12 776,330 4.14 Exercised................. (182,243) 6.12 (35,612) 4.98 Forfeited/canceled........ (296,301) 3.62 (341,950) 3.06 --------- --------- Outstanding at end of year..................... 2,990,234 3.75 2,611,818 3.27 ========= ========= Options exercisable at year-end................. 1,001,956 583,902 Weighted-average fair value of options granted during the year.......... 5.09 4.23
Summarized option data for the incentive options as of April 30, 1995 is as follows:
SHARES UNDER RANGE PRICE OPTION PER SHARE ---------- ----------- Options outstanding at April 30, 1994................ 1,611,148 $2.22-16.88 Options granted...................................... 2,639,524 2.75-5.75 Options exercised.................................... (41,143) 2.22-4.11 Options cancelled.................................... (1,996,479) 2.75-16.88 ---------- Options outstanding at April 30, 1995................ 2,213,050 $2.22-15.00 ==========
The following table summarizes information about fixed stock options outstanding at April 30, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------------------------------------------------------------------- NUMBER WEIGHTED-AVERAGE NUMBER RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE EXERCISE PRICES AT APRIL 30, 1997 CONTRACTUAL LIFE EXERCISE PRICE AT APRIL 30, 1997 EXERCISE PRICE --------------- ----------------- ---------------- ---------------- ----------------- ---------------- $2.22-15.00 2,990,234 7.7 $3.75 1,001,956 $3.39
27 Dividend reinvestment and Stock Purchase Plan In 1995, the Company adopted a Dividend Reinvestment and Stock Purchase Plan retroactive to February 25, 1994. Under the Plan, 500,000 shares of the Company's Class A common stock were reserved for the use of the Dividend Reinvestment Plan. The shares are to be utilized from treasury stock to the extent available, with any additional shares to be utilized from authorized but unissued shares of Class A common stock. In 1997 and 1996, 868 shares and 824 shares, respectively, were issued pursuant to this plan. (6) INTERNATIONAL REVENUES International revenues approximated $8.3 million, or 10%, $10.6 million or 14%, and $10.3 million or 13%, of consolidated revenues for the years ended April 30, 1997, 1996, and 1995, respectively, and were primarily from customers in Canada, Europe, Australia, and Asia. (7) COMMITMENTS Leases The Company leases an office facility from a partnership controlled by the two Class B shareholders, under an operating lease that expired in March 1997. The lease is currently operating on a month-to-month basis. Amounts expensed under this lease for the years ended April 30, 1997, 1996, and 1995 approximated $274,000, $301,000 and $291,000 respectively. The Company leases other office facilities, certain office equipment, and computer equipment under various operating leases expiring through 2002. Rental expense for these operating leases approximated $3.6 million, $5.5 million, and $5.9 million for the years ended April 30, 1997, 1996, and 1995, respectively. Approximate aggregate minimum annual rentals under all long-term, noncancellable, operating leases are as follows:
Years ending April 30, (in thousands) 1998............................................................ $2,693 1999............................................................ 2,381 2000............................................................ 928 2001............................................................ 64 2002............................................................ 28 ------ $6,094 ======
401(k) Profit Sharing Plan The Company has a profit sharing plan covering all employees with at least 12 months of service. The Company's contribution to the plan is determined by the Board of Directors, and is limited to a maximum of fifteen percent (15%) of the compensation (as defined) of the participating employees during the Company's fiscal year, and is payable only out of the annual net earnings or accumulated earnings of the Company. Participants in the plan are entitled, but not required, to contribute a maximum of 15% of their annual compensation to the plan. The Company did not make contributions for 1997, 1996, or 1995. (8) CONTINGENCIES The Company has been named as a defendant in legal actions arising from their normal business activities in which certain damages have been claimed. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, based upon consultation with legal counsel, any such liability will not have a material adverse effect on the consolidated financial position or results of operations of the Company. 28 (9) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments, excluding investments, consisted of cash; trade accounts receivable and unbilled accounts receivable; refundable income taxes; accounts payable; accrued compensation and related costs; accrued royalties; other current liabilities; and deferred revenue. These aforementioned financial instruments carrying amounts approximate fair value because of the short maturity of those instruments. The Company's investments are classified as "trading" and, accordingly, the carrying value represents fair value. 29 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, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended April 30, 1997. 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 generally accepted auditing standards. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three- year period ended April 30, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Atlanta, Georgia June 20, 1997 30 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...... 62 President, Chief Executive Officer, Treasurer and Director Thomas L. Newberry...... 64 Chairman of the Board of Directors David H. Gambrell....... 67 Director Thomas R. Williams...... 68 Director Paul Di Bono, Jr........ 58 Senior Vice President, General Manager-Midrange Division J. Michael Edenfield.... 39 Executive Vice President, Chief Operating Officer Ellen M. Valentine...... 36 Vice President-Marketing David E. Weigand........ 39 Controller James R. McGuone........ 50 Secretary
All directors hold office until the next annual meeting of the shareholders of the Company. Executive officers of the Company are elected annually and serve at the pleasure of the Board of Directors. Mr. James C. Edenfield is a co-founder of the Company and has served as Chief Executive Officer since November, 1989, and as Co-Chief Executive Officer for more than five years prior to that time. He has been a Director since 1971. Prior to founding the Company, Mr. Edenfield held several executive positions and was a director of Management Science America, Inc., an applications software development and sales company. He holds a Bachelor of Industrial Engineering degree from the Georgia Institute of Technology. Dr. Newberry is a co-founder of the Company and has served as its Chairman of the Board since November, 1989, and was Co-Chief Executive Officer prior to that for more than five years. He has been a Director since 1971. Prior to founding the Company, he held executive positions with several companies engaged in computer systems analysis and software development and sales including Management Science America, Inc., where he was also a director. Dr. Newberry holds Bachelor, Master of Science, and Ph.D. degrees in Industrial Engineering from the Georgia Institute of Technology. Mr. Gambrell has served as a Director of the Company since January, 1983. He has been a practicing attorney since 1952, and is a partner of the law firm of Gambrell & Stolz, L.L.P., counsel to the Company. He served as a member of the United States Senate from the State of Georgia in 1971 and 1972. Mr. Gambrell holds a Bachelor of Science degree from Davidson University and a J.D. degree from the Harvard Law School. Mr. Williams has served as a Director of the Company since April, 1989. He is currently the President of the Wales Group, Inc., a closely-held corporation engaged in investments and venture capital, and has held such position since 1987. He is a Former Chairman of the Board of First Wachovia Corporation, First National Bank of Atlanta and First Atlanta Corporation. He 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. Williams is a director of BellSouth Corporation; Georgia Power Company; National Life Insurance Company of Vermont; ConAgra, Inc.; and AppleSouth, Inc. He is also a trustee of The Fidelity Group of Mutual Funds. Mr. Di Bono joined the Company in January, 1982 and in July, 1993 was elected Senior Vice President and General Manager for Midrange Division. Prior to that time, he served as Vice President for Marketing since 31 December, 1985. Mr. Di Bono holds a B.S. degree in industrial psychology/business administration from Iowa State University. Mr. J. Michael Edenfield joined the Company in September, 1981 and has served as Executive Vice President and Chief Operating Officer since June, 1994. Prior to holding that position, he served as Senior Vice President of North American Sales and Marketing of American Software USA, Inc. from July, 1993 to June, 1994, as Senior Vice President of North American Sales from August, 1992 to July, 1993, as Group Vice President from May, 1991 to August, 1992 and as Regional Vice President from May, 1987 to May, 1991. Mr. Edenfield holds a Bachelor of Industrial Management degree from the Georgia Institute of Technology. Mr. Edenfield is the son of James C. Edenfield, Chief Executive Officer of the Company. Ms. Valentine joined the Company in May, 1995. In February, 1996 she was named Vice President of Marketing. From December 1984 to May 1995, Ms. Valentine was employed by IBM, where she held a variety of marketing and sales management positions. Ms. Valentine holds a Bachelor of Science degree from Pennsylvania State University. Mr. Weigand joined the Company in May, 1989 and became Controller in May, 1997. Mr. Weigand is a Certified Public Accountant and holds a B.S. from The California State University, San Jose and a Masters degree in Taxation from the University of Hartford. Mr. McGuone was elected the Secretary of the Company in May, 1988. He has been a practicing attorney since 1972, and is a partner of the law firm of Gambrell & Stolz, L.L.P., counsel to the Company. Mr. McGuone holds a B.A. degree from Pennsylvania State University and a J.D. degree from Fordham University School of Law. Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "Commission"). Officers, directors and holders of more than 10% of the Common Stock are required by regulations promulgated by the Commission pursuant to the Exchange Act to furnish the Company with copies of all Section 16(a) forms they file. The Company assists officers and directors in complying with the reporting requirements of Section 16(a) of the Exchange Act. Based upon review of filings made under Section 16(a) of the Exchange Act, the Company believes that since May 1, 1996 all Section 16(a) filing requirements applicable to its 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 1997 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 Company's 1997 Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is set forth under the caption "Certain Information Regarding Executive Officers and Directors--Certain Transactions; Compensation Committee and Relationship to Company" in the Company's 1997 Proxy Statement, which information is incorporated herein by reference. Refer also to the Properties Section (Part I, Item 2) of this report on Form 10-KA. 32 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-KA. 2. Financial statement schedule included in Part IV of this Form:
PAGE ---- Report of Independent Auditors 35 Schedule II--Consolidated Valuation Accounts--for the three years ended April 30, 1997 36
All other financial statements and schedules not listed above are omitted as the required information is not applicable or the information is presented in the financial statements or related notes. 3. Exhibits The following exhibits are filed herewith or incorporated herein by reference: 3.1 The Company's Amended and Restated Articles of Incorporation, and amendments thereto, included as Exhibit 3.1 to the Company's Form 10-Q for the quarter ended October 31, 1990, and incorporated herein by this reference. 3.2 The Company's Amended and Restated By-Laws dated November 13, 1989, included as Exhibit 3.1 to the Form 10-Q for the quarter ended January 31, 1990, and incorporated herein by this reference. 10.1 Amended and Restated 1991 Employee Stock Option Plan dated September 25, 1996 included as Exhibit 10.1 to the Form 10-Q for the quarter ended October 31, 1996, and incorporated herein by this reference. 10.2 Amended and Restated Directors and Officers Stock Option Plan effective August 23, 1994, included as Exhibit 10.2 to the Form 10-KA for the fiscal year ended April 30, 1995, and incorporated herein by this reference. 10.3 Stock Option Agreement between the Company and James C. Edenfield dated May 15, 1990, included as Exhibit 10.5 to the Company's Form 10-KA for the fiscal year ended April 30, 1990 and incorporated herein by this reference. 10.4 Stock Option Agreement between the Company and James C. Edenfield dated January 30, 1995, included as Exhibit 10.4 to the Form 10-KA for the fiscal year ended April 30, 1995, and incorporated herein by this reference. 10.5 American Software, Inc. 401(k)/Profit Sharing Plan and Trust Agreement included as Exhibits 4.1 and 4.2, respectively, to the Registrant's Registration Statement No. 33-55214 on Form S-8 and incorporated herein by this reference. 10.6 Lease Agreement dated December 15, 1981, between Company and Newfield Associates, included as Exhibit 10.6 to the Company's Registration Statement Number 2-81444 on Form S-1 (the "1983 Registration Statement") and incorporated herein by this reference. 10.7 Amendment dated January 14, 1983, to Lease Agreement between the Company and Newfield Associates, included as Exhibit 10.7 to the 1983 Registration Statement and incorporated herein by this reference. 11.1 Statement re: Computation of Per Share Earnings (Loss). 21.1 Subsidiaries. 23.1 Independent Auditors' Consent. 27.1 Financial Data Schedule
(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. 33 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/ David E. Weigard By: _________________________________ DAVID E. WEIGARD, PRINCIPAL ACCOUNTING OFFICER AND ACTING PRINCIPAL FINANCIAL OFFICER DATE: August 4, 1997 34 REPORT OF INDEPENDENT AUDITORS The Board of Directors American Software, Inc. Under date of June 20, 1997, we reported on the consolidated balance sheets of American Software, Inc. and subsidiaries as of April 30, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended April 30, 1997 as contained in the American Software, Inc. 1997 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the American Software, Inc. Annual Report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule in Item 14(a)2. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Atlanta, Georgia June 20, 1997 35 SCHEDULE II AMERICAN SOFTWARE, INC. AND SUBSIDIARIES CONSOLIDATED VALUATION ACCOUNTS YEARS ENDED APRIL 30, 1997, 1996, AND 1995 ALLOWANCE FOR DOUBTFUL ACCOUNTS
ADDITIONS BALANCE AT CHARGED BALANCE BEGINNING TO COSTS AND AT END YEAR ENDED OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR - ---------- ---------- ------------ ------------- --------- April 30, 1995.................. $3,800,000 (158,944) 1,734,772 1,906,284 April 30, 1996.................. 1,906,284 2,371,306 3,077,590 1,200,000 April 30, 1997.................. 1,200,000 720,935 739,164 1,181,771
- -------- (1) Write-offs of accounts receivable. DEFERRED INCOME TAX VALUATION ALLOWANCE
ADDITIONS BALANCE AT CHARGED BALANCE BEGINNING TO COSTS AND AT END YEAR ENDED OF YEAR EXPENSES DEDUCTIONS OF YEAR - ---------- ---------- ------------ ---------- --------- April 30, 1995..................... $ -- -- -- -- April 30, 1996..................... -- 1,980,209 -- 1,980,209 April 30, 1997..................... 1,980,209 -- -- 1,980,209
36 EXHIBIT INDEX Exhibit Page Number Description of Exhibits Number - --------------------------------- ---------- 11.1 Statement re: Computation of Per Share Earnings (Loss). 21.1 Subsidiaries. 23.1 Independent Auditors' Consent. 27.1 Financial Data Schedule EX-11.1 2 COMPUTATION OF EARNINGS EXHIBIT 11. 1 AMERICAN SOFTWARE, INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
Year ended April 30, ------------------------------------------ 1997 1996 1995 ------------------------------------------ Common shares: Weighted average common shares outstanding: Class A shares............................. 18,535,593 17,423,093 17,477,410 Class B shares............................. 4,819,501 4,838,689 4,840,489 ---------- ---------- ---------- Totals...................................... 23,355,094 22,261,782 22,317,899 ========== ========== ========== Net earnings (loss) $ 2,331,854 $(9,749,337) $(6,689,162) =========== =========== =========== Net earnings (loss) per common and common equivalent share $ .10 $ (.44) $ (.30) =========== =========== ===========
EX-21.1 3 LIST OF SUBSIDIARIES EXHIBIT 21.1 LIST OF SUBSIDIARIES Unless otherwise indicated, each of the following subsidiaries does business under its corporate name. 1. American Software Research and Development Corp. incorporated under the laws of the State of Georgia. 2. American Software FSC, Inc. incorporated under the laws of the United States Virgin Islands. 3. American Software USA, Inc. incorporated under the laws of the State of Georgia. 4. ASI Properties, Inc. incorporated under the laws of the State of Georgia. 5. American Software (UK) Ltd. incorporated under the laws of the United Kingdom. 6. American Software (Thailand), Ltd. incorporated under the laws of Thailand. 7. American Software (Australia) Pty. Ltd. incorporated under the laws of Australia. 8. American Software (Japan) KK incorporated under the laws of Japan. 9. American Software France, SA incorporated under the laws of France. 10. Distribution Sciences, Inc. incorporated under the laws of the State of Georgia. 11. American Software Asia Pacific (s) Pte. Ltd. incorporated under the laws of Singapore. 12. Amedia, Inc. incorporated under the laws of the State of Georgia. 13. The Proven Method, Inc. incorporated under the laws of the State of Georgia. 14. Amquest, Inc. incorporated under the laws of the State of Georgia. 15. Intellimedia Commerce, Inc. incorporated under the laws of the State of Georgia. 16. Logility, Inc. incorporated under the laws of the State of Georgia. EX-23.1 4 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS' The Board of Directors American Software, Inc.: We consent to incorporation by reference in Registration Statement Number 333-14309 on Form S-8 and Registration Statement Number 33-79640 on Form S-3 of American Software, Inc. of our reports dated June 20, 1997 relating to the consolidated balance sheets of American Software, Inc. and subsidiaries as of April 30, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows and related schedule for each of the years in the three-year period ended April 30, 1997, which reports appear in the April 30, 1997 annual report on Form 10-KA of American Software, Inc. KPMG PEAT MARWICK LLP Atlanta, Georgia July 28, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN SOFTWARE, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 12-MOS APR-30-1997 APR-30-1996 MAY-01-1996 MAY-01-1995 APR-30-1997 APR-30-1996 3,442 1,947 20,964 24,207 20,273 16,259 1,182 1,200 0 0 48,318 46,054 41,647 39,423 24,244 21,804 97,112 90,782 26,826 24,543 0 0 0 0 0 0 2,379 2,361 67,152 64,255 97,112 90,782 0 0 84,711 77,557 0 0 47,179 51,823 35,851 41,063 0 0 0 0 3,425 (12,760) 1,093 (3,011) 2,332 (9,749) 0 0 0 0 0 0 2,332 (9,749) .10 (.44) 0 0
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