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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27876
JDA SOFTWARE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 86-0787377
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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11811 NORTH TATUM BLVD., SUITE 2000
PHOENIX, ARIZONA 85028
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 404-5500
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
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 of 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 or this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of the registrant's Common Stock
held by nonaffiliates of the registrant (based on the closing sales price of
such stock as reported in the Nasdaq National Market) on March 25, 1997 was
$163,621,703. Excludes shares of Common Stock held by directors, officers and
each person who holds 5% or more of the registrant's Common Stock.
Number of shares of Common Stock, $0.01 par value, outstanding as of March
28, 1997 was 13,027,781.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-K REFERENCE
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Proxy Statement for the Annual Meeting of Stockholders Items 10, 11, 12 and 13
of Part III
scheduled for May 23, 1997
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JDA SOFTWARE GROUP, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PAGE
NO.
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PART I................................................................................ 1
Item 1. BUSINESS.................................................................. 1
Item 2. PROPERTIES................................................................ 15
Item 3. LEGAL PROCEEDINGS......................................................... 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................... 16
PART II............................................................................... 17
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..... 17
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA...................................... 18
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................ 19
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................... 30
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE................................................................ 30
PART III.............................................................................. 31
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................ 31
Item 11. EXECUTIVE COMPENSATION.................................................... 31
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 31
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 31
PART IV............................................................................... 32
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K........... 32
SIGNATURES............................................................................ 51
EXHIBIT INDEX......................................................................... 52
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Except for the historical information presented, the matters discussed in
this Form 10-K include forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences,
include, but are not limited to, those discussed under the caption "Business
Risks" under "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
PART I
ITEM 1. BUSINESS
THE COMPANY
JDA Software Group, Inc. ("JDA" or the "Company") is a leading
international provider of comprehensive enterprise-wide software solutions that
address the mission-critical business information requirements of retailing
organizations. The Company offers two enterprise product lines: Merchandise
Management System ("MMS") for the IBM AS/400 platform and Open Database
Management System ("ODBMS") for open, client/server environments. MMS is a
feature-rich solution that integrates and distributes data throughout the
retailing enterprise and enables management to make more informed and timely
decisions, respond rapidly to changes in the competitive environment, monitor
store-level activity and achieve operational efficiencies. ODBMS is designed as
an open (multi-platform), client/server solution that incorporates the basic
functionality of MMS with enhanced adaptability and scalability. The Company's
in-store products, Distributed Store System ("DSS") and Windows-based Win/DSS,
can be licensed independently or as part of an integrated enterprise-wide
system. These in-store systems capture data at the point of sale and leverage
valuable enterprise-wide information by bringing it to the store level, the
primary point of consumer contact. The Company's consulting services group
provides system planning, design and implementation services to tailor the
Company's solutions to each retailer's unique specifications and to ensure
timely and successful implementation.
The Company's products and services are marketed and sold in the United
States through the Company's direct sales force and a network of value-added
implementors, systems integrators and consultants. International revenues, which
comprised 39% of Company revenues in 1995 and 43% in 1996, are facilitated by an
international direct sales force employed by the Company's subsidiaries and
through a network of sales agents and distributors, including IBM. The Company's
solutions have been deployed by a broad range of retail enterprises worldwide,
including hard and soft lines retailers, warehouse stores, superstores and
grocery stores. The Company's customers include many of the world's leading
specialty retailers such as Bed, Bath and Beyond, CompUSA, Kingfisher Group,
Lenscrafters, Melville Corporation, Natural Wonders, Office Depot, Staples,
Starbucks, Sunglass Hut, West Marine Products and Williams-Sonoma.
INDUSTRY BACKGROUND
The retailing industry has experienced rapid change during the 1990s,
driven primarily by changing consumer preferences, intensifying competition and
increased globalization. Economic uncertainty has caused a shift in consumer
purchase patterns, with today's consumer choosing value -- in the form of lower
prices, convenience and personalized service -- over brand and retailer loyalty.
The result for many retailers has been less traffic in their stores, more
markdowns and slimmer profits. Within this new competitive environment, a number
of successful retail formats and concepts have emerged that are more reactive,
cost-driven and responsive to consumers' demand for increased value. The "big
box" or "category killer" format, employed by, for example, Staples and Sunglass
Hut, focuses on offering a wide assortment of competitively priced products
within a single product category. These new retail formats are setting the
standard for lower prices and improved customer service and have enjoyed broad
market acceptance. As a result, these formats have expanded to many categories
formerly dominated by traditional department stores, such as home furnishings,
apparel, toys and sporting goods, while traditional retailing formats are
experiencing consolidation and shakeout. Many successful retailers are producing
efficiencies and reducing operating costs by managing inventories precisely,
decentralizing the decision making process while centralizing purchasing and
other
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administrative functions, deploying state of the art information technology and
pursuing aggressive rollout strategies to achieve economies of scale. In
addition, a number of these retailers are seeking to apply their concepts
outside their domestic markets, certain of which markets are enjoying consumer
expenditure growth rates significantly exceeding those of the United States.
To respond to today's competitive challenges, retailers must accelerate the
rate at which they identify and respond to changing business conditions and
consumer requirements. An organization's agility and ultimate success are
dependent upon its ability to rapidly and cost-effectively collect, organize,
analyze and disseminate data throughout the enterprise to make effective
business decisions. Such analyses provide a basis for critical product,
marketing, inventory, pricing and human resource decisions. In addition,
inventory management has become more complicated as retailers seek to reduce
costs and improve margins while replenishing inventory on a just-in-time basis.
Accordingly, retailers are demanding more sophisticated purchasing, inventory
management and merchandising tools that enable them to distribute goods
efficiently. Retailers also are increasingly restructuring existing operations
so that consumers effectively interact with the entire enterprise whenever they
are in contact with any single store within the enterprise. This requires that
store level personnel and corporate decision makers within an enterprise be
empowered with a common base of readily available sales and inventory
information and that in-store personnel have the ability to respond to
consumers' immediate needs. To meet their increasing requirements for
information, retailers seek information systems that are adept in handling large
volumes of transactions, possess a high degree of reliability, accommodate peak
load and seasonal requirements and are able to rapidly capture, analyze and
distribute data throughout geographically dispersed parts of the enterprise.
Moreover, global retailers require applications that support the specialized
requirements of international business, including local language support,
multiple currencies, import/export costing and foreign tax and regulatory
requirements.
At the headquarters or enterprise level, retailers typically have utilized
expensive mainframes and mid-range computers in highly centralized environments
running customized, platform-specific legacy software developed internally or
licensed from third-party suppliers. At the store level, retailers have utilized
proprietary point-of-sale systems offered by large hardware manufacturers such
as AT&T/NCR, IBM and ICL or one of many commercially available DOS-based
systems. Enterprise legacy applications typically require large MIS departments
to implement and support, generally are difficult and expensive to scale with
growth and have limited interoperability with a variety of information resources
and systems available in the market today. As a result, many retailers have not
been able to effectively distribute information throughout the retail
enterprise. Furthermore, retailers have historically been cautious in adopting
new technologies due to the real-time, transaction-intensive nature of retailing
and the economic consequences of disruptions of their point-of-sale operations.
Despite their reservations, today's retailers are recognizing the strategic
imperative of employing technology to cut costs, reduce inefficiencies and
enhance sales in an environment dominated by identifying competition and
value-conscious consumers. As a result, they are increasingly demanding highly
functional, easy to use and scalable software applications that can be
economically and rapidly adapted for changes in their mission-critical business
functions. Recent advances in technology, including the improved hardware
price/performance available on platforms such as the IBM AS/400 and the
introduction of sophisticated relational databases such as DB/400, have improved
the capabilities of the information systems available to retailers. In addition,
a number of retailers are increasingly considering new platforms that
incorporate open, client/server technology and adaptable, business
process-driven applications. The Company believes that the adoption of new
information technologies by retailers will accelerate as competitive pressures
increasingly necessitate the ability to change business practices quickly and to
empower employees with the information and tools to respond to consumer
requirements.
JDA SOLUTION
JDA provides a suite of comprehensive enterprise-wide software solutions
that address the mission-critical business information requirements of retailing
organizations. Each of the Company's enterprise systems, MMS and ODBMS, is
designed to serve as the primary merchandise information system for
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domestic and international retailers and to address their specific information
management needs and operational considerations.
The Company's solutions provide the following benefits to retailers:
Enhance decision making capabilities. By leveraging valuable
enterprise-wide information throughout the retailing organization, the Company's
solutions enable personnel to make more informed and timely decisions, to
quickly adapt their products and operations to changes in competition and
consumer preferences, and to maximize operational efficiencies. The Company's
products are designed to filter and distill the information that is most
meaningful and relevant to the retailer from large volumes of transaction and
work flow data.
Provide fully integrated adaptable solutions. JDA offers fully integrated
adaptable solutions that enable retailers to respond to consumer demand at the
point of sale and channel that crucial information back throughout their
organizations and supply chains. These solutions link store level point-of-sale
information with the centralized merchandising and financial functions that
ultimately drive replenishment communications with suppliers and vendors. JDA's
integrated enterprise and in-store systems operate a range of applications and
function seamlessly within their respective databases, promoting speed, data
integrity and ease of modifications. The Company's new products, ODBMS and
Win/DSS, are designed to be tailored by customers to meet their specialized and
evolving business requirements with minimal or no re-programming.
Streamline inventory planning and distribution logistics. The Company's
enterprise-wide solutions are designed to help retailers achieve operating
efficiencies by automating key functions such as the management of inventory,
distribution and merchandising by providing decision makers with access to
critical supply chain data. JDA provides retailers with tools for vendor
analysis, monitoring stock status, sales capture and analysis, merchandise
allocation and replenishment, purchase order management, distribution center
management and other important activities that enable retailers to improve
inventory gross margin return on investment through increased inventory
turnover, reduced inventory investment, and more efficient management of
ordering and distribution.
Promote responsiveness to consumer needs. The Company's solutions help
retailers better understand and fulfill consumer needs. With the Company's
enterprise systems, retailers can explore "what if" merchandising plans, track
and analyze performance, and adjust quickly to market changes and consumer
purchase patterns, all to ensure that the appropriate pricing and merchandise
mix is available to the consumer at the store. The Company's in-store products
automate store operations and gather, analyze and provide information at the
level closest to the consumer. These products enable store level personnel to
track the preferences of consumers and provide a higher level of personalized
service.
The Company believes its focus on retail industry requirements and trends
has yielded significant applications depth and breadth relative to less
established and non-retail-focused competitors. Further, this history of
responsiveness to industry requirements and trends has led to the development of
software solutions that are interoperable with a wide variety of in-store
systems and has also prompted development of open, client/server solutions for
retailers. JDA's products have been licensed by over 250 customers, with the
Company's consulting services group performing the substantial majority of the
implementations. This experience has created a significant industry-specific
knowledge base that the Company leverages in its product development and
implementation efforts to facilitate product reliability and rapid deployment,
generate customer satisfaction and create opportunities for future reputational
sales.
COMPANY STRATEGY
The Company's objective is to strengthen its position as a leading supplier
of comprehensive software solutions for the retailing marketplace worldwide. To
achieve this objective, the Company is pursuing the following strategies:
Leverage Retail Application Knowledge Base. The Company intends to
continue to leverage its retail industry knowledge base to provide comprehensive
integrated solutions to retailers. The Company believes its in-depth
understanding of retailers' requirements accumulated from its ten-year history,
four generations of its
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MMS product line and over 250 implementations differentiates it from competitors
and provides a significant advantage in securing new customers. The Company
further augments its knowledge through ongoing customer consulting engagements
and interaction with its user group.
Offer a Broad Line of Modular, Enterprise-Wide Solutions. The Company's
strategy is to offer enterprise-wide solutions addressing a broad scope of
operations within the retail enterprise. The Company sells its products as
modules, enabling customers to select and incrementally implement the specific
functionality that they require. The modularity of the Company's solutions
offers enhanced reliability and protects the customers' investment because of
the ease of integrating individual modules with all other modules, including
previous releases, minimizing disruption to a customer's operations.
Extend Solutions to Emerging Technology Platforms. The Company's early
recognition of the benefits of client/server solutions in other industries,
together with its understanding of the potential benefits of those solutions in
the retail industry, led the Company in 1994 to begin extending its set of
solutions to open, client/ server platforms. The Company's design strategy is to
create adaptable products that can be tailored by its customers to meet their
specialized and evolving business requirements, with minimal or no
re-programming. The Company believes its ODBMS product line will enable the
Company to address an emerging market of retail enterprises seeking the
scalability and adaptability of open, client/server solutions, particularly
those larger, transaction-intensive retailers such as grocery and convenience
stores. Additionally, the Company believes that the enhanced functionality of
its Win/DSS product line and the broad appeal of Windows platforms will position
the Company to successfully market next generation in-store systems to customers
who seek an industry standard operating system.
Grow Industry-Specific Consulting Services. The Company plans to
substantially increase its consulting services personnel to support its
anticipated growth. The Company's strategy is to attract and retain experienced
consulting personnel who use their retail industry knowledge and the modular
architecture of the Company's products to provide customers with solutions
tailored to their specific enterprise and in-store requirements. The Company
believes that its consulting, implementation and support services distinguish it
from its competitors and facilitate its customers' early success with its
products, strengthen the relationship with the customer and generate valuable
feedback for the Company. In addition, interaction between the Company's
consulting and product development groups provides a high level of information
exchange, thus facilitating efficiencies in implementation and product
development.
Leverage Presence in International Markets. The Company's international
revenues were 28%, 39% and 43% of total revenues in 1994, 1995 and 1996,
respectively. The Company's strategy is to expand its international presence by
developing localized versions of its products and investing directly in
strategic markets through establishment of international subsidiaries with local
direct sales and consulting personnel. The Company has established operations in
the U.K., Singapore, Canada, Chile, Mexico and Germany and plans to continue to
expand its worldwide infrastructure in order to provide localized products and
implementation services. The Company believes its established international
presence and localized product offerings position the Company to benefit from
the globalization of successful retail concepts and favorable international
industry dynamics, including, in certain markets, growth rates exceeding U.S.
growth rates.
Expand Sales and Distribution through Strategic Relationships. JDA has
established relationships with leading systems integrators to provide
implementation services for its products and intends to expand the number of
such relationships. In pursuit of its strategy to strengthen its presence in
Europe, the Company recently established a joint marketing relationship with
Siemens Nixdorf. In addition, the Company has established informal working
relationships with leading retail systems consulting groups of Andersen
Consulting, Ernst & Young LLP, Price Waterhouse's Management Horizons Division
and similar major systems integrators. In addition, in selected international
markets, the Company relies upon a network of sales agents and distributors,
including IBM, to license, and in some cases implement, its software solutions.
These relationships provide important product endorsements and valuable feedback
as well as sales referrals.
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PRODUCTS
The Company offers enterprise and in-store software products designed to
automate and integrate the flow of information throughout the retail
organization. The Company's products are intended to improve retailers'
financial performance, enhance consumer service and free management from
operational details to enable increased focus on strategic issues and enhancing
consumer satisfaction. JDA's product lines offer solutions for a wide range of
multi-store retail enterprises, including hard and soft lines retailers, food
and drug, convenience and grocery stores. Certain of the Company's product
modules have been translated into Spanish, German and French.
Enterprise Products
The Company's enterprise products automate the full scope of retail
operations from the planning and purchasing functions through the distribution
and final sale of goods, and provide management with sophisticated tools for
enhanced business planning and analysis. The Company's enterprise products can
be integrated with in-store products designed by the Company or by third
parties. The Company offers two enterprise product lines: MMS for the IBM AS/400
platform and ODBMS for open, client/server environments. These products are
comprised of modules that are selected by the customer and can be configured to
fit the customer's unique requirements. A typical installation of the Company's
enterprise products would include the following seven core modules: Enterprise
Database/Master Files, Merchandise Performance Analysis, Inventory Control and
Reporting, Price and Cost Management, Store Data Interchange, Purchase Order
Management and Merchandise Receiving, and Automated Replenishment. Customers may
add supplementary modules such as Distribution Center Management and major
accounting modules. The Company believes these modules embody functionality
critically important to retailers, and enable the Company to provide the most
advanced and comprehensive solutions available in its market.
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The following table describes the primary features and development status
of the Company's enterprise systems:
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MODULE DESCRIPTION MMS ODBMS
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Enterprise Defines the underlying organization, Commercially Commercially
Database/Master Files products and business relationships released released
Merchandise Performance Executive-level analysis and decision Commercially Commercially
Analysis support tools released released
Inventory Control and Perpetual inventory tracking and Commercially Commercially
Reporting analytical reporting released released
Price and Cost Central management of permanent and Commercially Commercially
Management promotional pricing strategies released released
Store Data Interchange Common interface structure to communicate Commercially Commercially
data to and from in-store systems released released
Purchase Order Creation, tracking and analysis of product Commercially Commercially
Management and purchase orders and online entry of released released
Merchandise Receiving receipts at stores or warehouses
Automated Replenishment Algorithms to automatically calculate Commercially Commercially
suggested order quantities released released
Retail Stock Ledger Analysis and calculation of gross margin Commercially Commercially
and inventory using the retail method of released released
accounting
Warehouse/Distribution Operational data and inventory management Commercially Under
Center Management of a warehouse distribution center released development
including resource scheduling, slot
location definition, receiving, putaway,
picking and shipping
Accounts Payable Invoice capture, management and analysis Commercially Not planned
and automatic interface to General Ledger released
General Ledger Retail specific capture, audit and Commercially Not planned
reporting released
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In addition to the above modules, the Company recently announced the
commercial availability of its Retail/IDEAS data warehousing application, which
was jointly developed by the Company and Silvon Software, Inc. Retail/IDEAS
incorporates a number of components of data warehousing into a packaged offering
to provide retailers with enhanced ability to capture, store, manage and view
business information on a timely basis. Retail/IDEAS provides retailers with
increased access to more current enterprise information to assist them in
analyzing important areas such as sales and inventory, merchandise categories
and items, open and suggested orders, and promotional and pricing events.
Currently, Retail/IDEAS is commercially available for use with the Company's MMS
or ODBMS products. Additionally, Retail/IDEAS is available to work with other
non-JDA transactional systems.
ODBMS is designed to offer an enterprise solution capable of supporting the
information requirements of international, multi-format retail organizations.
ODBMS offers the core functionality of MMS with enhanced adaptability and
scalability enabled by its open, client/server architecture. ODBMS also offers
certain additional functions relative to MMS, including embedded support for
multiple languages and currencies, user-specific nomenclature, and user-defined
data structures and hierarchies.
The Company's strategy in designing ODBMS is to incorporate industry
knowledge gained from over 250 MMS implementations with current generation tool
sets and object-oriented software design methodologies. ODBMS offers a broad
inventory of common business objects that encapsulate rules, data structures and
processes of mission-critical retailing functions. ODBMS can be configured by
the retailer to adapt to changing strategies and prevailing competitive
conditions. For example, the ODBMS Price and Cost Management module performs
product price analysis based upon key data such as gross margin, sales velocity
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and competitive prices, and recommends and automates price changes based on the
retailer's specifically defined pricing strategies. Thus, an international
retailer can centrally establish a product margin objective and apply it to
local market rules, including currency conversions, applicable taxation and
rounding algorithms, to determine final pricing at each location. A change in
pricing strategy based, for example, on intensified competition or promotional
events can be implemented by the retailer with minimal or no re-programming.
License fees for the Company's enterprise systems vary depending upon the
modules selected and the size and complexity of the retail operation, and
generally range from $200,000 for smaller customers to in excess of $1.0 million
for large, multi-site or multi-country licenses.
In-Store Products
The Company offers two in-store product lines: DSS for traditional in-store
platforms and Win/DSS for the Windows environment. The Company's in-store
products are designed to enable a retailer to capture and analyze in-store
operations information and transmit such information to enterprise-level systems
for corporate analysis. These products also allow store level personnel to
access valuable enterprise-wide information to enable more informed decisions at
the closest point of consumer contact. Win/DSS provides the functionality of DSS
with the flexibility and ease of use of Windows platforms. As with the Company's
enterprise products, DSS and Win/DSS are comprised of modules that are selected
by the customer and can be configured to fit the customer's unique requirements.
The following table describes the primary features and development status
of the Company's in-store products:
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MODULES DESCRIPTION DSS WIN/DSS
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Back Office Cash balancing, perpetual inventory management, Commercially Commercially
purchasing, receiving, reporting, time and released released
attendance, and product transfers
Transaction Store schedule, query by example, daily/hourly Not planned Commercially
Processor sales graphs and transaction logging released
Customer Customer purchase history, extensive customer Commercially Commercially
Analyzer information, extensive reporting and multiple released released
profile information
Point of Sale Credit authorization, foreign tenders, layaway, Commercially Commercially
multiple discounting, multiple tenders, payment released released
processing, promotional events and UPC scanning
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DSS can be licensed independently and utilized with a customer's existing
enterprise system, or it can work in concert with the Company's MMS enterprise
system, to provide the retailer the ability to manage information through the
full range of retail operations. A typical installation of DSS enables the
retailer to perform a number of individual store level functions and support
back office, store inventory and point-of-sale operations. For example, store
managers can use DSS to measure the results of a store promotional event. In
addition, DSS enables retailers to track the preferences of consumers and
provide a higher level of personalized service.
Win/DSS is designed to incorporate the core store level functionality of
DSS with the graphical user interface and multi-tasking and other enhanced
capabilities of the Windows NT, Windows 95 and Windows 3.1 platforms. Win/DSS
incorporates an object-oriented software design that is capable of dynamically
linking and arranging retail business processes to adapt to a retailer's
specialized and evolving requirements.
For example, a retailer can exploit Win/DSS's multi-tasking capabilities by
configuring its point-of-sale systems to simultaneously run credit
authorizations, process transactions and update store inventory records. In
contrast, to reflect a more service-oriented work flow, the customer service
desk in the same store can be configured to provide ready access to consumer
personal information and purchase histories. Business
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information process flows can be adapted to reflect changing store strategies
during special promotions or periods of peak consumer traffic.
The Company licensed and installed the Win/DSS product with SunTV, an
electronics specialty retailer, in the first quarter of 1996. The Company
recently completed initial beta installations of the Win/DSS product with West
Marine, Inc., a retailer and wholesaler of boating equipment and apparel, and
Auto Palace, an auto parts specialty retailer.
License fees for the Company's in-store products vary depending upon a
variety of factors, including the modules selected and size and complexity of
the retail operation, and generally range from $75,000 to $1,000,000.
PROFESSIONAL SERVICES
Consulting
The Company's consulting services provide retailers with expertise and
assistance in planning, design and implementation of the Company's retail
information solutions. To ensure a successful product implementation,
consultants assist customers with the initial installation of a system, the
conversion of the customer's historical data and ongoing training and education.
With the help of the Company's consultants, the retailer can more easily enhance
its existing systems and manage upgrades and conversions. The Company believes
that its consulting services facilitate a customer's early success with its
products, strengthen the relationship with the customer, and add to the
Company's industry-specific knowledge base for use in future implementation and
product development efforts.
Although the Company's consulting services are optional, the Company has
found that substantially all of its customers utilize its consulting services to
some degree in connection with the implementation and ongoing support of the
Company's software products. The duration of consulting engagements has
typically been between six months and one year for enterprise systems and
between three and six months for in-store systems. The Company does not yet have
sufficient experience implementing its ODBMS and Win/DSS products to determine
the degree of consulting services generally required in connection with these
products. However, given the complexity of platforms on which these products
operate and the increased ability of the customer to configure these new
products to its work flows and processes, the Company believes their
implementation will require increased levels of consulting services.
Accordingly, the Company plans to substantially increase its consulting services
personnel to support anticipated growth in product implementations. To the
extent anticipated revenues fail to materialize following the hiring and
training of such personnel, the Company's operating results would be adversely
affected. In August 1996, the Company acquired JDA Software Services Ltd. ("JDA
Canada"), which resulted in the addition of over 30 consultants trained in the
implementation of the Company's products.
The Company's consulting services group consists of business consultants,
systems analysts and technical personnel devoted to assisting retailers in all
phases of systems development, including systems planning and design,
customer-specific configuring of application modules, and on-site implementation
or conversion from existing systems. Managers in the Company's consulting
organization typically have extensive retail industry experience, and consulting
personnel undergo extensive training in both retail operations and the Company's
products. In order to enhance and improve this training process, the Company has
established JDA University, an in-house training program designed to offer
standardized instruction for its consultants, customers and certain third-party
integrators. The Company may increasingly utilize third-party consultants, such
as those from major systems integrators, to assist in certain large scale
implementations and for extensive business process re-engineering projects. As
of December 31, 1996, the Company had 191 employees providing consulting
services. Consulting services are billed on a time and materials basis.
Maintenance
The Company also offers comprehensive maintenance support, which has
historically been purchased by the majority of its customers. The Company offers
remote accessibility to the customer's system in order to
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perform quick diagnostics and provide online assistance. In addition, the
Company provides assistance through its telephone help line. The annual
maintenance option is typically priced at 12% to 15% of the software license fee
and entitles the customer to product upgrades and telephone support. As of
December 31, 1996, the Company had 17 employees providing maintenance services.
CUSTOMERS
As of December 31, 1996, the Company's products had been licensed to more
than 250 retail enterprises addressing a wide variety of retail markets. No
customer accounted for 10% or more of total revenues in 1994, 1995 or 1996. The
following is a partial list of the Company's customers that have purchased at
least $100,000 of the Company's products and services as of December 31, 1996.
The number of stores operated by the Company's targeted customers generally
ranges from 50 to over 500, with annual sales generally ranging from $100
million to, in certain cases, over $1 billion. The Company believes that its
recently released products, including ODBMS and Win/DSS, will enable the Company
to market to retailers outside of its historical customer base.
APPAREL & DEPARTMENT STORES
American Retail Group
Bradley Specialty Retailing
Calvin Klein Jeanswear Co.
CHANEL, Inc.
Designs, Inc.
Mohamed Mahmoud (Egypt)
Mothercare (UK)
Seiyu (Singapore)
Stride Rite
The Limited
CATALOG SHOWROOM
Argos (UK)
Brand Names Sales
L. Luria & Son
CRAFTS & TOYS
Early Learning Centres (UK)
Old America Stores
Rag Shop
FOOD, DRUG & COSMETICS
Cosmetic Centers
Cosmetics Plus
Delray Farms, Inc.
Duane Reade
Food Pantry
Fred W. Albrecht Grocery Co.
Genuardi Super Markets
Hickory Farms
Perfumania
Petro-Canada (Canada)
Starbucks
Superdrug (Kingfisher) (UK)
FURNITURE, APPLIANCES &
COMPUTERS
ABC Carpet & Home
The Bombay Company
Comet (Kingfisher) (UK)
CompUSA
Grupo Elektra (Mexico)
Grupo K-2 (Mexico)
Heilig-Meyers
Incredible Universe
Inter'Tan (Tandy) (UK)
Sun TV
GENERAL MERCHANDISE
Globus Office World (UK)
Gramex
Office Depot
Penn-Daniels
Pet Food Warehouse
Pic 'N Save
Staples
Woolworth (Kingfisher) (UK)
HOME IMPROVEMENT
B&Q (Kingfisher) (UK)
Color Tile
Eagle Hardware & Garden
Handy Andy
Quality Stores
TSC Stores
HOUSEWARES
Bed, Bath & Beyond
Kitchens, Etc.
Lenox, Inc.
Linens 'n Things (Melville)
Royal Doulton
Strouds
Westpoint Stevens
Williams-Sonoma
JEWELRY
Helzberg Diamonds
Henry Silverman's Factory Jewelers
Jan Bell
Little Switzerland
Rogers, Ltd.
MUSIC, BOOKS & SOFTWARE
Books-A-Million
Eason (Ireland)
Electronics Boutique
Family Bookstores
HMV LTD (UK)
Virgin Retail
Yamaha Music (Singapore)
OPTICAL AND CAMERA
Cole Vision
Lenscrafters
National Vision Associates
New West Eyeworks
Sunglass Hut
Wolf Camera
OTHER
American Greetings
Bentley's Luggage
Factory Card Outlet
Franklin Mint Gallery
Home Shopping Club
MGM Grand Hotel, Inc.
Monte Carlo Resort
Natural Wonders
Planet Hollywood
Universal Studios
Western Auto (Sears Roebuck)
SPORTING GOODS
Bass Pro Shops
Bicycle Exchange
Gander Mountain
Recreational Equipment, Inc.
SportMart
West Marine, Inc.
9
<PAGE> 12
SALES AND MARKETING
The Company's worldwide sales effort is conducted primarily through a
direct sales force located in Phoenix, Arizona and through operations in the
U.K., Singapore, Canada, Chile, Mexico and Germany. The Company also maintains a
network of value-added implementors, third-party systems integrators and
consultants who incorporate the Company's products as part of overall systems
solutions. Internationally, in addition to its direct sales force, the Company
relies upon a network of sales agents and distributors, including IBM in
Venezuela, Chile, Mexico, Scandinavia and the Middle East. The Company has
recently established a joint marketing relationship with Siemens Nixdorf. Less
formal working relationships with system integrators, other major hardware
vendors and the retail systems consulting groups of major accounting firms are
also key components of the Company's sales and marketing strategy. The Company
believes these relationships provide important product endorsements and valuable
feedback as well as sales referrals.
While the sales cycle varies substantially from customer to customer, it
typically requires six to nine months from generation of the sales lead to
execution of a license agreement. Because of the complexity and technical nature
of the Company's systems, consulting and product development employees
participate directly in the sales cycle and educate prospective customers on the
advantages of using the Company's solutions.
The Company's marketing activities are directed at increasing market
awareness of the Company's products and services and identifying prospective
customers. The execution of major agreements with customers, when agreed to by
the customer, are accompanied by press announcements and public relations
activities. The Company combines attendance at key trade shows with a limited
amount of focused advertising and direct mail campaigns to generate prospects.
In addition to these activities, the Company's marketing personnel provide
extensive support to the sales organization, including responding to requests
for proposals, conducting product demonstrations and determining hardware
specifications. The marketing organization is also responsible for corporate
communications and development of sales tools and marketing materials. As of
December 31, 1996, the Company's sales and marketing organization consisted of 9
sales and 18 marketing personnel in the United States and 10 sales and 12
marketing personnel in the rest of the world.
PRODUCT DEVELOPMENT AND JDA TECHNOLOGY
The Company's current product development efforts are directed towards new
products addressing emerging requirements for highly adaptable applications
utilizing the advantages of client/server technologies across multiple
platforms. A key element of the Company's product development strategy is to
design into its products broad, enterprise-wide retailing functionality that is
applicable to the majority of retailers' needs. At the same time, the Company's
objective is to design products that are easily tailored to the specific work
flows and business processes of the individual retailer and are readily adapted
to changing conditions, reducing the amount of software modification required.
In pursuit of its strategy, the Company continues to develop ODBMS, an
enterprise system designed to operate in an open, client/server environment, and
Win/DSS, a next generation Windows-based system for in-store and point-of-sale
applications. In addition, the Company continues to devote substantial
development resources to modify its MMS product line to take advantage of recent
client/server enhancements to the IBM AS/400 platform.
Advanced Retail Architecture. The Company has established its Advanced
Retail Architecture ("ARA"), based on the principles of open systems and
client/server technologies, for developing new products and modules. This
architecture was adopted to protect the Company's investment in product
development, as well as its customers' software investment, from changes in
underlying technology and front-end interfaces. Products designed to ARA
specifications can support multiple platforms and accommodate platform changes
or new platforms generally without significant modification to the JDA
application.
10
<PAGE> 13
The following schematic illustrates the platform-independent nature of the
ARA framework across major systems levels:
[Schematic chart depicting Advanced Retail Architecture, including
Presentation Level, Application Deployment Level, Network Level,
Database Management Level and Operating System Level]
Although the Company's initial products were developed prior to the
establishment of ARA, the Company's ODBMS and Win/DSS products were designed
from inception within the ARA framework. The Company intends to apply ARA to the
development of new products and enhancement of existing products to the extent
feasible. However, the Company's ability to take advantage of the full scope of
ARA design objectives is limited by the proprietary nature of the IBM AS/400 and
DOS-based platforms upon which MMS and DSS operate. In addition, Win/DSS is
designed to operate only with Windows presentation level platforms.
The Company's software design philosophy is to design software with a work
flow orientation, incorporating user-defined environments that can be easily
adapted by the retailer to address its specialized and evolving business
requirements.
Work Flow Orientation. Retailers are increasingly reorganizing their
operations from static, discrete tasks into dynamic business processes, or work
flows. These work flows may include multiple transactions among multiple
individuals in multiple locations and in varying sequences. For example, the
generation of a purchase order may be initiated from many decision
makers -- from merchandise manager to distribution manager to store level
personnel -- with different information requirements and controls at various
points and locations within the retail enterprise. By reflecting and
accommodating key business information work flows, the Company's products
facilitate coordination of individuals and functions within the enterprise.
Furthermore, the Company's products can be adapted as work flows change and as
exceptions to standard work flows arise.
User-Defined Environments. The Company's products are embedded with a
broad inventory of pre-defined business objects that model mission-critical
retailing functions. These business objects encapsulate the general rules, data
structures and hierarchies, and processes required to accomplish each function
and can be configured by retailers to develop information views that are
tailored to their specific operations. For example, a music store retailer may
configure a business object relating to stock replenishment by defining two
different
11
<PAGE> 14
classes of merchandise -- fashion items and staples -- requiring different
replenishment algorithms and frequencies. Specifically, current compact disc
releases would require high frequency replenishment using a weighted average
sales method that reflects daily sales trends, while blank cassette tapes would
require a low frequency, fixed replenishment. These user-defined environments
represent an advance over conventional software architectures that require
programming intervention to accommodate even the most simple changes to business
processes.
As of December 31, 1996, there were 90 employees on the Company's product
development staff. The Company's product development expenditures in 1994, 1995
and 1996 were $1.9 million, $3.5 million and $6.5 million and represented 8%,
12% and 14% of revenues, respectively. The Company expects that it will continue
to commit substantial resources to product development in the future.
Both WinDSS and ODBMS have recently been released and, accordingly, these
products have had only limited use in commercial operating environments. There
can be no assurance that these products will not require substantial software
enhancements or modifications to satisfy performance requirements of customers
or to fix design defects or previously undetected errors. Should the Company
fail to successfully complete requested enhancements or fail to timely effect
any required modifications, the Company's business, operating results and
financial condition may be materially adversely affected.
Software products as complex as those offered by the Company may contain
errors that may be detected at any point in the products' life cycles. There can
be no assurance that, despite testing by the Company and by current and
potential customers, errors will not be found, resulting in loss of, or delay
in, market acceptance, sales, diversion of development resources, injury to the
Company's reputation, or increased service and warranty costs, any of which
could have a material adverse effect on the Company's business, operating
results and financial condition.
The computer software industry is subject to rapid technological change,
changing customer requirements, frequent new product introductions and evolving
industry standards that may render existing products and services obsolete. As a
result, the Company's position in its existing markets or other markets that it
may enter could be eroded rapidly by technology advancements not embraced by the
Company. The life cycles of the Company's products are difficult to estimate.
The products must keep pace with technological developments, conform to evolving
industry standards and address increasingly sophisticated customer needs. There
can be no assurance that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of new
products or that new products or product enhancements will meet the requirements
of the marketplace and achieve market acceptance. If the Company is unable to
develop and introduce products in a timely manner in response to changing market
conditions or customer requirements, the Company's business, operating results
and financial condition will be materially adversely affected.
COMPETITION
The market for retail information systems is intensely competitive. The
Company believes the principal competitive factors in such market are product
quality, reliability, performance and price, vendor and product reputation,
financial stability, features and functions, ease of use and quality of support.
A number of companies offer competitive products addressing certain of the
Company's target markets. In the enterprise systems market, the Company competes
with in-house systems developed by the Company's targeted customers and with
third-party developers such as Intrepid Systems, Inc. ("Intrepid"), Island
Pacific, Radius PLC, Retek (a subsidiary of HNC Software, Inc.), STS Systems and
Richter Management Services, among others. In addition, the Company believes
that new market entrants may attempt to develop fully integrated enterprise
level systems targeting the retail industry. In particular, SAP
Aktiengesellschaft announced in August 1996 its intention to release an
integrated client/server enterprise system competitive with the Company's
products. In January 1997, Intrepid announced the formation of a joint
development and marketing relationship with, and a minority equity investment
by, PeopleSoft, Inc. ("PeopleSoft"), a provider of enterprise applications
software. At that time, the parties projected the availability of products
expected to compete directly with the Company's ODBMS enterprise product in the
second half of 1997. In the in-store
12
<PAGE> 15
systems market, which is more fragmented than the enterprise market, the Company
competes with major hardware original equipment manufacturers such as AT&T/NCR,
IBM and ICL, as well as software companies such as Applied Intelligence Group,
CRS Business Computers, Post Software International, STS Systems, GERS Retail
Systems and Gateway Data Sciences Corporation, among others. In the market for
consulting services, the Company is pursuing a strategy of forming informal
working relationships with leading retail systems consulting groups such as
Andersen Consulting, Ernst & Young LLP, Price Waterhouse's Management Horizons
Division and other similar major systems integrators. However, these
integrators, as well as independent consulting firms such as the ISSC Division
of IBM, also represent potential competition to the Company's consulting
services group. Many of the Company's existing competitors, as well as a number
of potential new competitors, have significantly greater financial, technical
and marketing resources than the Company. There can be no assurance that the
Company will be able to compete successfully against its current or future
competitors or that competition will not have a material adverse effect on the
Company's business, operating results and financial condition.
PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary technology, including its software source code. To protect its
proprietary technology, the Company relies on a combination of trade secret,
nondisclosure and copyright law, which may afford only limited protection. In
addition, effective copyright and trade secret protection may be unavailable or
limited in certain foreign countries. Although the Company relies on the limited
protection afforded by such intellectual property laws, it also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable maintenance are also essential to establishing and maintaining a
technology leadership position. The Company presently has no patents or patent
applications pending. The source code for the Company's proprietary software is
protected both as a trade secret and as a copyrighted work. The Company
generally enters into confidentiality or license agreements with its employees,
consultants and customers, and generally controls access to and distribution of
its software, documentation and other proprietary information. The terms of the
Company's license agreements with its customers often require the Company to
provide the customer with a listing of the product source code. Although the
license agreements place restrictions on the use by the customer of the
Company's source code and do not permit the re-sale, sublicense or other
transfer of such source code, there can be no assurance that unauthorized use of
the Company's technology will not occur.
Despite the measures taken by the Company to protect its proprietary
rights, unauthorized parties may attempt to reverse engineer or copy aspects of
the Company's products or to obtain and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult. In addition, litigation may be necessary in the future to enforce the
Company's intellectual property rights, to protect the Company's trade secrets,
to determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition.
Certain technology used by the Company's products is licensed from third
parties, generally on a non-exclusive basis. These licenses generally require
the Company to pay royalties and fulfill confidentiality obligations. The
Company believes that there are alternative resources for each of the material
components of technology licensed by the Company from third parties. However,
the termination of any such licenses, or the failure of the third-party
licensors to adequately maintain or update their products, could result in delay
in the Company's ability to ship certain of its products while it seeks to
implement technology offered by alternative sources. Any required replacement
licenses could prove costly. Also, any such delay, to the extent it becomes
extended or occurs at or near the end of a fiscal quarter, could result in a
material adverse effect on the Company's results of operations. While it may be
necessary or desirable in the future to obtain other licenses relating to one or
more of the Company's products or relating to current or future technologies,
there can be no assurance that the Company will be able to do so on commercially
reasonable terms or at all.
13
<PAGE> 16
In the future the Company may receive notices claiming that it is
infringing the proprietary rights of third parties, and there can be no
assurance that the Company will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claim could be time
consuming, result in costly litigation, cause product shipment delays or force
the Company to enter into royalty or license agreements rather than dispute the
merits of such claims. Moreover, an adverse outcome in litigation or similar
adversarial proceedings could subject the Company to significant liabilities to
third parties, require the expenditure of significant resources to develop
non-infringing technology, require disputed rights to be licensed from others or
require the Company to cease the marketing or use of certain products, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. To the extent the Company desires or is
required to obtain licenses to patents or proprietary rights of others, there
can be no assurance that any such licenses will be made available on terms
acceptable to the Company, if at all. As the number of software products in the
industry increases and the functionality of these products further overlaps, the
Company believes the software developers may become increasingly subject to
infringement claims. Any such claims against the Company, with or without merit,
as well as claims initiated by the Company against third parties, can be time
consuming and expensive to defend, prosecute or resolve.
EMPLOYEES
As of December 31, 1996, the Company employed 387 employees, including 191
in consulting services, 90 in product development, 49 in sales and marketing, 31
in administration, and 17 in maintenance and other services. Of these employees,
243 were located in the United States, 51 in the U.K., 55 in Canada, 25 in
Singapore, 3 in Germany and 10 in Latin America. None of the Company's employees
is represented by a collective bargaining agreement, nor has the Company
experienced any work stoppage. The Company considers its relations with its
employees to be good.
The Company's future operating results depend in significant part upon the
continued service of its key technical and senior management personnel. The
Company's future success also depends on its continuing ability to attract and
retain highly qualified technical and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will retain
its key managerial or technical personnel or attract such personnel in the
future. The Company has at times experienced and continues to experience
difficulty recruiting qualified personnel and there can be no assurance that the
Company will not experience such difficulties in the future. The Company, either
directly or through personnel search firms, actively recruits qualified product
development, consulting and sales and marketing personnel. If the Company is
unable to hire and retain qualified personnel in the future, such inability
could have a material adverse effect on the Company's business, operating
results and financial condition.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------------ --- -------------------------------------
<S> <C> <C>
James D. Armstrong........................ 45 Chief Executive Officer and Director
Frederick M. Pakis........................ 43 President and Director
Brent W. Lippman.......................... 39 Chief Operating Officer
Thomas M. Proud........................... 51 Vice President and Chief Financial
Officer
Kenneth J. Desmarchais.................... 38 Vice President, Technology
J. Timothy Davis.......................... 45 Vice President, U.S. Consulting
Services
</TABLE>
14
<PAGE> 17
Mr. Armstrong co-founded the Company with Mr. Pakis in 1985 and has since
served as the Chief Executive Officer and a director. In 1978, Mr. Armstrong
founded JDA Canada and served as its President until 1987. From September 1985
to December 1987, Mr. Armstrong served on the board of directors of Mark's Work
Wearhouse, a publicly held Canadian specialty retailing company. Mr. Armstrong
attended Ryerson Polytechnic Institute in Toronto, Ontario.
Mr. Pakis co-founded the Company with Mr. Armstrong in 1985 and has since
served as President and a director. From April 1981 to December 1985, Mr. Pakis
was a Manager -- Retail Consulting with Touche Ross & Co. From April 1976 to
March 1981, Mr. Pakis served as Director of Corporate Planning for The Sherwin
Williams Company, a home improvement specialty store company. Mr. Pakis attended
the United States Military Academy at West Point, received a B.S. in Operations
Research from Case Western Reserve University and an M.B.A. from the London
School of Business, where he studied as a Sloan Fellow.
Mr. Lippman joined the Company in October 1990 as Director of Marketing. In
October 1991 Mr. Lippman was promoted to Vice President of the Company, in
October 1996 Mr. Lippman was promoted to Senior Vice President of the Company,
and in February 1997 Mr. Lippman was promoted to Chief Operating Officer of the
Company. Prior to joining the Company, Mr. Lippman served as Sales Manager with
Sterling Software, Inc., a publicly held software company, from 1984 to
September 1990, and was a Senior Systems Consultant for Wang Laboratories from
1983 to 1984. Mr. Lippman received a B.S. in Operations Research and an M.B.A.
from Case Western Reserve University.
Mr. Proud joined the Company in November 1995 as Vice President and Chief
Financial Officer. Prior to joining the Company, Mr. Proud served as Chief
Financial Officer for Syntellect, Inc., a publicly held interactive voice
response company, from June 1994 to November 1995. From July 1993 to May 1994,
Mr. Proud served as Chief Financial Officer of Axxess Technologies, Inc., a
privately held manufacturing company. From March 1987 to June 1993, Mr. Proud
served as Chief Financial Officer for Dataphaz, which was acquired by
Computerland Corporation in April 1991. Prior to that, Mr. Proud was employed
for eleven years by Price Waterhouse. Mr. Proud received a B.A. in Accounting
from Thiel College and an M.S. in Accounting from Kent State University and is a
certified public accountant.
Mr. Desmarchais joined JDA Canada in November 1985 and joined the Company
in February 1988 as a project manager. Mr. Desmarchais was promoted to Manager,
New Product Development in June 1990 and to Director of Technology in December
1992. Mr. Desmarchais was promoted to Vice President, Technology in March 1995.
Prior to 1985, Mr. Desmarchais was employed for five years as an Advisory
Systems Engineer with IBM Canada. Mr. Desmarchais received a B.S. in Computer
Science from Ryerson Polytechnic Institute in Toronto, Ontario.
Mr. Davis joined the Company in September 1996 as Vice President, U.S.
Consulting Services. From July 1990 to August 1996, Mr. Davis was Vice President
and Senior Manager with Price Waterhouse's Management Horizons Division. From
April 1983 to July 1990, Mr. Davis was with Coopers & Lybrand where he held the
positions of Senior Consultant, Supervising Consultant and Managing Associate.
From May 1980 to August 1982, Mr. Davis was Director, Financial Systems Planning
and Analysis for Zale Corporation, a publicly held retail jewelry corporation.
Mr. Davis received a B.S. in Business and Public Administration from the
University of Texas.
ITEM 2. PROPERTIES
The Company's principal facility occupies approximately 48,000 square feet
in Phoenix, Arizona, the lease for which expires on March 31, 1999. The Company
also leases office space in the United States in Scottsdale, Arizona; Stamford,
Connecticut; Atlanta, Georgia; and abroad in Calgary, Toronto, Singapore,
Frankfurt, Santiago and Mexico City. The Company owns approximately 14,900
square feet of office space in the U.K. The Company believes that its existing
facilities are adequate for its current needs and that suitable additional or
alternative space will be available in the future on commercially reasonable
terms as needed.
15
<PAGE> 18
ITEM 3. LEGAL PROCEEDINGS
In May 1996, Niederhoffer and Niederhoffer, Inc. ("Niederhoffer") filed a
demand for arbitration asserting a claim against JDA Software Services, Inc., a
wholly owned subsidiary of the Company. Niederhoffer's claims are based upon an
agreement between it and JDA Software Services, Inc. dated April 6, 1990 (the
"Finder's Agreement"). Niederhoffer alleges entitlement to a finder's fee in
connection with the purchase of convertible preferred stock in the Company in
March 1995 by six investment funds advised by TA Associates, Inc. and its
affiliates ("TA Investment"), and a claim for Common Stock arising from the
related establishment of the Company and reorganization of the Company's wholly
owned subsidiaries pursuant to which Company Common Stock was issued to such
subsidiaries' stockholders (the "Reorganization"). In the arbitration,
Niederhoffer claims damages of approximately $770,000 and asserts a right to
504,000 shares of the Company's Common Stock.
Although the Company has contested vigorously, among other things,
Niederhoffer's damages claims, in the event the arbitration panel concludes that
the TA Investment and related Reorganization fell within the scope of the
Finder's Agreement, and further agrees with Niederhoffer's assessment of
damages, the Company could be required to make cash payments as well as issue to
Niederhoffer up to 504,000 shares of the Company's Common Stock or make an
additional cash payment to Niederhoffer based upon the arbitrators'
determination of the value of such shares. The Company believes that an
arbitrators' decision to award up to 504,000 shares of Common Stock to
Niederhoffer based upon a determination that such shares are issuable as a
result of the TA Investment would be treated as a charge to additional paid-in
capital. Such charge would reduce additional paid-in capital by the amount of
any cash paid plus the value of the Common Stock issued, valued as of the date
of the TA Investment. However, any cash awarded in lieu of shares in excess of
the value of such shares at the date of the TA Investment would be recorded as
litigation expense and could have an immediate and material adverse effect on
the Company's operating results. In addition, any cash awarded to Niederhoffer
would reduce the Company's available liquidity. Any shares of Common Stock
awarded to Niederhoffer would have a dilutive effect on the Company's net income
per share.
The Company and its counsel believe that the Company has meritorious
defenses to Niederhoffer's claims, and the Company is contesting both the
applicability of the Finder's Agreement to the TA Investment and the related
Reorganization, and the measurement of damages as claimed by Niederhoffer.
However, since the results of arbitration proceedings are inherently
unpredictable, the ultimate outcome cannot be determined. The arbitration
hearing was concluded in March 1997, and the arbitrators' decision is pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
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<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company effected its initial public offering on March 15, 1996 at a
price of $13.00 per share. The Company's Common Stock is quoted on the Nasdaq
National Market under the symbol "JDAS." The following table sets forth, for the
periods indicated, the high and low sales prices per share of the Common Stock
as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
CALENDAR YEAR 1996 HIGH LOW
------------------------------------------------------------- ------- -------
<S> <C> <C>
1st Quarter (from March 15, 1996)............................ $13-1/4 $11-1/4
2nd Quarter.................................................. 26 11-7/8
3rd Quarter.................................................. 29 14-1/4
4th Quarter.................................................. 39-3/8 26-1/2
</TABLE>
On March 25, 1997, the last reported sales price of the Common Stock on the
Nasdaq National Market was $23 1/16 per share. As of March 24, 1997, there were
approximately 92 shareholders of record of the Common Stock.
The Company anticipates that all future earnings, if any, will be retained
to finance the growth and development of the business and, therefore, the
Company does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. In the past certain of the predecessor companies to the
Company paid dividends to their S Corporation stockholders. See "Reorganization
and Prior S Corporation Status."
17
<PAGE> 20
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the five years
ended December 31, 1996 and as of December 31, 1992, 1993, 1994, 1995 and 1996
were derived from the audited Consolidated Financial Statements of the Company.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software licenses.................................. $ 8,119 $ 9,620 $12,221 $15,253 $24,296
Consulting, maintenance and other services......... 7,855 10,701 11,608 14,831 23,544
------- ------- ------- ------- ----------
Total revenues................................ 15,974 20,321 23,829 30,084 47,840
Cost of revenues:
Software licenses.................................. 0 305 57 159 438
Consulting, maintenance and other services......... 5,620 6,780 6,870 9,781 16,416
------- ------- ------- ------- ----------
Total cost of revenues........................ 5,620 7,085 6,927 9,940 16,854
------- ------- ------- ------- ----------
Gross profit......................................... 10,354 13,236 16,902 20,144 30,986
------- ------- ------- ------- ----------
Operating expenses
Product development................................ $ 953 $ 1,345 $ 1,923 $ 3,512 $ 6,478
Sales and marketing................................ 1,420 2,404 3,228 5,199 7,242
General and administrative......................... 2,343 2,466 2,529 3,929 4,989
Tax related compensation to S Corporation
stockholders(1).................................. 6,900 7,422 0 0 0
------- ------- ------- ------- ----------
Total operating expenses...................... 11,616 13,637 7,680 12,640 18,709
------- ------- ------- ------- ----------
Income (loss) from operations........................ (1,262) (401) 9,222 7,504 12,277
Other income (expense) -- net........................ 143 (172) (221) (434) 519
------- ------- ------- ------- ----------
Income (loss) before income taxes.................... (1,119) (573) 9,001 7,070 12,796
Provision for income taxes(1)........................ (168) 865 500 1,497 5,116
------- ------- ------- ------- ----------
Net income (loss)(1)................................. $ (951) $(1,438) $ 8,501 $ 5,573 $ 7,680
======= ======= ======= ======= ==========
Net income per share................................. $0.64
==========
PRO FORMA STATEMENTS OF OPERATIONS DATA(2):
Pro forma net income................................. $4,401
=======
Pro forma net income per share....................... $0.42
=======
Shares used in per share calculations(3):............ 10,952,000 12,010,209
======= ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $1,096 $2,088 $ 7,232 $ 607 $39,832
Total Assets........................................................... 4,853 6,854 11,557 27,795 59,056
Long-term liabilities.................................................. 75 2,513 2,607 309 620
Redeemable convertible preferred stock................................. 0 0 0 15,000 0
Stockholders' equity (deficit)......................................... 2,210 864 6,228 (12,292) 48,661
</TABLE>
- ---------------
(1) Prior to March 30, 1995, certain Predecessor Companies elected S Corporation
status. The Company's historical statements of operations data, therefore,
do not include a provision for U.S. federal income taxes for periods prior
to March 30, 1995. In addition, through 1993, these same companies charged
to expense compensation paid to their founding stockholders in lieu of S
Corporation dividends, in order to reduce state income tax liability. See
"Reorganization and Prior S Corporation Status" and Note 2 of Notes to
Consolidated Financial Statements.
(2) Pro forma net income includes a pro forma provision for income taxes at
statutory rates. Pro forma net income excluding the tax related compensation
and including US Federal income tax provisions at statutory rates was
$3,424, $4,313, and $5,564 for 1992 through 1994, respectively.
(3) Pro forma net income per share includes common and equivalent shares
outstanding and supplemental pro forma net income per share incudes such
amounts and the estimated number of shares that would be needed to be issued
to repay certain stockholder notes issued in the Reorganization and to
redeem the Series B Preferred Stock. Pro forma net income has been adjusted
for the interest applicable to such notes. See Note 2 of Notes to
Consolidated Financial Statements.
18
<PAGE> 21
REORGANIZATION AND PRIOR S CORPORATION STATUS
Prior to March 30, 1995, the business currently conducted by the Company
was conducted by five affiliated companies: JDA Software Services, Inc., a
Delaware corporation; JDA International Ltd., a U.K. corporation; JDA Software,
Inc., an Arizona corporation; JDA Worldwide, Inc., an Arizona corporation; and
JDA Asia Pte Ltd., a Singapore corporation (together, the "Predecessor
Companies"). Effective March 30, 1995 (the "Effective Date"), the Predecessor
Companies were consolidated under the Company in a holding company structure in
connection with an investment in the Company by six investment funds advised by
TA Associates, Inc. and its affiliates. See Note 2 of Notes to Consolidated
Financial Statements.
From January 1991 to the Effective Date, certain of the Predecessor
Companies elected to be treated as S Corporations under Subchapter S of the
Internal Revenue Code and comparable state tax laws. As a result, until the
Effective Date the earnings of the Predecessor Companies were attributable, with
certain exceptions, for federal and certain state income tax purposes to their
existing stockholders rather than to the companies.
Dividends of approximately $2.7 million, $3.2 million and $3.9 million were
paid to the S Corporations' stockholders in 1993, 1994 and 1995, respectively.
In addition to these stockholder dividends, the S Corporations paid tax-related
compensation to their stockholders of $7.4 million in 1993. Further, on the
Effective Date such stockholders received as part of the Reorganization
distributions of cash and notes aggregating approximately $20 million, which
notes were subsequently repaid from the proceeds of the Company's initial public
offering in March 1996. Tax-related dividends and tax-related compensation paid
to S Corporation stockholders were discontinued as of the Effective Date.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This section of this Form 10-K contains forward-looking statements that
involve risks and uncertainties. Actual results may differ materially from those
discussed in this section. Stockholders should review carefully the risks
disclosed under the caption "Business Risks."
OVERVIEW
JDA is an international provider of comprehensive enterprise-wide software
solutions that address the mission-critical business information requirements of
retailing organizations. Prior to the Company's formation in March 1995, the
Company's operations were conducted by five companies which were operated under
common control and management, the first of which was formed in November 1985.
In March 1995, the Predecessor Companies were consolidated under a common
holding company. See Note 2 of Notes to Consolidated Financial Statements.
Certain of the Predecessor Companies operated as S Corporations for tax purposes
prior to the Reorganization. Thus, for periods prior to the Reorganization, the
Company's historical statements of operations do not include a provision for
U.S. federal income taxes and reflect certain tax strategies. See Note 2 of
Notes to Consolidated Financial Statements.
In 1986 the Company introduced MMS, its first enterprise retail information
solution, based on the IBM AS/400 platform. The Company's development efforts
through 1993 were focused exclusively on enhancements, revisions and upgrades to
MMS, which is currently in its fourth generation release. In 1994, the Company
acquired DSS, an in-store system, from JDA Software Services Ltd. ("JDA
Canada"), a then-unaffiliated Canadian company. Since 1994 the Company has
significantly increased its product development expenditures to develop products
for emerging, open platforms. As a result of these efforts, the Company
commercially released ODBMS, an open, client/server enterprise system, in
September 1996, and Win/DSS, a Windows-based in-store system, in January 1997.
On August 15, 1996 the Company acquired JDA Canada in exchange for 143,926
shares of the Company's newly issued Common Stock. The acquisition was accounted
for as a purchase, and the Company recorded $1.7 million in goodwill which it is
amortizing over 15 years.
The Company has historically derived the substantial majority of its
revenues from software licenses and consulting, maintenance and other services
relating to MMS, and the Company expects that revenues related to MMS will
continue to comprise a substantial portion of the Company's total revenues for
the foreseeable
19
<PAGE> 22
future. Nevertheless, the Company expects that revenues related to MMS, which
accounted for 95%, 91% and 80% of total revenues in 1994, 1995 and 1996,
respectively, will continue to decline as a percentage of the Company's total
revenues as market acceptance of the Company's newer products, particularly
ODBMS and Win/DSS, increases. The Company further expects that revenues
attributable to the license of MMS and ODBMS enterprise systems will comprise
the substantial majority of software licenses revenues for the foreseeable
future.
Consulting, maintenance and other services revenues are derived from a
range of services, including system design and implementation and, to a lesser
extent, software maintenance and support, and training. Historically, the level
of consulting, maintenance and other services revenues has approximated on an
annual basis the level of software license revenues. Consulting, maintenance and
other services revenues were 49% of total revenues in each of 1994, 1995, and
1996. Gross margin on consulting, maintenance and other services has
historically been significantly lower than gross margin on software licenses and
the Company expects this relationship to continue. Consulting, maintenance and
other services in support of international licenses typically have lower gross
margins than those achieved domestically due to generally lower prevailing
billing rates in certain of the Company's international markets. Therefore, any
growth in the Company's international operations would likely result in further
declines in gross margin on consulting, maintenance and other services.
The Company is pursuing a strategy of addressing international markets by
developing localized versions of its products and establishing international
subsidiaries with direct sales and consulting capabilities. International
revenues, which include revenues from international subsidiaries and export
sales, comprised 28%, 39% and 43%, respectively, of total revenues in each of
1994, 1995 and 1996. The Company has operations in the U.K., Singapore, Canada,
Chile, Mexico and Germany and plans to continue to expand its international
infrastructure. The Company anticipates that international revenues will
continue to increase as a percentage of total revenues. However, there can be no
assurance that the Company's international expansion will be successful. In
addition, the opening of new offices by the Company typically results in initial
recruiting, training and other start-up expenses in advance of anticipated
revenues and reduced labor efficiencies associated with the introduction of
products to a new customer base. Other risks inherent in the Company's
international business activities include changes in regulatory requirements,
tariffs and other trade barriers, costs and risks of localizing products, longer
accounts receivable payment cycles, potentially adverse tax consequences,
currency fluctuations, repatriation of earnings and burdens of complying with a
wide variety of local laws.
To the extent the Company's international operations expand, the Company
expects that an increasing portion of its international license and consulting,
maintenance and other services revenues will be denominated in foreign
currencies, subjecting the Company to fluctuations in foreign currency exchange
rates. Historically, the Company has conducted a substantial majority of its
business in currencies which have been relatively stable, and exposure to
fluctuations in such currencies has been considered minimal. Accordingly, the
Company does not currently engage in foreign currency hedging transactions.
However, as the Company continues to expand its international operations,
exposures to gains and losses on foreign currency transactions may increase. The
Company may choose to limit such exposure by entering into forward foreign
exchange contracts or engaging in similar hedging strategies. There can be no
assurance that any currency exchange strategy would be successful in avoiding
exchange-related losses.
The Company's revenues are derived primarily from non-refundable license
fees for its software products and from fees for services complementary to its
products, including software consulting, maintenance and training. The Company
recognizes revenues in accordance with the provisions of American Institute of
Certified Public Accountants Statement of Position No. 91-1, Software Revenue
Recognition. Accordingly, software license revenue is recognized upon the
shipment of a product to the customer if collection is probable and the
Company's remaining obligations under the license agreement are insignificant.
License revenues for licenses with remaining significant obligations are
deferred until the Company's related obligations become insignificant.
Consulting, maintenance and other services are performed and billed under
separate agreements related to the implementation of the Company's software
products, and such revenues generally are recorded
20
<PAGE> 23
when the services are performed. Maintenance revenues from ongoing customer
support and product upgrades are billed on a monthly basis and are recorded as
revenue in the applicable month.
RESULTS OF OPERATIONS
The following table sets forth certain selected financial information
expressed as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues:
Software licenses......................................... 51.3% 50.7% 50.8%
Consulting, maintenance and other services................ 48.7 49.3 49.2
----- ----- -----
Total revenues.................................... 100.0 100.0 100.0
Cost of revenues:
Software licenses......................................... 0.2 0.5 0.9
Consulting, maintenance and other services................ 28.9 32.5 34.3
----- ----- -----
Total cost of revenues............................ 29.1 33.0 35.2
----- ----- -----
Gross profit................................................ 70.9 67.0 64.8
Operating expenses:
Product development....................................... 8.1 11.7 13.6
Sales and marketing....................................... 13.4 17.3 15.1
General and administrative................................ 10.7 13.1 10.4
----- ----- -----
Total operating expenses.......................... 32.2 42.1 39.1
----- ----- -----
Income from operations...................................... 38.7 24.9 25.7
Other income (expense) -- net............................... (0.9) (1.4) 1.1
----- ----- -----
Income before income taxes.................................. 37.8 23.5 26.8
Provision for income taxes.................................. 2.1 5.0 10.7
----- ----- -----
Net income.................................................. 35.7% 18.5% 16.1%
===== ===== =====
Pro Forma Statements of Operations Data:
Historical net income....................................... 18.5%
Pro forma adjustment to adjust income tax provision......... (3.9)
-----
Pro forma net income........................................ 14.6%
=====
</TABLE>
Prior to the Reorganization, certain Predecessor Companies elected S
Corporation status under Subchapter S of the Internal Revenue Code through March
30, 1995. Accordingly, the Company's statements of operations for 1994 and the
first quarter of 1995 do not contain provisions for U.S. federal income taxes
and as a result, the historical statements of operations for 1994 and 1995 will
not be comparable to future periods.
Years Ended December 31, 1994, 1995 and 1996
Revenues
Total revenues were $23.8 million, $30.1 million and $47.8 million in 1994,
1995 and 1996, respectively, representing increases of 26% from 1994 to 1995 and
59% from 1995 to 1996. The increase in total revenues in 1995 and 1996 was
primarily due to increases in software licenses resulting from expanded sales
and marketing efforts both domestically and internationally, combined with
increases in consulting, maintenance and other services from associated
implementations. To a lesser extent, the increase in total revenues in 1996 was
also the result of the software license revenues generated as a result of the
Company's commercial release of its ODBMS software in September 1996 and
revenues generated by JDA Canada which was acquired by the Company in August
1996.
21
<PAGE> 24
International revenues comprised 28%, 39% and 43% of total revenues in each
of 1994, 1995 and 1996, respectively. The increase in international revenues as
a percentage of total revenues in 1995 and 1996 was primarily attributable to
increased revenues in Latin America, the Pacific Rim and Europe resulting from
the Company's expanded sales and marketing efforts in those markets, including
efforts in new geographic locations within those markets. The increase in
international revenues in 1996 was also the result of the acquisition of JDA
Canada in August 1996 and the related increase in revenues in Canada.
Software Licenses. Software license revenues were $12.2 million, $15.3
million and $24.3 million in 1994, 1995, and 1996, respectively, representing
increases of 25% from 1994 to 1995 and 59% from 1995 to 1996. The increase in
1995 was primarily attributable to an increase in international revenues
resulting from expanded sales and marketing efforts by the Company during that
period, partially offset by a decline in domestic MMS license revenues due in
part to competitive pricing pressures. The increase in 1996 was primarily
attributable to the expansion of the Company's sales and marketing efforts in
all markets and, to a lesser extent, to the commercial release of the Company's
ODBMS software in September 1996 and the acquisition of JDA Canada in August
1996.
Consulting, Maintenance and Other Services. Consulting, maintenance and
other services revenues were $11.6 million, $14.8 million and $23.5 million in
1994, 1995 and 1996, respectively, representing increases of 28% from 1994 to
1995 and 59% from 1995 to 1996. The increase in 1995 was primarily attributable
to increased international license revenues and associated implementations. The
increase in 1996 was primarily attributable to increased software license
revenues and associated implementations both domestically and internationally.
Cost of Revenues
Cost of Software Licenses. Cost of software licenses consists primarily of
royalties payable for licensing of third-party software incorporated in the
Company's products and commissions payable to third parties on sales of the
Company's products. Cost of software licenses was $57,000, $159,000 and $438,000
in 1994, 1995 and 1996, respectively, representing less than 2% of software
license revenues in each of these periods.
Cost of Consulting, Maintenance and Other Services. Cost of consulting,
maintenance and other services consists primarily of consultant salaries and
other personnel related expenses incurred in system implementation projects and
software support services. These costs were $6.9 million, $9.8 million and $16.4
million, representing 59%, 66% and 70%, respectively, of consulting, maintenance
and other services revenues in 1994, 1995 and 1996. The increase in these costs
as a percentage of consulting, maintenance and other services revenues from 1994
to 1995 was primarily due to expenditures associated with the Company's
international expansion and the increase from 1995 to 1996 was primarily due to
the increased percentage of consulting, maintenance and other services revenues
attributable to international installations, which typically generate lower
gross margins than those achieved domestically due to generally lower prevailing
billing rates in certain of the Company's international markets. The Company
anticipates that the costs of consulting, maintenance and other services will
increase during 1997 both in absolute dollars and as a percentage of revenues
due to the substantial increase in the number of consulting personnel the
Company anticipates hiring during that period. In their first year of employment
by the Company, new consulting personnel typically spend between 2 and 10 weeks
in training, during which period they do not generally generate revenues.
Operating Expenses
Product Development. Product development expenses increased by 83% from
$1.9 million in 1994 to $3.5 million in 1995 and by 84% to $6.5 million in 1996,
representing 8%, 12% and 14%, respectively, of total revenues in these periods.
Increased product development expenses in 1995 and 1996 were primarily a result
of an increase in the number of product development personnel from 21 at
December 31, 1994 to 48 at December 31, 1995 and to 90 as of December 31, 1996.
Significant product development efforts in 1995 included the continued
development and initial beta release of ODBMS, continued enhancements to MMS and
initial development of Win/DSS. Significant product development efforts in 1996
included the continued development of ODBMS and Win/DSS and continued
enhancements to MMS. The Company believes that a
22
<PAGE> 25
continued commitment to product development will be required for the Company to
remain competitive. Accordingly, the Company intends to continue to allocate
substantial resources to product development. The Company expects that product
development expenses will continue to increase in absolute dollars but may vary
as a percentage of total revenues in future periods. Product development costs
subsequent to the achievement of technological feasibility have not been
significant during these periods and, accordingly, all such costs have been
expensed as incurred.
Sales and Marketing. Sales and marketing expenses increased 61% from $3.2
million in 1994 to $5.2 million in 1995 and by 39% to $7.2 million in 1996,
representing 13%, 17% and 15%, respectively, of total revenues in these periods.
The increase in sales and marketing expenses in 1995 was primarily due to the
addition of sales and marketing personnel to implement the Company's strategy to
increase its presence in international and domestic markets. Sales and marketing
expenses increased in absolute dollars in 1996 due to continued additions to
sales and marketing personnel and related expenses but decreased as a percentage
of total revenues due to the significant increase in total revenues. The Company
expects that the level of sales and marketing expense will continue to increase
in absolute dollars in the future as the Company continues to add sales and
marketing personnel to increase its presence in international and domestic
markets, but may vary as a percentage of total revenues.
General and Administrative. General and administrative expenses increased
by 55% from $2.5 million in 1994 to $3.9 million in 1995 and increased by 27% to
$5.0 million in 1996, representing 11%, 13% and 10%, respectively, of total
revenues. The increase in 1995 was primarily due to the addition of
administrative personnel required to support the Company's growth, increased
legal and accounting expenses and increased bad debt allowance. The increase in
absolute dollars of general and administrative expenses in 1996 was primarily
due to the continued addition of personnel and increased legal and accounting
expenses. The Company anticipates that general and administrative expenses will
continue to increase in absolute dollars as the Company continues to add
administrative personnel, but may vary as a percentage of total revenues.
Provision for Income Taxes. Substantially all U.S. federal taxable income
through March 30, 1995 was attributed to Predecessor Companies' stockholders,
reflecting the prior S Corporation status of certain Predecessor Companies.
Accordingly, the Company's tax provisions do not include U.S. federal income
taxes through that date. The pro forma income tax provisions reflected in Notes
2 and 9 of Notes to Consolidated Financial Statements include tax provisions for
U.S. federal income taxes and reflect effective tax rates of 38%, 38% and 40%
for the years 1994, 1995 and 1996, respectively. Such tax rates approximate
statutory federal, state and foreign tax rates after a reduction for U.S.
research and development expense tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through cash generated from operations and public sales of equity securities
and, to a lesser extent, borrowings under its bank line of credit. As of
December 31 1996, the Company had $31.0 million in cash and cash equivalents and
$5.0 million available under its bank line of credit.
The Company's operating activities provided cash of $7.4 million, $5.5
million and $6.5 million in 1994, 1995 and 1996, respectively. Cash from
operating activities arose principally from the Company's profitable operations
and was utilized for working capital purposes, principally increases in accounts
receivable.
Cash used in investing activities in 1994 and 1995 was $705,000 and $16.1
million, respectively, and cash of $8.6 million was provided by investing
activities in 1996. Such investing activities principally consisted of purchases
of property and equipment and, in 1995, the acquisition of $14.6 million of
restricted short-term investments used for the repayment of stockholder notes
and the redemption of such investments in 1996. See Note 2 of Notes to
Consolidated Financial Statements.
Cash used in financing activities was $4.0 million in 1994, cash of $8.2
million and $15.4 million was provided by financing activities in 1995 and 1996,
respectively. Financing activities in 1994 consisted primarily of repayment of
borrowings under the bank line of credit and dividends to and capital
contributions by the stockholders. Financing activities in 1995 consisted of
borrowings under the bank line of credit, dividends and
23
<PAGE> 26
other distributions made to the Predecessor Companies' stockholders and the sale
of Series A Preferred Stock to the Company's stockholders as described in Note 2
of Notes to Consolidated Financial Statements. Financing activities in 1996
consisted primarily of the issuance of 2,182,866 shares for the account of the
Company in its initial public offering on March 15, 1996, the net proceeds of
which were partially offset by the repayment of stockholder notes and the
redemption of Preferred Stock with proceeds therefrom, and the issuance of
600,000 shares for the account of the Company on November 26, 1996.
Borrowings under the Company's secured line of credit with Bank of America
Arizona bear interest based upon the bank's publicly announced reference rate.
At December 31, 1996 the Bank of America credit line bore interest at 8.25% and
no borrowings were outstanding under the line of credit. This line of credit
expires July 1, 1998 and the Company intends to seek renewal at that time. See
Note 3 of Notes to Consolidated Financial Statements.
Capital expenditures were approximately $705,000, $1.4 million and $6.2
million in 1994, 1995 and 1996, respectively. These expenditures were primarily
for property and equipment, comprised of computer hardware and furniture and
fixtures, to support its growth. In 1996, the Company also purchased the
building it was leasing in the U.K. for $2.2 million. In March 1997, the Company
submitted an offer to purchase an additional building in the U.K. for $1.0
million.
The Company believes that its cash and cash equivalents, bank line of
credit and funds generated from operations will provide adequate liquidity to
meet the Company's planned capital and operating requirements for at least the
next twelve months.
BUSINESS RISKS
The Company's business is subject to a number of risks. A comprehensive
summary of such risks can be found in the Company's registration statement on
Form S-1 (File No. 333-15659), which was declared effective on November 21,
1996.
Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results have varied and are expected to continue to vary in the
future. These fluctuations may be caused by many factors, including, among
others: the size and timing of individual orders; competitive pricing pressures;
customer order deferrals in anticipation of new products; variation of
consulting, maintenance and other services as a percentage of total revenues;
timing of introduction or enhancement of products by the Company or its
competitors; market acceptance of new products; technological changes in
platforms supporting the Company's products; changes in networking or
communication technology; changes in the Company's operating expenses; personnel
changes; foreign currency exchange rates; fluctuations in the level of warranty
claims; and general industry and economic conditions.
The Company's business has experienced and is expected to continue to
experience some degree of seasonality due in large part to its retail customers'
buying cycles, with license revenues typically higher in the fourth quarter and
consulting revenues typically higher in the first quarter. Further, software
license gross margin is significantly greater than consulting, maintenance and
other services gross margin. As a result, overall gross margin has fluctuated
significantly based on revenue mix, and the Company expects this trend to
continue.
Historically, a significant portion of the Company's quarterly revenues
have been derived from relatively large licenses to a limited number of
customers, and the Company currently anticipates that this trend will continue.
Any significant cancellation or deferral of customer orders could have a
material adverse effect on the Company's operating results in any particular
quarter.
The Company's expense levels are based, in part, on its expectations as to
future revenues and to a large extent are fixed. Licenses of the Company's
products are typically accompanied by a significant amount of systems
implementation consulting. The Company's consulting resources must be managed to
meet future sales, and additional consulting personnel must be hired and trained
in advance of anticipated license revenues. The Company may be unable to adjust
spending in a timely manner to compensate for any
24
<PAGE> 27
unexpected revenue shortfall and, accordingly, any significant shortfall of
demand in relation to the Company's expectations or any material delay of
customer orders would have an almost immediate adverse effect on the Company's
operating results.
As a result of the foregoing and other factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Fluctuations in operating results may also result in volatility in the price of
the shares of the Company's Common Stock. See "Business -- Products" and
"-- Professional Services" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
Dependence on Retail Industry. The Company has derived substantially all
of its revenues to date from the license of software products and related
services to the retail industry, and its future growth is critically dependent
on increased sales to the retail industry. The success of the Company's
customers is intrinsically linked to economic conditions in the retail industry,
which in turn are subject to intense competitive pressures and are affected by
overall economic conditions. In addition, the Company believes the license of
its products is relatively discretionary and generally involves a significant
commitment of capital, because the Company's products are often accompanied by
large scale hardware purchases or commitments. As a result, although the Company
believes its products can assist retailers in a competitive environment, demand
for the Company's products and services could be disproportionately affected by
instability or downturns in the retail industry which may cause customers to
exit the industry or delay, cancel or reduce any planned expenditures for
information management systems and software products. The Company also believes
that the retail industry is experiencing a period of increased consolidation,
which has in the past and may in the future affect the demand for the Company's
products. Recent results in the overall retail industry have been disappointing,
and the Company anticipates that existing or prospective customers may be
experiencing or may in the future experience severe financial hardship. There
can be no assurance that the Company will be able to continue its revenue growth
or sustain its profitability on a quarterly or annual basis or that its results
of operations will not be adversely affected by continuing or future downturns
in the retail industry. Any resulting decline in demand for the Company's
products and services would have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Industry Background" and "-- Company Strategy" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Management of Growth. The growth in the size and complexity of the
Company's business and expansion of its product lines and its customer base have
placed and are expected to continue to place a significant strain on the
Company's management and operations. The Company anticipates that continued
growth, if any, will require it to recruit and hire a substantial number of new
employees, including consulting and product development personnel, both
domestically and abroad. In particular, the Company's ability to undertake new
projects and increase license revenues is substantially dependent on the
availability of the Company's consulting personnel to assist in the licensing
and implementation of the Company's solutions. The Company will not be able to
continue to increase its business at historical rates without adding significant
numbers of trained consulting personnel. Accordingly, the Company is currently
attempting to significantly increase consulting capacity in anticipation of
future revenues. In their first year of employment by the Company, new
consulting personnel typically spend between two to ten weeks in training,
during which period they do not generate revenues. To the extent anticipated
revenues fail to materialize following the hiring and training of new personnel,
the Company's operating results would be adversely affected. There can be no
assurance that qualified personnel will be located, retained or trained in a
timely manner. In the event the Company is unable to increase sufficiently its
consulting capacity, the Company may be required to forego licensing
opportunities or become increasingly dependent on systems integrators and
professional consulting firms to provide implementation services for its
products. The Company's ability to compete effectively and to manage future
growth, if any, also will depend on its ability to continue to implement and
improve operational, financial and management information systems on a timely
basis and to expand, train, motivate and manage its work force. Accordingly, the
Company's future operating results will depend on the ability of its management
and other key employees to continue to implement and improve its systems for
operations, financial control and information management, to recruit, train and
manage its employee base, in particular its direct sales force and consulting
services organization, and to deal effectively with third-party systems
25
<PAGE> 28
integrators and consultants. There can be no assurance that the Company will be
able to manage or continue to manage its recent or any future growth, and any
failure to do so would have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Company Strategy"
and "-- Industry Background."
Ability to Attract and Retain Technical Personnel. The Company is heavily
dependent upon its ability to attract, retain and motivate skilled technical and
managerial personnel, especially highly skilled engineers involved in ongoing
product development and consulting personnel who assist in the license and
implementation of the Company's solutions. In particular, the Company's ability
to install, maintain and enhance its enterprise products is substantially
dependent upon its ability to locate, hire and train qualified software
engineers. The market for such individuals is intensely competitive,
particularly in foreign markets. In this regard the Company, as part of its
strategy, plans to significantly increase the number of consulting personnel in
connection with the roll-out of its ODBMS and Win/DSS products and to support
continued development and implementation of its MMS product line. Given the
critical role of the Company's product development and consulting staffs, the
inability to recruit successfully or the loss of a significant part of its
product development or consulting staffs would have a material adverse effect on
the Company. The software industry is characterized by a high level of employee
mobility and aggressive recruiting of skilled personnel. There can be no
assurance that the Company will be able to retain its current personnel, or that
it will be able to attract, assimilate or retain other highly qualified
technical and managerial personnel in the future. The inability to attract, hire
or retain the necessary technical and managerial personnel could have a material
adverse effect upon the Company's business, operating results and financial
condition. See "Business -- Professional Services" and "-- Employees."
Uncertain Market for ODBMS Win/DSS. The Company has recently released
ODBMS and Win/DSS. Both products are open, client/server solutions. The retail
industry has only recently begun limited adoption of open, client/server
information systems. The Company believes that retailers in general may be
relatively cautious in adopting new technologies. In addition, many retailers do
not have the personnel or staff required to implement, operate and maintain an
open, client/server system, and the difficulties associated with implementing
new technology may slow or prevent adoption of the Company's new products.
Because the market for these products is new and evolving, it is difficult to
assess or predict with any assurance the growth rate, if any, and size of this
market. There also can be no assurance that the market for ODBMS or Win/DSS will
develop, or that either of these products or related services will be adopted or
utilized. If the market fails to develop, develops more slowly than expected or
becomes saturated with competitors, or if the Company's products do not achieve
market acceptance, the Company's business, operating results and financial
condition will be materially adversely affected.
The Company is directing a significant amount of its product development
expenditures to the ongoing development of ODBMS and Win/DSS and a significant
amount of its sales and marketing resources to the full commercial introduction
of ODBMS and Win/DSS. A significant effort is still required to develop and
release additional application modules for these products. The Company has
limited experience in developing and marketing products for open system
applications. As a result, there can be no assurance that ODBMS and Win/DSS will
not require substantial software enhancements or modifications to satisfy
performance requirements of customers or to fix design defects or previously
undetected errors. It is common for complex software programs such as ODBMS and
Win/DSS to contain undetected errors when first released, which are discovered
only after the product has been used over time with different computer systems
and in varying applications and environments. While the Company is not aware of
any significant technical problems with these products, there can be no
assurance that errors will not be discovered, or if discovered, that they will
be successfully corrected on a timely basis, if at all. The Company's future
business growth is substantially dependent on the continued development,
introduction and market acceptance of ODBMS and Win/DSS. If customers experience
significant problems with implementation of ODBMS and Win/DSS or are otherwise
dissatisfied with the functionality or performance of ODBMS or Win/DSS, or if
either of these products fails to achieve market acceptance for any reason, the
Company's business, operating results and financial condition will be materially
adversely affected. See "Business -- Products" and "-- Product Development and
JDA Technology."
26
<PAGE> 29
Product Concentration. The Company has derived substantially all of its
revenues from the license of a limited number of information management software
applications for the retail industry and consulting and maintenance services
related to such applications. Software licenses and related consulting,
maintenance and other services revenues from the Company's MMS product line
represented over 90% of the Company's revenues in each of 1994 and 1995, and 80%
in 1996. The Company expects that revenues related to this product will continue
to account for a substantial but reduced percentage of total revenues as market
acceptance of the Company's newer products increases. The life cycle of the MMS
product line is difficult to estimate due in large measure to the potential
effect of new products, applications and product enhancements, including those
introduced by the Company, changes in the retail industry and future
competition. The Company expects that revenues attributable to its MMS and ODBMS
enterprise products will comprise the substantial majority of software license
revenues for the foreseeable future. Any decline in MMS revenues, to the extent
not offset by increases in revenues from other products, would have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Products" and "-- Professional Services" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
International Operations. In 1994, 1995 and 1996, international revenues,
which include revenues from international subsidiaries and export sales,
comprised approximately 28%, 39% and 43%, respectively, of the Company's
revenues. The Company expects that international revenues will continue to
account for a significant percentage of the Company's revenues for the
foreseeable future, and the Company intends to continue expansion of its
international infrastructure. Although the Company maintains operations in the
U.K., Singapore, Canada, Chile, Mexico and Germany, and is currently investing
significant resources in its international operations, there can be no assurance
that the Company will be successful in expanding its international operations.
The Company anticipates that continued growth of its international operations
will require the Company to recruit and hire a number of new consulting, sales
and marketing and support personnel in the countries in which the Company has
established or will establish operations. In addition, the Company has only
limited experience in developing localized versions of its products and in
marketing and distributing its products internationally. International rollout
of the Company's products requires significant investment by the Company in
advance of anticipated future revenues. The opening of new offices by the
Company typically results in initial recruiting and training expenses and
reduced labor efficiencies associated with the introduction of products to a new
market. In particular, successful introduction of the Company's product into new
markets requires the Company to locate and hire qualified local sales and
consulting personnel and train them in the operation of the Company's products.
There can be no assurance that the countries in which the Company operates will
have a sufficient pool of qualified personnel for the Company to hire from, or
that the Company will be successful at hiring, training or retaining such
personnel. In addition, there can be no assurance that the Company will be able
to successfully localize, market, sell and deliver its products internationally.
The inability of the Company to successfully expand its international operations
in a timely manner could materially adversely affect the Company's business,
operating results and financial condition.
There are a number of other risks inherent in the Company's international
business activities, including unexpected changes in regulatory requirements,
tariffs and other trade barriers, costs and risks of localizing products for
foreign countries, longer accounts receivable payment cycles, potentially
adverse tax consequences, currency fluctuations, repatriation of earnings and
the burdens of complying with a wide variety of foreign laws. In addition,
consulting, maintenance and other services in support of international licenses
typically have lower gross margins than those achieved domestically due to lower
prevailing billing rates in certain of the Company's international markets.
Therefore, planned growth in the Company's continued operations may result in
further declines in gross margin on consulting, maintenance and other services.
To the extent the Company's international operations expand, the Company expects
that an increasing portion of its international license and consulting,
maintenance and other services revenues will be denominated in foreign
currencies, subjecting the Company to fluctuations in foreign currency exchange
rates. The Company does not currently engage in foreign currency hedging
transactions. However, as the Company continues to expand its international
operations, exposures to gains and losses on foreign currency transactions may
increase. The Company may choose to limit such exposure by entering into forward
foreign exchange contracts or engaging
27
<PAGE> 30
in similar hedging strategies. There can be no assurance that any currency
exchange strategy would be successful in avoiding exchange related losses. In
addition, revenues of the Company earned in various countries where the Company
does business may be subject to taxation by more than one jurisdiction, thereby
adversely affecting the Company's earnings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business -- Company
Strategy" and "-- Sales and Marketing."
Competition. The market for retail information systems software is
intensely competitive. The Company believes the principal competitive factors in
such market are product quality, reliability, performance and price, vendor and
product reputation, financial stability, features and functions, ease of use and
quality of support. A number of companies offer competitive products addressing
certain of the Company's target markets. In the enterprise systems market, the
Company competes with in-house systems developed by the Company's targeted
customers and with third-party developers such as Intrepid, Island Pacific,
Radius PLC, Retek (a subsidiary of HNC Software, Inc.), STS Systems and Richter
Management Services, among others. In addition, the Company believes that new
market entrants may attempt to develop fully integrated enterprise-level systems
targeting the retail industry. In particular, SAP Aktiengesellschaft announced
in August 1996 its intention to release an integrated client/server enterprise
system competitive with the Company's products. In January 1997, Intrepid
announced the formation of a joint development and marketing relationship with,
and a minority equity investment by, PeopleSoft, a provider of enterprise
applications software. At that time, the parties projected the availability of
products expected to compete directly with the Company's ODBMS enterprise
product in the second half of 1997. In the in-store systems market, which is
more fragmented than the enterprise market, the Company competes with major
systems manufacturers such as AT&T/NCR, IBM and ICL, as well as software
companies such as Applied Intelligence Group, CRS Business Computers, Inc., Post
Software International, STS Systems, GERS Retail Systems and Gateway Data
Sciences Corporation, among others. In the market for consulting services, the
Company is pursuing a strategy of forming informal working relationships with
leading retail systems consulting groups such as Andersen Consulting, Ernst &
Young LLP, Price Waterhouse's Management Horizons Division and other similar
major systems integrators. However, these integrators, as well as independent
consulting firms such as the ISSC Division of IBM, also represent potential
competition to the Company's consulting services group. Many of the Company's
existing competitors, as well as a number of potential new competitors, have
significantly greater financial, technical and marketing resources than the
Company. There can be no assurance that the Company will be able to compete
successfully against its current or future competitors or that competition will
not have a material adverse effect on the Company's business, operating results
and financial condition. See "Business -- Competition."
Technological Change; Market Acceptance of Evolving Standards. The
computer software industry is subject to rapid technological change, changing
customer requirements, frequent new product introductions and evolving industry
standards that may render existing products and services obsolete. As a result,
the Company's position in its existing market or other markets that it may enter
could be eroded rapidly by technological advancements not embraced by the
Company. The life cycles of the Company's products are difficult to estimate.
The products must keep pace with technological developments, conform to evolving
industry standards and address increasingly sophisticated customer needs. In
particular, the Company believes that it must continue to respond quickly to
users' needs for broad functionality and multi-platform support and to advances
in hardware and operating systems. Introduction of new products embodying new
technologies and the emergence of new industry standards could render the
Company's products obsolete and unmarketable. There can be no assurance that the
Company will not experience future difficulties that could delay or prevent the
successful development, introduction and marketing of new products, or that new
products and product enhancements will meet the requirements of the marketplace
and achieve market acceptance. If the Company is unable to develop and introduce
products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition would be materially adversely affected.
In addition, the Company strives to achieve compatibility between the
Company's products and retailing systems platforms the Company believes are or
will become popular and widely adopted. The Company invests substantial
resources in development efforts aimed at achieving such compatibility. Any
failure by the
28
<PAGE> 31
Company to anticipate or respond adequately to technology or market developments
could result in a loss of competitiveness or revenue. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview," "Business -- Products," "-- Professional Services" and
"-- Product Development and JDA Technology."
Dependence on Key Personnel. The Company's performance is substantially
dependent on the performance of its executive officers and key employees. In
particular, the services of James D. Armstrong, the Company's Chief Executive
Officer, and Frederick M. Pakis, the Company's President, would be difficult to
replace. The Company does not have in place "key person" life insurance policies
on any of its employees. The loss of the services of any of its executive
officers or other key employees could have a material adverse effect on the
business, operating results and financial condition of the Company.
Dependence on Proprietary Technology. The Company's success and ability to
compete is dependent in part upon its proprietary technology, including its
software source code. The Company relies on a combination of trade secret,
nondisclosure and copyright law, which may afford only limited protection. In
addition, effective copyright and trade secret protection may be unavailable or
limited in certain foreign countries. The Company presently has no patents or
patent applications pending. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties, including customers who receive listings of the source code for the
Company's products pursuant to the terms of their license agreements with the
Company, may attempt to reverse engineer or copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. As a result, there can be no assurance that unauthorized use of the
Company's technology may not occur.
Certain technology used by the Company's products is licensed from third
parties, generally on a non-exclusive basis. The termination of any such
licenses, or the failure of the third-party licensors to adequately maintain or
update their products, could result in delay in the Company's ability to ship
certain of its products while it seeks to implement technology offered by
alternative sources, and any required replacement licenses could prove costly.
While it may be necessary or desirable in the future to obtain other licenses
relating to one or more of the Company's products or relating to current or
future technologies, there can be no assurance that the Company will be able to
do so on commercially reasonable terms or at all.
In the future the Company may receive notices claiming that it is
infringing the proprietary rights of third parties, and there can be no
assurance that the Company will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claim could be time
consuming, result in costly litigation, cause product shipment delays or force
the Company to enter into royalty or license agreements rather than dispute the
merits of such claims and could have a material adverse effect on the Company's
business, operating results and financial condition. See
"Business -- Proprietary Rights."
Product Defects; Product Liability; Risk of Integration Difficulties. The
Company's software products are highly complex and sophisticated and could, from
time to time, contain design defects or software errors that could be difficult
to detect and correct. In addition, implementation of the Company's products
generally involves a significant amount of customer-specific customization, and
may involve integration with systems developed by third parties. Despite
extensive testing, the Company from time to time has discovered defects or
errors in its products or custom modifications only after its systems have been
used by many customers. The Company has also experienced delays in shipment of
products during the period required to correct such errors. In addition, the
Company or its customers may from time to time experience difficulties relating
to the integration of the Company's products with other hardware or software in
the customer's environment that are unrelated to defects in the Company's
products. There can be no assurance that such defects, errors or difficulties
will not cause future delays in product introductions and shipments, result in
increased costs and diversion of development resources, require design
modifications or impair customer satisfaction with the Company's products. Since
the Company's products may be used by its customers to perform mission-critical
functions, design defects, software errors, misuse of the Company's products,
incorrect data from external
29
<PAGE> 32
sources or other potential problems within or out of the Company's control that
may arise from the use of the Company's products could result in financial or
other damages to the Company's customers. Prior to 1997, the Company did not
maintain product liability insurance. Although the Company's license agreements
with its customers typically contain provisions designed to limit the Company's
exposure to potential claims as well as any liabilities arising from such
claims, such provisions may not effectively protect the Company against such
claims and the liability and costs associated therewith. Accordingly, any such
claim could have a material adverse effect upon the Company's business,
operating results and financial condition. The Company provides warranties for
its products for a period of time (usually 6 or 12 months) after the software is
installed and, if applicable, accepted by the licensee. The Company's license
agreements generally do not permit product returns by the customer, and product
returns and warranty expense for 1994, 1995 and 1996 represented less than two
percent of total revenues during each of such periods. However, no assurance can
be given that product returns will not increase as a percentage of total
revenues in future periods. See "Business -- Product Development and JDA
Technology."
Possible Volatility. Since the Company's initial public offering in March
1996, the price of the Company's Common Stock has experienced large
fluctuations. Future announcements concerning the Company or its competitors,
quarterly variations in operating results, announcements of technological
innovations, the introduction of new products or changes in product pricing
policies by the Company or its competitors, proprietary rights or other
litigation (including without limitation the arbitration proceedings described
in "-- Pending Arbitrations"), changes in earnings estimates by analysts or
other factors could cause the market price of the Common Stock to fluctuate
substantially. In addition, stock prices for many technology companies fluctuate
widely for reasons which may be unrelated to operating results. These
fluctuations, as well as general economic, market and political conditions such
as recessions or military conflicts, may materially and adversely affect the
market price of the Company's Common Stock. See "Market for Registrant's Common
Equity and Related Stockholder Matters."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements as of December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 1996 and the
independent auditors' report are included in this Report as listed in Item
14(a).
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
QUARTER ENDED
---------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 6,003 $ 6,602 $ 8,206 $ 9,273 $ 9,404 $10,436 $12,514 $15,486
Gross profit............ 3,930 4,147 5,429 6,637 6,421 6,653 7,860 10,052
Income from
operations............ 1,502 1,522 1,903 2,576 2,433 2,428 3,311 4,105
Net income.............. $ 1,427 $ 1,036 $ 1,366 $ 1,743 $ 1,427 $ 1,559 $ 2,088 2,606
Net income per share.... $ 0.13 $ 0.13 $ 0.17 $ 0.21
Pro Forma Statements of
Operation Data:
Income before income
taxes............... 1,445 1,388 1,784 2,453
Pro forma net income.... $ 900 $ 864 $ 1,110 $ 1,527
Pro forma net income per
share................. $ 0.08 $ 0.08 $ 0.11 $ 0.15
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
30
<PAGE> 33
PART III
Certain information required by Part III is omitted from this Report, in
that the Company will file its Proxy Statement pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Report, and
certain information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the directors of the Company is incorporated by
reference to the Company's Proxy Statement filed in connection with the
Company's Annual Meeting of Stockholders to be held on May 23, 1997 (the "Proxy
Statement") as set forth under the caption "General Information -- Board of
Directors." Information relating to the executive officers of the Company is set
forth in Part I of this Report under the caption "Executive Officers of the
Registrant."
Information with respect to delinquent filings pursuant to Item 405 of
Regulation S-K is incorporated by reference to the Proxy Statement as set forth
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation is incorporated by
reference to the Proxy Statement under the caption "Executive Compensation and
Other Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to ownership of equity securities of the Company
by certain beneficial owners and management is incorporated by reference to the
Proxy Statement as set forth under the caption "General Information -- Stock
Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions
is incorporated by reference to the Proxy Statement under the captions "Certain
Transactions" and "Compensation Committee Interlocks and Insider Participation."
31
<PAGE> 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
A. THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- Years Ended December 31, 1995 and
1996
Consolidated Statements of Operations -- Years Ended December 31,
1994, 1995 and 1996
Consolidated Statements of Stockholders' Equity (Deficit) -- Three
Years Ended
December 31, 1996
Consolidated Statements of Cash Flows -- Three Years Ended December
31, 1996
Notes to Consolidated Financial Statements -- Three Years Ended
December 31, 1996
2. FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts and Reserves
3. EXHIBITS
See Exhibit Index.
B. REPORTS ON FORM 8-K.
The registrant did not file any Reports on Form 8-K during the fourth
quarter of fiscal 1996.
32
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
JDA Software Group, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of JDA
Software Group, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of JDA Software
Group, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
January 28, 1997
33
<PAGE> 36
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 498,302 $30,986,277
Restricted investments (Note 2)................................... 14,649,072
Accounts receivable -- net of allowance of $650,700 and $1,123,824
(Note 3)....................................................... 9,535,371 16,953,561
Prepaid expenses and other current assets......................... 276,884 881,359
Deferred tax asset (Note 9)....................................... 425,300 786,100
------------ ------------
Total current assets...................................... 25,384,929 49,607,297
------------ ------------
BUILDING, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Notes 3 and 5):
Building.......................................................... 2,192,000
Computer and office equipment..................................... 4,253,125 8,977,939
Leasehold improvements............................................ 179,698 233,933
------------ ------------
Total..................................................... 4,432,823 11,403,872
Less accumulated depreciation and amortization.................... 2,022,773 3,652,843
------------ ------------
Building, equipment and leasehold improvements -- net.......... 2,410,050 7,751,029
------------ ------------
GOODWILL -- Net of accumulated amortization of $40,704.............. 1,697,458
------------ ------------
TOTAL............................................................... $27,794,979 $59,055,784
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit (Note 3)...................................... $ 575,000
Notes payable to stockholders (Notes 2 and 10).................... 19,180,496
Interest payable to stockholders.................................. 732,301
Accounts payable.................................................. 881,028 $ 1,885,763
Accrued and other liabilities (Note 4)............................ 2,309,309 5,446,858
Taxes payable..................................................... 300,100 639,300
Deferred revenue.................................................. 747,066 1,747,459
Current portion of capital lease obligations (Note 5)............. 52,651 55,759
------------ ------------
Total current liabilities................................. 24,777,951 9,775,139
CAPITAL LEASE OBLIGATIONS -- Less current portion (Note 5).......... 200,709 105,915
DEFERRED TAX LIABILITY (Note 9)..................................... 108,000 514,000
------------ ------------
Total liabilities......................................... 25,086,660 10,395,054
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK (Note 2)............ 15,000,000
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 2, 7 and 8):
Common stock, $.01 par value -- authorized, 18,000,000 shares;
issued and outstanding, 7,200,000 and 12,965,237 shares........ 72,000 129,652
Additional paid in capital........................................ 5,652,748 58,442,456
Accumulated deficit............................................... (18,029,225) (10,349,390)
Foreign translation adjustment (Note 6)........................... 12,796 438,012
------------ ------------
Total stockholders' equity (deficit)...................... (12,291,681) 48,660,730
------------ ------------
TOTAL............................................................... $27,794,979 $59,055,784
============ ============
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 37
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES (Note 6):
Software licenses................................. $12,220,624 $15,253,102 $24,295,535
Consulting, maintenance and other services........ 11,608,381 14,831,149 23,544,238
----------- ----------- -----------
Total revenues............................ 23,829,005 30,084,251 47,839,773
----------- ----------- -----------
COST OF REVENUES:
Software licenses................................. 56,850 159,237 437,802
Consulting, maintenance and other services........ 6,870,499 9,781,454 16,415,989
----------- ----------- -----------
Total cost of revenues.................... 6,927,349 9,940,691 16,853,791
----------- ----------- -----------
GROSS PROFIT........................................ 16,901,656 20,143,560 30,985,982
----------- ----------- -----------
OPERATING EXPENSES:
Product development............................... 1,922,791 3,511,737 6,478,189
Sales and marketing............................... 3,227,763 5,198,982 7,242,539
General and administrative (Notes 5, 8 and 10).... 2,528,852 3,929,404 4,988,650
----------- ----------- -----------
Total operating expenses.................. 7,679,406 12,640,123 18,709,378
----------- ----------- -----------
INCOME FROM OPERATIONS (Note 6)..................... 9,222,250 7,503,437 12,276,604
OTHER INCOME (EXPENSE) -- Net (Note 10)............. (221,152) (433,609) 519,231
----------- ----------- -----------
INCOME BEFORE INCOME TAXES.......................... 9,001,098 7,069,828 12,795,835
PROVISION FOR INCOME TAXES (Note 9)................. 500,000 1,497,000 5,116,000
----------- ----------- -----------
NET INCOME.......................................... $ 8,501,098 $ 5,572,828 $ 7,679,835
=========== =========== ===========
NET INCOME PER SHARE................................ $ .64
===========
PRO FORMA NET INCOME PER SHARE (Note 1):
Historical net income............................. $ 5,572,828
Pro forma adjustment to adjust income tax
provision (Note 9)............................. (1,172,000)
-----------
PRO FORMA NET INCOME................................ $ 4,400,828
===========
PRO FORMA NET INCOME PER SHARE...................... $ .42
===========
SHARES USED IN PER SHARE CALCULATION................ 10,952,000 12,010,209
=========== ===========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE> 38
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL RETAINED FOREIGN
--------------------- PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT TOTAL
---------- -------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.......... 5,583 $ 5,583 $ 5,254,000 $ (4,390,284) $ (4,915) $ 864,384
Dividends....................... (3,157,894) (3,157,894)
Foreign translation adjustment
(Note 6)..................... 20,852 20,852
Net income...................... 8,501,098 8,501,098
---------- -------- ----------- ------------ -------- ------------
BALANCE, DECEMBER 31, 1994........ 5,583 5,583 5,254,000 952,920 15,937 6,228,440
Dividends....................... (3,897,425) (3,897,425)
Reorganization and issuance of
preferred stock (Note 2)..... 7,194,417 66,417 (274,340) (19,984,460) (20,192,383)
Stock options exercised (Note
8)........................... 673,088 (673,088)
Foreign translation adjustment
(Note 6)..................... (3,141) (3,141)
Net income...................... 5,572,828 5,572,828
---------- -------- ----------- ------------ -------- ------------
BALANCE, DECEMBER 31, 1995........ 7,200,000 72,000 5,652,748 (18,029,225) 12,796 (12,291,681)
Issuance of common stock:
IPO (Note 2)................. 2,182,866 21,829 25,279,461 25,301,290
Conversion of preferred stock
(Note 2)................... 2,800,000 28,000 7,472,000 7,500,000
Secondary offering (Note
2)......................... 600,000 6,000 15,535,929 15,541,929
Employee stock purchase plan
(Note 8)..................... 38,445 384 424,433 424,817
Acquisition of JDA Canada (Note
7)........................... 143,926 1,439 2,540,726 2,542,165
Tax benefit -- employee stock
options (Note 8)............. 1,537,159 1,537,159
Foreign translation adjustment
(Note 6)..................... 425,216 425,216
Net income...................... 7,679,835 7,679,835
---------- -------- ----------- ------------ -------- ------------
BALANCE, DECEMBER 31, 1996........ 12,965,237 $129,652 $58,442,456 $(10,349,390) $438,012 $ 48,660,730
========== ======== =========== ============ ======== ============
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 39
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................... $ 8,501,098 $ 5,572,828 $ 7,679,835
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 525,611 637,205 1,162,676
Allowance................................................. 110,160 538,000 363,999
Unrealized foreign translation adjustment................. 20,852 (3,141) 425,216
Deferred income taxes and other........................... 22,049 (243,681) 45,200
Changes in assets and liabilities, net of effects from
purchase of JDA Canada:
Accounts receivable....................................... (1,812,378) (3,364,019) (7,132,310)
Accounts payable.......................................... 155,733 394,274 945,132
Accrued and other liabilities............................. 177,669 604,592 2,781,690
Deferred revenue.......................................... 34,188 651,308 1,000,393
Interest payable to stockholders.......................... 732,301 (732,301)
Other..................................................... (367,872) (23,888) (62,333)
----------- ------------ ------------
Net cash provided by operating activities............ 7,367,110 5,495,779 6,477,197
----------- ------------ ------------
INVESTING ACTIVITIES:
Purchase of investments...................................... (14,649,072)
Sale of investments.......................................... 14,649,072
Cash acquired from purchase of JDA Canada.................... 214,210
Purchases of building, equipment and leasehold
improvements.............................................. (704,966) (1,421,542) (6,225,121)
----------- ------------ ------------
Net cash (used in) provided by investing
activities......................................... (704,966) (16,070,614) 8,638,161
----------- ------------ ------------
FINANCING ACTIVITIES:
Initial public offering transactions:
Issuance of common stock.................................. 25,301,290
Redemption of Series B preferred stock.................... (7,500,000)
Payments on notes to stockholders......................... (4,880,832)
Stockholder transactions:
Issuance of redeemable preferred stock -- net............. 14,792,077
Reorganization distribution............................... (2,294,539)
Dividends................................................. (3,157,894) (3,897,425)
Payments on notes payable to stockholders................. (922,456) (14,299,664)
Issuance of common stock from secondary offering............. 15,541,929
Net borrowings (payments) on bank line of credit............. (650,000) 575,000 (575,000)
Issuance of common stock -- employee stock purchase plan..... 424,817
Tax benefit-employee stock options........................... 1,537,159
Capital lease payments and other............................. (157,244) (92,396) (177,082)
----------- ------------ ------------
Net cash (used in) provided by financing
activities......................................... (3,965,138) 8,160,261 15,372,617
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH................................ 2,697,006 (2,414,574) 30,487,975
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................... 215,870 2,912,876 498,302
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR......................... $ 2,912,876 $ 498,302 $ 30,986,277
========== =========== ===========
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest.................................................. $ 261,160 $ 367,210 $ 876,412
========== =========== ===========
Income taxes.............................................. $ 867,220 $ 1,827,899 $ 2,949,005
========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Distributions to stockholders paid with a note payable (Note
2)........................................................ $ 17,689,921
===========
Conversion of Series A preferred stock (Note 2).............. $ 7,500,000
===========
Acquisition of JDA Canada (Note 7):
Common stock issued....................................... $ 2,542,165
Fair value of assets acquired, other than cash............ (1,149,750)
Liabilities assumed....................................... 559,957
Goodwill.................................................. (1,738,162)
------------
Cash acquired............................................. $ 214,210
===========
</TABLE>
See notes to consolidated financial statements.
38
<PAGE> 41
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS -- JDA is a leading international provider of
comprehensive enterprise-wide solutions that address mission-critical business
information requirements of retail organizations. The Company's products and
services are marketed and sold on credit terms in the United States through the
Company's direct sales force and a network of value-added implementors, systems
integrators and consultants. Sales to customers outside the United States are
facilitated by an overseas direct sales force employed by the Company's
subsidiaries and through a network of sales agents and distributors. The
Company's software solutions have been deployed by a broad range of retail
enterprises worldwide.
A summary of significant accounting policies is as follows:
a. Principles of Consolidation -- The consolidated financial statements
include the accounts of JDA and its wholly-owned subsidiaries.
Significant intercompany accounts and transactions have been
eliminated in consolidation.
b. Revenue -- JDA derives its revenues from software licenses and
consulting, maintenance and other services. The Company records
revenues from software licenses as completed products are shipped if
collection of the related receivable is probable and the Company's
remaining obligation with respect to the contract is insignificant.
Allowances for product returns are estimated based on previous
experience and are recorded as a reduction of revenue at the time
sales are recognized. Consulting services are billed on an hourly
basis and revenues are recorded as the work is performed. Maintenance
revenues are recorded as revenue in the applicable month.
c. Cash and Cash Equivalents -- All highly liquid investments with an
original maturity of three months or less are recorded as cash
equivalents.
d. Building, equipment and leasehold improvements are stated at
cost. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the related
assets, generally three to seven years, or the life of the lease,
whichever is shorter.
e. Goodwill represents the excess purchase price over net assets acquired
and is amortized over a 15 year period. Amortization expense was
$40,704 in 1996.
f. Product Development Costs -- Development costs incurred in the
research and development of new software products are expensed as
incurred until technological feasibility has been established. JDA
considers technological feasibility to be established when all
planning, designing, coding and testing has been completed according
to design specifications. After technological feasibility is
established, any additional costs would be capitalized in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. Historically product development has been
substantially completed concurrently with the establishment of
technological feasibility and, accordingly, no costs have been
capitalized.
g. Deferred revenue represents advance customer billings on maintenance,
software license receivables due after 12 months, and advance payments
on consulting projects which will be recognized as revenue as the work
is performed.
h. Income taxes have been provided on taxable income in accordance with
SFAS No. 109, Accounting for Income Taxes. Through March 30, 1995,
substantially all income subject to United States federal income tax
was attributable to certain Predecessor Companies which had elected S
Corporation status under the Internal Revenue Code. Accordingly,
historical tax provisions through that date do not include provisions
for United States federal income taxes. Subsequent to March 30,
39
<PAGE> 42
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995, taxes have been provided on all income. At March 31, 1995,
deferred income taxes were established for those Predecessor Companies
that had been treated as S Corporations. Such income taxes aggregating
$260,000 have been included in the historical income tax provision at
that date.
i. Pro forma net income per share has been calculated for 1995 based upon
the number of shares of common and equivalent shares outstanding
subsequent to the Reorganization including the common shares that were
issued upon the conversion of the Preferred Stock, plus the estimated
number of shares that would have been necessary to issue at the IPO
price in order to repay certain stockholder notes arising from the
Reorganization and the redemption of Series B Redeemable Preferred
Stock. Outstanding options have not been considered because, as
described in Note 8, no dilution will result from the exercise of such
options.
j. Net income per share for the year ended December 31, 1996 is computed
on the weighted average number of common shares outstanding during the
year and includes the effect of shares issuable upon exercise of stock
options utilizing the treasury stock method when the effect of such
issuance is dilutive.
k. Foreign currency assets and liabilities are generally translated into
United States dollars using the exchange rates in effect at the
statement of financial position date. Results of operations are
generally translated using the average exchange rates throughout the
period. The effects of exchange rate fluctuations on translation of
assets and liabilities are reported as a separate component of equity.
l. Impairment of Long-Lived Assets -- On January 1, 1996, the Company
adopted SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets to be Disposed Of. In accordance with the provisions of SFAS
No. 121, the Company reviews the carrying values of its long-lived
assets and identifiable intangibles for possible impairment whenever
events or changes in circumstances indicate that the carrying amount
of assets to be held and used may not be recoverable. SFAS No. 121
requires that, if the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset, an impairment
loss should be recognized, measured as the amount by which the
carrying amount exceeds the fair value of the assets. The adoption of
SFAS No. 121 had no effect on the December 31, 1996 audited
consolidated financial statements.
m. Stock-Based Compensation -- In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based
Compensation. As permitted by SFAS No. 123, the Company uses the
intrinsic value based method prescribed by the Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its plans. Accordingly,
no compensation expense has been recognized for its stock-based
compensation plans. A summary of the pro forma effects on reported
income from continuing operations and earnings per share for 1996 and
1995 as if the fair value based method of accounting defined in SFAS
No. 123 had been applied is included in Note 8 to these consolidated
financial statements.
n. Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these
estimates.
o. Product Concentration -- The Company has to date derived substantially
all of its revenues from the license and related consulting services
of a limited number of information management software applications
for the retail industry.
40
<PAGE> 43
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
p. Reclassifications -- Certain reclassifications were made to the 1994 and
1995 financial statements to conform with the 1996 presentation.
2. REORGANIZATION AND COMMON STOCK OFFERINGS
Prior to March 1995, JDA Software Services, Inc., JDA International
Limited, JDA Software, Inc., JDA Worldwide, Inc., JDA Asia Pte Ltd. and JDA GmbH
(the "Predecessor Companies") issued combined financial statements because such
companies operated under common control and management. At that time, the common
stockholders of the Predecessor Companies agreed to enter into a transaction to
be effective March 30, 1995 (the "Reorganization") under which the Predecessor
Companies were consolidated under a common holding company, the holding company
issued $15,000,000 of redeemable convertible preferred stock and the
stockholders of the Predecessor Companies received the proceeds from the
issuance of the preferred stock as well as any undistributed equity of the
Predecessor Companies. Accordingly, JDA Software Group, Inc. ("JDA" or the
"Company") was formed in March 1995 and on March 30, 1995, JDA and the
stockholders of the Predecessor Companies entered into simultaneous transactions
under which (1) the Predecessor Companies were contributed into JDA, the
Predecessor Company stockholders received 7,200,000 shares of common stock
representing all of JDA's then outstanding common stock, $2,294,539 of cash,
$14,000,000 of notes due January 11, 1996, $898,990 of notes due through January
13, 1996 and $2,790,931 of notes due through 2000 (together the "Notes"); and
(2) JDA issued 2,800,000 shares of its Series A Redeemable Convertible Preferred
Stock (the "Preferred Stock") for $15,000,000 cash. The transaction has been
accounted for as a combination of companies under common control in a manner
similar to a pooling of interests, the issuance of $15,000,000 of Preferred
Stock and the distribution of cash and the Notes as a dividend. Additional
paid-in capital has been charged for $66,417 to reflect the new par value of
common stock outstanding and $207,923 for expenses applicable to the
Reorganization.
$14,000,000 of the Notes were issued to the common stockholders and the
proceeds from the issuance of the Preferred Stock were invested in restricted
short-term investments which were used for the payment of the Notes. Such notes
were repaid on January 11, 1996 when the investments matured. The remaining
stockholder notes were repaid upon the closing of the Initial Public Offering
("IPO").
Prior to the Reorganization, certain of the Predecessor Companies, which
earned substantially all of the Company's United States taxable income, elected
S Corporation status under Subchapter S of the Internal Revenue Code. As a
result, the historical financial statements for 1994 and the first three months
of 1995 do not include a provision for United States federal income taxes.
Pro forma financial statement information has been included to present the
1995 income statement data as if United States federal income had been taxable
to JDA rather than the stockholders; and to eliminate the tax provisions at
March 31, 1995 which established deferred taxes applicable to the Predecessor
Companies which were taxed as S Corporations.
On March 15, 1996, the Company successfully completed its IPO of common
stock. The Company sold 2,182,866 shares of common stock in the IPO for
$25,301,290 net of issuance costs of $1,089,560. Subsequent to the IPO, all
outstanding shares of the Series A Redeemable Convertible Preferred Stock were
converted into (1) 2,800,000 shares of common stock and (2) 1,250,004 shares of
Series B Redeemable Preferred Stock. The Series B Redeemable Preferred Stock was
then redeemed for $7,500,000 in cash.
On November 26, 1996, the Company successfully completed a secondary
offering of 2,472,500 shares of common stock of which the Company sold 600,000
of the shares of common stock for $15,541,929, net of issuance costs of
$418,071. The remaining 1,872,500 shares were sold by selling stockholders.
41
<PAGE> 44
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LINE OF CREDIT
The Company has a $5,000,000 line of credit, all of which was unused, which
bears interest at the bank's reference rate and is collateralized by equipment,
receivables, and intangibles. The line of credit matures on July 1, 1998. Under
the terms of the line of credit, the Company is required to maintain certain
tangible net worth and profitability requirements. JDA is in compliance with the
agreement at December 31, 1996.
4. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Accrued compensation and benefits........................... $ 992,497 $2,773,104
Customer deposits........................................... 215,193 317,652
Sales, value added and property taxes....................... 404,104 637,626
Royalties and license fees.................................. 130,612 376,776
Accrued professional services............................... 125,642 195,521
Other accrued expenses...................................... 441,261 1,146,179
---------- ----------
Total............................................. $2,309,309 $5,446,858
========== ==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under capital and
operating leases, including leases with stockholders (Note 10). The leases
expire at various dates and include renewal options. The majority stockholders
guarantee certain of these leases. Capital leases included in building,
equipment and leasehold improvements total approximately $192,000 and $171,000
(net of accumulated amortization of approximately $71,000 and $76,200) as of
December 31, 1995 and 1996, respectively.
Future minimum lease payments for such leases for the years ending December
31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
-------- ----------
<S> <C> <C>
1997......................................................... $ 66,700 $1,303,000
1998......................................................... 59,300 1,115,000
1999......................................................... 50,500 337,000
2000......................................................... 13,400 109,000
2001......................................................... 20,000
Thereafter................................................... 5,000
--------- ----------
Total........................................................ 189,900 $2,889,000
==========
Less amounts representing interest........................... (28,226)
---------
Net present value of future minimum lease payments........... 161,674
Less current portion......................................... (55,759)
---------
Present value of future minimum lease payments less current $105,915
portion....................................................
=========
</TABLE>
Rent expense incurred under the operating leases for the three years ended
December 31, 1996 was approximately $289,000, $707,000 and $1,216,000,
respectively.
In May 1996, Niederhoffer and Niederhoffer, Inc. ("Niederhoffer") filed a
demand for arbitration asserting a claim against JDA Software Services, Inc., a
wholly-owned subsidiary of the Company. Niederhoffer's claims are based upon an
agreement between it and JDA Software Services, Inc. dated April 6,
42
<PAGE> 45
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1990 (the "Finder's Agreement"). Niederhoffer alleges entitlement to a finder's
fee in connection with the purchase of convertible preferred stock in the
Company in March 1995 by six investment funds advised by TA Associates, Inc. and
its affiliates ("TA Investment"), and a claim for common stock arising from the
related establishment of the Company and reorganization of the Company's
wholly-owned subsidiaries pursuant to which Company common stock was issued to
such subsidiaries' stockholders (the "Reorganization"). In the arbitration,
Niederhoffer claims damages of approximately $770,000 and asserts a right to
504,000 shares of the Company's common stock.
Although the Company has contested vigorously, among other things,
Niederhoffer's damages claims, in the event the arbitration panel concludes that
the TA Investment and the related Reorganization fell within the scope of the
Finder's Agreement, and further agrees with Niederhoffer's assessment of
damages, the Company could be required to make cash payments as well as issue to
Niederhoffer up to 504,000 shares of the Company's common stock or make an
additional cash payment to Niederhoffer based upon the arbitrators'
determination of the value of such shares. The Company believes that the
arbitrators' decision to award up to 504,000 shares of common stock to
Niederhoffer based upon a determination that such shares were issuable as a
result of the TA Investment would be treated as a charge to additional paid-in
capital. Such charge would reduce additional paid-in capital by the amount of
any cash paid plus the value of the common stock issued, valued as of the date
of the TA Investment. However, any cash awarded in lieu of shares in excess of
the value of such shares at the date of the TA Investment would be recorded as
litigation expense and could have an immediate and material adverse effect on
the Company's operating results. In addition, any cash awarded to Niederhoffer
would reduce the Company's available liquidity. Any shares of common stock
awarded to Niederhoffer would have a dilutive effect on the Company's net income
per share.
The Company and its counsel believe that the Company has meritorious
defenses to Niederhoffer's claims, and the Company is contesting both the
applicability of the Finder's Agreement to the TA Investment and the related
Reorganization, and the measurement of damages as claimed by Niederhoffer.
However, since the results of arbitration proceedings are inherently
unpredictable, the ultimate outcome cannot be determined. The arbitration
hearing was concluded in March 1997, and the arbitrators' decision is pending.
6. INTERNATIONAL OPERATIONS
For the three years ended December 31, amounts included in the consolidated
financial statements applicable to international operations, principally those
in the United Kingdom, Europe and Asia, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
United States............................. $17,691,505 $20,827,569 $31,823,233
Foreign................................... 6,137,500 9,256,682 16,016,540
----------- ----------- -----------
Total revenues.................... $23,829,005 $30,084,251 $47,839,773
=========== =========== ===========
Income from operations:
United States............................. $ 7,142,093 $ 4,817,466 $ 6,979,410
Foreign................................... 2,080,157 2,685,971 5,297,194
----------- ----------- -----------
Total income from operations...... $ 9,222,250 $ 7,503,437 $12,276,604
=========== =========== ===========
Assets:
United States............................. $ 9,145,065 $25,189,895 $49,847,561
Foreign................................... 2,412,189 2,605,084 9,208,223
----------- ----------- -----------
Total assets...................... $11,557,254 $27,794,979 $59,055,784
=========== =========== ===========
</TABLE>
43
<PAGE> 46
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1995 and 1996, United States revenue includes export sales to Latin
America totaling approximately $2,435,000 and $4,777,000, respectively.
Transaction gains and losses recorded in income in 1994, 1995 and 1996 were
immaterial.
Translation adjustments recorded as a separate component of equity were:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Balance, beginning of year........................... $(4,915) $15,937 $ 12,796
Unrealized gain (loss)............................... 20,852 (3,141) 425,216
-------- -------- --------
Balance, end of year................................. $15,937 $12,796 $438,012
======== ======== ========
</TABLE>
7. ACQUISITION OF JDA SOFTWARE SERVICES LTD
On August 15, 1996, the Company acquired JDA Software Services Ltd. ("JDA
Canada") for 143,926 shares of common stock. JDA Canada was previously an
affiliated company, but had been independently owned since 1987. The acquisition
was accounted for as a purchase resulting in goodwill of $1,738,162, which will
be amortized over 15 years. Operating results for the years ended December 31,
1995 and 1996, assuming that the acquisition had occurred at the beginning of
the applicable year are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenues.................................................. $33,273,314 $50,556,564
=========== ===========
Net income................................................ $ 4,318,633 $ 7,778,251
=========== ===========
Net income per share...................................... $ .39 $ .64
=========== ===========
</TABLE>
8. EMPLOYEE BENEFIT PLANS
JDA has adopted three stock option plans. The Board of Directors has
reserved a total of 1,350,000 shares of common stock for issuance under the
Company's 1995 Stock Option Plan (the "1995 Option Plan"). Both incentive stock
options and nonstatutory stock options may be granted under the 1995 Option
Plan. The exercise price of an incentive stock option and a nonstatutory stock
option must be no less than the fair market value at the date of grant. Options
granted under the 1995 Option Plan are subject to individual vesting schedules,
but must be exercised within ten years of the date of grant.
In connection with the issuance of the Preferred Stock (Note 2), the
stockholders of the Predecessor Companies, have agreed that upon (1) the
exercise of the first 850,000 employee stock options, they will sell an
equivalent number of their common shares to JDA at the specific option exercise
price; and (2) upon the exercise of the next 500,000 options, they will sell an
equivalent number of their common shares to JDA at $.01 per share. Accordingly,
shares outstanding of the Company will not increase upon the exercise of the
first 1,350,000 stock options granted. There are 656,525 options outstanding at
December 31, 1996 under this plan of which 360,741 are exercisable.
At December 31, 1996, 50,000 options were available for additional grants
under the 1995 Option Plan.
The Board of Directors has also reserved a total of 1,250,000 shares of
common stock for issuance under the Company's 1996 Employee Stock Option Plan
(the "1996 Option Plan") and a total of 150,000 shares of common stock have been
reserved for issuance under the Company's 1996 Outside Directors Stock Option
Plan (the "Directors Plan"). At December 31, 1996, 305,000 options had been
issued under the 1996 Option Plan, of which 20,000 are exercisable. Options may
be granted to employees, consultants, advisors and directors who are also
employees, although only directors and officers who are also employees may
receive incentive stock options intended to qualify for certain tax treatment.
The exercise price of nonqualified stock
44
<PAGE> 47
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options must equal at least 85% of the fair market value of the common stock on
the date of grant, and in the case of incentive stock options must be no less
than the fair market value. Options granted under the option plans generally
vest over four years and must be exercised within ten years. No options have
been granted under the Directors Plan. The Directors Plan provides for the
automatic granting of nonqualified stock options to directors of the Company who
are not employees of the Company ("Outside Directors"). Subsequent to December
31, 1996, 301,250 additional options were granted under the 1996 Option Plan.
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans. Had compensation cost for the
Company's stock option plans been determined based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed in SFAS No. 123 the Company's net income and net income per share
would have been reduced by approximately $588,000, or $.05 per share in 1996 and
$444,000 or $.04 per share in 1995. The fair value of the options granted is
estimated as $7.48 and $1.06 in 1996 and 1995, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0%, volatility of .65, risk-free interest rate of
5.25%, assumed forfeiture rate of 0%, and an expected life of .4 years after
vesting date.
The following is a summary of changes in outstanding options:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------------
<S> <C> <C>
Outstanding at December 31, 1994......................... -- --
Granted................................................ 1,300,000 $3.50 to $5.25
Cancelled or expired................................... -- --
Exercised.............................................. (192,862) $3.50
---------
Outstanding at December 31, 1995......................... 1,107,138 $3.50 to $5.25
Granted................................................ 305,000 $9.60 to $19.75
Cancelled or expired................................... -- --
Exercised.............................................. (450,613) $3.50 to $5.25
---------
Outstanding at December 31, 1996......................... 961,525 $3.50 to $5.25
=========
Exercisable at December 31, 1996......................... 380,741 $3.50 to $5.25
=========
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------
RANGE AVERAGE WEIGHTED WEIGHTED
OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.50 -- $5.25 656,525 8.51 $ 4.10 360,741 $ 3.86
$9.60 -- $19.75 305,000 9.38 16.00 20,000 9.60
-------- ------
----
961,525 380,741
============ ======
</TABLE>
As noted above, the 656,525 options outstanding under the 1995 Option Plan,
if exercised, would not have a dilutive effect on the Company's net income per
share calculation.
JDA has a defined contribution plan under Section 401(k) of the Internal
Revenue Code. Employees of JDA are eligible to participate in the plan after
reaching age 21. Voluntary salary reductions may be elected by each
participating employee and contributed to the plan. JDA may contribute an amount
equal to 100% of the employee's contribution up to 20% of the employee's annual
wages. Employees are immediately vested for
45
<PAGE> 48
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
their own contributions and they are 100% vested in the Company's matching
contributions after six years of service. The Company made no contributions
during 1994 and approximately $57,000 and $86,000 of contributions to the plan
in 1995 and 1996, respectively.
In addition, a total of 200,000 shares of common stock have been reserved
for issuance under the Company's 1996 Employee Stock Purchase Plan (the
"Purchase Plan"). At December 31, 1996, 38,445 shares had been issued. No shares
had been issued as of December 31, 1995. The Purchase Plan permits eligible
employees to purchase common stock at a discount through payroll deductions. The
purchase price of the stock will be equal to 85% of the lesser of: (i) the fair
market value on the first day of the 24 month offering period; or (ii) the fair
market value on the last day of the six month purchase period. At December 31,
1996, $374,200 was accrued for purchases that will be made in January 1997.
During 1996, certain employees exercised 198,613 options and sold the stock
received. These disqualifying dispositions result in a deduction for income tax
purposes. Accordingly, the Company's tax liability was reduced by $1,537,159
with an offsetting credit to additional paid-in capital.
9. INCOME TAXES
As explained in Note 1, all United States federal taxable income was taxed
to the Company's stockholders through March 31, 1995. Accordingly, the tax
provision does not include provisions for United States federal income taxes
through that date. Pro forma income tax provisions have been presented for 1995
in order to indicate the tax provision that would have been recorded had all
income been taxable to JDA.
The following presents income tax provision for the three years ended
December 31, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
------ -------------------- ------
ACTUAL ACTUAL PRO FORMA ACTUAL
------ ------ --------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal.................................... $1,354 $ 2,410 $3,152
State...................................... $ 62 320 362 750
Foreign.................................... 438 140 140 1,169
---- ------ ------ ------
Total current...................... 500 1,814 2,912 5,071
---- ------ ------ ------
Deferred:
Federal.................................... (299) (236) (184)
State...................................... (53) (42) (41)
Foreign.................................... 35 35 270
---- ------ ------ ------
Total deferred..................... (317) (243) 45
---- ------ ------ ------
Total provisions................... $500 $1,497 $ 2,669 $5,116
==== ====== ====== ======
</TABLE>
46
<PAGE> 49
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JDA's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------------------- ------
ACTUAL ACTUAL PRO FORMA ACTUAL
------- ------ --------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal statutory rate....................... $ 3,060 $2,404 $ 2,404 $4,351
Research and development credit.............. (30) (30) (30)
Record deferred income taxes................. (260)
Foreign and state income taxes............... 62 274 384 800
S Corporation benefit........................ (2,622) (802)
Other........................................ (89) (89) (5)
------- ------ ------ ------
Total.............................. $ 500 $1,497 $ 2,669 $5,116
======= ====== ====== ======
</TABLE>
Significant components of the Company's net deferred tax asset (liability)
as of December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Deferred tax asset:
Accrued compensation....................... $ 95,500 $178,800
Sales returns allowance.................... 120,000 157,900
Allowance for doubtful accounts............ 120,000 221,500
Deferred Revenue........................... 203,000
Other...................................... 124,800 82,900 $ 17,600
-------- -------- ---------
Total.............................. 460,300 844,100 17,600
Deferred tax liability:
Tax over book depreciation................. $(108,000) (239,600)
Foreign translation adjustment............. (292,000)
Other...................................... (35,000) (58,000)
-------- --------- -------- ---------
Total.............................. $425,300 $(108,000) $786,100 $(514,000)
======== ========= ======== =========
</TABLE>
10. RELATED PARTIES
Transactions with the majority stockholders for the three years ended
December 31, 1996 consist principally of the following:
a. Notes issued to stockholders consist of $14,000,000 of notes due on
January 11, 1996 with interest at 6.3%, $898,990 of notes with interest at 8%
due January 13, 1996 and $5,203,931 of notes with interest at 8% due through
2000. There was no balance remaining on such notes at December 31, 1996.
b. Interest expenses applicable to stockholder notes aggregated $241,300,
$1,046,300 and $129,800 in the three years ended December 31, 1996.
c. Office lease payments to stockholders aggregated $120,000, $50,000 and
$67,500 for the three years ended December 31, 1996.
47
<PAGE> 50
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996
-------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue.................................... $ 9,404 $ 10,436 $ 12,514 $ 15,486
Income from operations..................... 2,433 2,428 3,311 4,105
Net income................................. 1,427 1,559 2,088 2,606
Net income per share....................... 0.13 0.13 0.17 0.21
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue.................................... $ 6,003 $ 6,602 $ 8,206 $ 9,273
Income from operations..................... 1,502 1,522 1,903 2,576
Net income................................. 1,427 1,037 1,366 1,743
Pro forma:
Net income............................... 900 864 1,110 1,527
Net income per share..................... 0.08 0.08 0.11 0.15
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue.................................... $ 4,137 $ 5,627 $ 6,472 $ 7,593
Income from operations..................... 803 2,298 2,964 3,157
Net income................................. 702 2,234 2,894 2,671
</TABLE>
48
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
JDA Software Group, Inc.
Phoenix, Arizona
We have audited the consolidated financial statements of JDA Software
Group, Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1996,
and for each of the three years in the period ended December 31, 1996, and have
issued our report thereon dated January 28, 1997; such financial statements and
report are included elsewhere in this Form 10-K. Our audits also included the
financial statement schedule of the Company listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
January 28, 1997
49
<PAGE> 52
JDA SOFTWARE GROUP, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ------------------------------- ---------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
For the Years Ended December
31:
1996 Allowance............... $ 650,700 $818,016 $109,125(2) $ (454,017)(1) $ 1,123,824
======== ======== ======== ========= ==========
1995 Allowance............... $ 112,700 $627,453 $ -- (89,453)(1) $ 650,700
======== ======== ======== ========= ==========
1994 Allowance............... $ 2,500 $110,200 $ -- $ -- $ 112,700
======== ======== ======== ========= ==========
</TABLE>
- ---------------
(1) Represents accounts receivable which were written off.
(2) Represents allowance in existence at date of acquisition of JDA Software
Services Ltd.
50
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 31, 1997 JDA SOFTWARE GROUP, INC.
By: /s/ JAMES D. ARMSTRONG
------------------------------------
James D. Armstrong
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on March 31, 1997 by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
/s/ JAMES D. ARMSTRONG Chief Executive Officer and Director
- -------------------------------------------- (Principal Executive Officer)
James D. Armstrong
/s/ FREDERICK M. PAKIS President and Director
- -------------------------------------------- (Principal Executive Officer)
Frederick M. Pakis
/s/ THOMAS M. PROUD Vice President and Chief Financial Officer
- -------------------------------------------- (Principal Financial and Accounting
Thomas M. Proud Officer)
/s/ KURT R. JAGGERS Director
- --------------------------------------------
Kurt R. Jaggers
/s/ CRAWFORD L. COLE Director
- --------------------------------------------
Crawford L. Cole
</TABLE>
51
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------ ------------------------------------------------------------------------------
<S> <C> <C>
3.1* -- Second Restated Certificate of Incorporation of the Company.
3.2* -- Bylaws.
4.1* -- Specimen Common Stock certificate.
4.2*(1) -- Stock Redemption Agreement among the Company, James D. Armstrong and Frederick
M. Pakis dated March 30, 1995.
10.1*(1) -- Form of Indemnification Agreement.
10.2*(1) -- 1995 Stock Option Plan, as amended, and form of agreement thereunder.
10.3*(1) -- 1996 Stock Option Plan and forms of agreement thereunder.
10.4+(1) -- 1996 Employee Stock Purchase Plan, as amended, and form of agreement
thereunder.
10.5*(1) -- 1996 Outside Directors Stock Option Plan and forms of agreement thereunder.
10.6*(1) -- Employment Agreement between James D. Armstrong and JDA Software, Inc. dated
March 30, 1995, as amended.
10.7*(1) -- Employment Agreement between Frederick M. Pakis and JDA Software, Inc. dated
March 30, 1995, as amended.
10.8* -- Employment Agreement between James L. Smith and JDA Software, Inc. dated March
30, 1995, as amended.
10.9*(1) -- Employment Agreement between Thomas M. Proud and JDA Software, Inc. dated
November 13, 1995.
10.10+ -- Lease Agreement between The Manufacturers Life Insurance Company and JDA
Software Canada Ltd. (formerly known as JDA Software Services Ltd.) dated
December 6, 1995 (North York, Ontario).
10.11*(1) -- Series A Preferred Stock and Common Stock Exchange Agreement among the
Company, James D. Armstrong, Frederick M. Pakis, James L. Smith and the
purchasers named therein dated March 30, 1995.
10.12* -- Assignment and Assumption Agreement regarding Master Lease between Pacific
Atlantic Systems Leasing, Inc. and JDA Software, Inc. and Consent of Paradise
Partners Limited Partnership to Assignment, dated March 17, 1995 (Phoenix,
Arizona).
10.13*(1) -- Lease Agreement between Pakis-Armstrong Venture and JDA Software, Inc. dated
January 1, 1996 (Scottsdale, Arizona).
10.14* -- Lease Agreement between Holly Pond Associates Limited Partnership and JDA
Software, Inc. dated June 16, 1993 (Stamford, Connecticut).
10.15* -- Lease Agreement between Woodhill Associates and JDA Software, Inc. dated July
10, 1992 and First Lease Amendment between Metropolitan Life Insurance
Company, successor in interest to Woodhill Associates, and JDA Software, Inc.
dated May 16, 1995 (Norcross, Georgia).
10.16* -- Lease Agreement between The Port of Singapore Authority and JDA Asia Pte Ltd.
dated September 12, 1995 (Singapore).
10.17* -- Lease Agreements between Skanda Developments Limited and JDA Software Services
Ltd. (predecessor to JDA International Ltd.) dated June 25, 1991 (England).
10.18* -- Lease Agreement between BBS Business -- und Buroservice in Niederrad GmbH and
JDA Software GmbH dated July 4, 1995 (Germany).
10.19*# -- License Agreement between Uniface Corporation and JDA Software, Inc. dated
February 9, 1994.
10.20*# -- Standard Value-Added Reseller Agreement between Uniface Corporation and JDA
Software, Inc. dated February 9, 1994
10.21*** -- Acquisition and Exchange Agreement among the Company and the Shareholders of
JDA Software Services Ltd. dated August 15, 1996.
10.22*(1) -- Promissory Notes of the Company payable to James D. Armstrong, Frederick M.
Pakis and James L. Smith dated March 30, 1995.
10.23*(1) -- Promissory Notes of JDA Software, Inc. payable to James D. Armstrong and
Frederick M. Pakis, guaranteed by the Company, dated March 29, 1995.
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------ ------------------------------------------------------------------------------
<S> <C> <C>
10.24*(1) -- Promissory Notes of JDA Worldwide, Inc. payable to James D. Armstrong and
Frederick M. Pakis, guaranteed by the Company, dated March 29, 1995.
10.25*(1) -- JDA Software, Inc. 401(k) Profit Sharing Plan, adopted as amended effective
January 1, 1995.
10.26+ -- Business Loan Agreement between Bank of America Arizona and JDA Software, Inc.
dated June 17, 1996.
10.27**(1) -- Second Amendment to Employment Agreement between James D. Armstrong and JDA
Software, Inc. dated April 23, 1996.
10.28**(1) -- Second Amendment to Employment Agreement between Frederick M. Pakis and JDA
Software, Inc. dated April 23, 1996.
10.29** -- Second Amendment to Employment Agreement between James L. Smith and JDA
Software, Inc. dated April 23, 1996.
10.30+ -- Lease Agreement between Oxford Development Group, Inc. and JDA Software Canada
Ltd. (formerly known as JDA Software Services Ltd.) dated July 11, 1994
(Calgary, Alberta).
10.31 -- Sale and Purchase Agreement between Skanda Developments Limited and JDA
International Ltd. dated November 12, 1996.
11.1 -- Statement regarding computation of earnings per share.
21.1+ -- Subsidiaries of the Registrant.
23.1 -- Consent of Independent Auditors.
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-748), declared effective on March 14, 1996.
** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996, as filed on August 14, 1996.
*** Incorporated by reference to the Company's Current Report on Form 8-K dated
August 15, 1996, as filed on August 30, 1996.
+ Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-15659), declared effective on November 21, 1996.
# Confidential treatment has been granted as to part of this exhibit.
(1) Management contracts or compensatory plans or arrangements covering
executive officers or directors of the Company.
53
<PAGE> 1
Exhibit 10.31
DATED 12th November 1996
- -------------------------------------------------------------------------------
SKANDA DEVELOPMENTS LIMITED
(In Administrative Receivership) (1)
and
JDA INTERNATIONAL LIMITED (2)
SALE AND PURCHASE AGREEMENT
relating to Churchill Court Hortons Way
Westerham Kent
- -------------------------------------------------------------------------------
<PAGE> 2
CONTENTS
Clause
1. Definitions
2. Interpretation
3. Sale and purchase and price
4. National conditions
5. Deposit
6. Date of completion
7. Possession
8. Matters affecting the Property
9. Title
10. Transfer
11. Capacity of Vendor
12. Local land charges and statutory notices
13. Sub-sales
14. Insurance
15. Service charges
16. Rent arrears
17. Acknowledgement by Purchaser
18. Management of the Property pending completion
19. Maintenance contracts
20. Bankruptcy or liquidation of the Purchaser
-1-
<PAGE> 3
21. Value Added Tax
22. Non Merger
23. Limitation of Vendor's Liability
24. Vendor's Representative
25. Entire agreement
Schedule I: The Property and the Second Property
Schedule II: Leases and Ancillary Leasehold Documents
Schedule III: The form of transfer of the Property and the Second
Property
- 2 -
<PAGE> 4
AGREEMENT FOR SALE AND PURCHASE
THIS AGREEMENT is made the 12th day of November 1996
BETWEEN:
(1) SKANDA DEVELOPMENTS LIMITED of 43 South Street Reading RG1 4QU
Tunbridge Wells Kent ("the Vendor") acting by JOHN NEIL HARRISON (sole
administrative receiver) of Harrison Associates of 43 South Street
Reading RG1 4QU ("the Receiver") and
(2) JDA INTERNATIONAL LIMITED (Registered Number 2426868) whose registered
office is at 4-5 Churchill Court Hortons Way Westerham Kent TN16 1BT
(the "Purchaser")
IT IS AGREED:
1. Definitions
In this Agreement the following words and expressions have the meanings
set opposite them:
"Property" the property described in Part A of Schedule I;
"the Leases" the leases specified in Schedule II
"Ancillary Leasehold
Documents" the documents (if any) specified in Schedule II
other than the Leases being ancillary to the
Leases and any further documents ancillary to
the Leases entered into after the date of this
Agreement;
-3-
<PAGE> 5
"National Conditions" the National Conditions of Sale
(Twentieth Edition);
"Purchaser's Solicitors" Lovell White Durrant of 65 Holborn
Viaduct London EC1A 2DY Ref: P1/ASL
"Vendor's Solicitors" Pitmans of 47 Castle Street Reading
RG1 7SR Ref AD
"VAT" value added tax and any other tax of
a like nature
"the Second Property" the property described in Part B of
Schedule I
2. Interpretation
In this Agreement unless there be something in the subject or context
consistent therewith:
(a) words importing the neuter gender only shall include the masculine
or feminine gender (as the case may be) and words importing the
masculine gender only shall include the feminine gender and vice
versa;
(b) words importing the singular number only shall include the plural
number and vice versa and where two or more persons are included in
the expression the "Purchaser" or the "Vendor" the agreements and
covenants contained in this Agreement which are expressed to be made
by either the Purchaser or the Vendor shall be deemed to be
respectively made by such persons jointly and severally;
(c) words importing persons shall include firms companies and
corporations and vice versa;
(d) the headings appearing in this Agreement are for ease of reference
only and shall not affect the construction of this Agreement
-4-
<PAGE> 6
3. Sale and purchase and price
3.1 The Vendor agrees to sell and the Purchaser agrees to buy the Property
and all the Vendor's title and interest in the Second Property at the
price of One Million Two Hundred and Eighty Thousand Pounds (pound
sterling 1,280,000)
3.2 the sale excludes all fixtures and fittings in the nature of tenant's
and trade fixtures and fittings
4. National conditions
The National Conditions shall apply to and are deemed to be incorporated
into this agreement in so far as they are applicable to a sale by
private treaty and are not inconsistent with the terms of this agreement
but subject to the following variations
4.1 National Conditions 2, 3, 5(3)(iii), 5 3(v), 5(5)(i), 7(1)(iii) and 15
shall not apply
4.2 The expression "Designated bank" shall for the purposes of the
construction of the said National Conditions herein mean a bank which is
a member of CHAPS and Town Clearing Company Limited
4.3 The prescribed rate of interest shall be four per cent (4%) per annum
above the Base Lending Rate of National Westminster Bank Plc for the
time being in force
4.4 For the purposes of National Conditions 6, 7 and 8 completion shall
unless due to any act or default of the Vendor be deemed to be postponed
by reason of the Purchaser's delay until the next working day if the
money due on completion is not paid over unconditionally to the Vendor's
solicitors (or in the case of a telegraphic or other direct transfer in
accordance with National Condition 5(3)(iv)) credited to the specified
account and released unconditionally in either case by 1:00p.m. on
-5-
<PAGE> 7
any day and the money due on completion shall in that event be
calculated as if completion took place on such next working day
4.5 The proviso to Condition 7(1) shall be deemed to be deleted and the
words "in a case to which proviso (i) of Condition 7(1) applies" shall
be deleted from Condition 6(1)
4.6 In National Condition 22 references to "16 working days" shall be
replaced by references to "10 working days" wherever the same occur
5. Deposit
On or before the signing hereof a deposit of pound sterling 128,000
shall be paid to the Vendor's Solicitors and such deposit will be held
by them as stakeholders
6. Completion
6.1 The sale of the Property and the Second Property shall be completed at
the offices of the Vendor's Solicitors or as they may reasonably direct
on the day of 1996
6.2 If the balance of the purchase money is paid by CHAPS or other direct
transfer then the money remitted by that method shall be deemed to be
received by the Vendor when the Vendor's Solicitors bank has received
the money
7. Possession
The Property is sold subject to and with the benefit of the Leases and
the Ancillary Leasehold Documents
8. Matters affecting the Property
8.1 The Property is sold subject to and (as the case may be) with the
benefit of the exceptions reservations covenants restrictions
stipulations and other matters (except mortgages) contained or referred
to in all registers of title relating to the Property
-6-
<PAGE> 8
kept at HM Land Registry as at the date when the Vendor's land or charge
certificate was last compared with the Register or (if later) the date
of the latest set of office copy entries and copy of the filed plan
provided to the Purchaser
8.2 The Second Property is sold transferred subject to all exceptions
reservations covenants restrictions stipulations and other matters
affecting the same
9. Title
9.1 Title to the First Property is registered at HM Land Registry with
absolute title K684114 and the abstract shall consist of office copies
of the entries on the register and of the filed plan
9.2 The title to the Second Property is comprised in a transfer dated 14
March 1990 made between CNC Properties Limited (1) Skanda Developments
Limited (2)
9.3 The Purchaser or its Solicitor has been furnished with copies of the
Leases and the Ancillary Leasehold Documents and the documents mentioned
in clause 8 the Purchaser shall purchase with full knowledge of the
terms and effect thereof and shall not raise any requisition or make any
objection thereto or to any matters mentioned therein whether or not the
Purchaser or any person acting on its behalf has inspected the same and
shall accept the title so deduced but this shall not prevent the
Purchaser raising requisitions arising from its pre-completion searches
at HM Land Registry HM Land Charges Registry and the Companies Registry
10. Transfer
-7-
<PAGE> 9
The form of transfer of the Property and of the Second Property shall
be in the form as set out in Schedule III
11. Capacity of Vendor
The Vendor shall transfer the Property and the Second Property with no
title covenants
12. Local Land Charges and Statutory Notices
The Property and the Second Property is sold subject to:
(a) all matters registrable by any competent authority pursuant to
statute
(b) all requirements of any competent authority
(c) all matters disclosed or which should have been disclosed by
searches or as the result of enquiries formal or informal and
whether made in person by writing or orally by or for the
Purchaser or which a prudent purchaser ought to make
(d) all notices served by or on behalf of a reversioner a tenant or
sub-tenant or the owner or occupier of any adjoining or
neighbouring property
(e) In this clause:
(i) "competent authority" means a local authority or other body
exercising powers under statute or by Royal Charter
(ii) "requirement" includes (whether or not subject to
confirmation) any notice order of proposal
13. Sub-sales
The Vendor shall not be under any liability to convey the Property and
the Second Property (whether by way of sub-sale or pursuant to a
direction by the Purchaser
-8-
<PAGE> 10
or in any other manner) to any person other than the Purchaser named
herein nor by more than one assurance
14. Insurance
14.1 The Vendor shall maintain its insurance of the Property until the date
of actual completion
14.2 The Vendor shall cancel its policy of insurance on actual completion and
pay to the Purchasers a proportion of the premiums paid in advance for
the period from the date of actual completion to the day before the next
renewal date calculated on a daily basis
14.3 The Purchaser shall forthwith pay to the tenants of the Property the
said refunds paid by the Vendor to the Purchaser and the Purchaser
hereby indemnifies the Vendor against any claims made by any of the
tenants of the Property against the Vendor in respect of such refunds
14.4 The Vendor shall not be responsible to the Purchaser for any deficiency
in the amount insured or the adequacy of the risks insured against and
the Purchaser shall satisfy itself in this respect
15. Service Charge
15.1 As soon as is practical following actual completion and in any event
within 28 days thereof the Vendor shall prepare or procure that an
account is prepared by its management agents showing the amount of all
money received from or credited to tenants on account of service charges
for the period from 1 January 1996 until the date of actual completion
and also showing the amounts of payments made or to be made in respect
of services or other matters provided for or incurred by or on behalf of
the Vendor for the like period
-9-
<PAGE> 11
15.2 The Purchaser shall be supplied with a copy of the account referred to
in subclause 15.1 hereof and if such account shows that the receipts on
account of service charge exceed payments made or to be made in respect
thereof then the amount of such surplus shall be paid forthwith by the
Vendor to the Purchaser and the Purchaser shall account to or credit the
tenants in respect thereof and if such account shows that receipts on
account of service charge are less than payments made or to be made by
the Vendor in respect thereof the Purchaser shall pay the amount of such
shortfall to the Vendor upon having recovered the same from the tenants
but only once all service charges due to the Purchaser have been fully
paid
15.3 At expiration of the service charge year current at the date of actual
completion (hereinafter called "the Service Charge Year") the Purchaser
or its managing agents shall prepare the relevant accounts pursuant to
the Leases taking into the account the expenditure incurred by the
Vendor during its ownership of the Property and expenditure subsequently
incurred by or on behalf of the Purchaser during the Service Charge Year
15.4 The Vendor shall be supplied with a copy of the account referred to in
sub-clause 15.3 hereof and if such account shall show that during the
Service Charge Year:
15.4.1 the receipts on account of service charge exceed payments made
or to be made in respect thereof then insofar as the Vendor has
not been reimbursed for the expenditure it incurred prior to the
date of actual completion the Purchaser shall forthwith pay to
the Vendor such sum as is sufficient to discharge the amount due
to the Vendor
15.4.2 the receipts on account of service charge are less than the
payments made or to be made in respect thereof then the
Purchaser shall use its best
-10-
<PAGE> 12
endeavours to recover any excess service charges from the tenants and
forthwith upon receipt of the same shall to the extent that the Vendor
has not been reimbursed for the expenditure it incurred prior to the
date of actual completion pay to the Vendor such sums as are necessary
to reimburse the Vendor fully in respect thereof provided all service
charges due to the Purchaser during such service charge year have been
fully settled and paid to it first
16. Rent Apportionment
Apportionment of the rent reserved under any of the Leases shall be made at
the date of actual completion (such day of completion being apportioned to
the Purchaser according to the number of days from actual completion to the
date before the day upon which the next installment falls due relative to
the number of days in the calendar year
17. Acknowledgement by Purchaser
The Purchaser acknowledges that this Agreement is not being entered into in
reliance wholly or partly on any statement or representation made by or on
behalf of the Vendor save insofar as any such statement or representation
is expressly set out in this Agreement or has been made in writing by the
Vendor's Solicitors in reply to enquiries raised by the Purchaser's
solicitors
18. Management of the Property pending completion
18.1 Between the date hereof and the date of actual completion of the sale to
the Purchaser the Vendor shall manage the Property and each and every part
thereof in accordance with the terms of the Leases but with the consent in
writing of the Purchaser such consent not to be unreasonably withheld or
delayed
-11-
<PAGE> 13
18.2 Any covenants for indemnity by the Purchaser in relation to the Leases
shall be extended to include such further documents as may hereafter be
entered into by the Vendor in accordance with the provisions of this
Agreement
19. Maintenance contracts
The Vendor shall be entitled to terminate all existing contracts relating
to maintenance and service works in respect of the Property or any part
thereof with effect from the date of actual completion and the Purchaser
shall make its own arrangements with regard to such matters following
completion
20. Bankruptcy or liquidation of the Purchaser
If the Purchaser:
(a) (being a company) enters into voluntary liquidation (other than for
the purpose of reconstruction or amalgamation not involving a
realisation of assets) or has a winding up order made against it by
the court or has a receiver appointed over all or any part of its
assets or an administration order is made pursuant to the Insolvency
Act 1986; or
(b) becomes insolvent or enters into any composition with its or his
creditors or enters into a voluntary arrangement (within the meaning
of ss.1 or 253 Insolvency Act 1986)
then and in any such case the Vendor may rescind this Agreement by notice
to the Purchaser
21. Value Added Tax
21.1 All amounts expressed in this Agreement as being payable or allowable by
either party are expressed exclusive of any VAT which shall be payable in
addition thereto
-12-
<PAGE> 14
21.2 The parties intend that Section 49 of VATA and Article 5 Special
Provisions Order shall apply to the sale of that part of the Property
not let to the Purchaser and the Vendor and the Purchaser shall each use
all their reasonable endeavours to secure that pursuant to the
provisions referred to above the sale of that part of the Property is
treated as neither a supply of goods nor a supply of services for the
purposes of VAT but as the transfer of a business as a going concern
21.3 The Purchaser represents, warrants and undertakes to the Vendor that:
21.3.1 it is the duly and properly registered for the purposes of VAT
registration with number 515 2446 67 and
21.3.2 it will validly elect with effect from a date on or before the date
of completion under paragraph 2 Schedule 10 VATA in respect of the
Property and
21.3.3 it will duly notify HM Customs & Excise on or before the date of
completion of such election
21.3.4 it will produce to the Vendor on or before the date of completion a
copy of its notice to HM Customs & Excise of its election under
paragraph 2 Schedule 10 in respect of the Property and written
confirmation of the receipt of such election from HM Customs & Excise
and
21.3.5 it will from the date of completion continue to use the Property for
the purposes of letting
21.4 The Vendor represents warrants and undertakes to the Purchaser that
21.4.1 it is and will be at completion duly and properly registered for the
purposes of VAT registration number 565 3933 16 and
-13-
<PAGE> 15
21.4.2 it has validly elected under paragraph 2 Schedule 10 VATA in respect
of the Property and will not revoke such election
21.4.3 it has duly notified HM Customs & Excise of such election in
accordance with paragraph 3 Schedule 10 VATA
21.4.4 it will produce to the Purchaser on the execution of this Agreement a
copy of its notice to HM Customs & Excise of its election under
paragraph 2 Schedule 10 VATA in respect of the Property and written
confirmation of the receipt of such election from HM Customs & Excise
21.4.5 The Property is not a capital item to which part XV of the Value Added
Tax Regulations 1995 applies
21.5 The Vendor and the Purchaser shall give to HM Customs & Excise such notice
of the sale and purchase of the Property pursuant to this Agreement as may
be required by paragraphs 11 or 12 Schedule 1 VATA or by paragraph 6 Value
Added Tax Regulations 1995 or as may otherwise be required by law
21.6 The Vendor shall prior to completion write in terms to be agreed by the
Purchaser to HM Customs & Excise requesting a written ruling that pursuant
to Article 5 Special Provisions Order the sale of that part of the
Property not let to the Purchaser pursuant to this Agreement is neither a
supply of goods nor a supply of services for the purposes of VAT. The
Purchaser shall provide such assistance and information as the Vendor
shall reasonably require to enable the Vendor to obtain such ruling
21.7 If HM Customs & Excise notify the Vendor that they do not agree that the
sale of that part of the Property not let to the Purchaser pursuant to
this Agreement falls within Section 49 VATA and Article 5 Special
Provisions Order, the Vendor shall
-14-
<PAGE> 16
forthwith on receipt of such notification or on completion (whichever is
the later) issue to the Purchaser a valid VAT invoice in respect of the
sale of that part of the Property (or the relevant part of it) in addition
to the Price
21.8 If the Vendor does not receive prior to completion a written ruling by HM
Customs & Excise as to the correct VAT treatment of the sale of the
Property pursuant to this Agreement the Purchaser shall on completion pay
the sum of pounds sterling 132,451.20 into the Account
21.9 If notwithstanding the provisions of this Clause 21 HM Customs & Excise
notify the Vendor that VAT is chargeable on the sale of the Property (or
any part of it) pursuant to this Agreement
21.9.1 the Vendor shall forthwith on receipt of such notification issue to the
Purchaser a valid VAT invoice in respect of the sale of the Property
(or the relevant part of it)
21.9.2 an amount equal to the VAT which is determined by HM Customs & Excise
to be charged on the sale of the Property (or the relevant part of it)
shall forthwith be released from the Account to the Vendor and the
balance (if any) of the monies held in the Account shall forthwith be
released to the Purchaser (including any accrued interest)
21.9.3 if the amount of the VAT which is determined by HM Customs & Excise to
be charged on the sale of the Property (or the relevant part of it)
exceeds (for whatever reason) the amount held in the Account the
Purchaser shall pay to the Vendor forthwith on receipt of a written
demand form the Vendor an amount equal to the excess
-15-
<PAGE> 17
21.10 If HM Customs & Excise notify the Vendor that VAT is not charged on the
sale of the Property pursuant to this Agreement the monies held in the
Account shall forthwith be released to the Purchaser (including any
accrued interest)
21.11 For the purposes this clause 23 the following definitions shall have
the following meanings
"Special Provisions Order" the Value Added Tax (Special Provisions)
Order 1995
"the Account" a stakeholder account maintained by the
Purchaser's Solicitors on behalf of the
Vendor and Purchaser
"VATA" the Value Added Tax Act 1994 and any other
statutes concerned with VAT as amended from
time to time and any act from time to time
replacing re-enacting or consolidating the
said Act or those statues and any
regulations made under the said Act or
those statute and any directions and
regulations adopted by the Council of the
European Communities which relate to VAT
22. Non Merger
For as long as any obligation under this Agreement remains to be performed
then notwithstanding completion of the sale and purchase hereby agreed to
be made this Agreement shall to such extent remain in full force and effect
-16-
<PAGE> 18
23. Rent Deposit
On completion the Vendor will pay to the Purchaser all rent deposits held
by it under the terms of the any leases or deeds supplemental thereto and
will account to the Purchaser for all interest earned thereon
24. Limitation of Vendor's liability
24.1 Notwithstanding any obligations on the part of the Vendor contained in this
Agreement relating to the insurance and/or management of the Property
pending completion the Vendor shall not be required to observe and perform
such obligations to any greater extent than the Receiver is able to do so
as agent of the Vendor or otherwise in pursuant of the power conferred upon
him by virtue of his appointment
24.2 Notwithstanding any obligations on the part of the Vendor in this Agreement
to account for or pay to the Purchaser on completion any apportionment of
rent or service charge or insurance premiums or any other monies paid by
any of the tenants under the Leases the Vendor shall not be required to
account for or to pay such apportionment except to the extent that the
Receiver shall either have received or be in possession of such sums
relating to the period in respect of which the relevant apportionment is
payable
25. Vendor's Representative
The Receiver shall incur no personal liability whatsoever under or by
virtue of this Agreement (in his capacity as agent of the Vendor or
otherwise) whether in contract or in tort and shall not be made a party to
any assurance of the Property
-17-
<PAGE> 19
or the Second Property to the Purchaser and the assurance of the
Property and the Second Property to the Purchaser shall incorporate a
declaration of exclusion of liability on the part of the Receiver in the
same terms as this clause
26. Entire agreement
Any additional conditions or variation of the conditions contained in
this Agreement which are agreed in correspondence between the parties
(or their solicitors with their authority) where the correspondence
makes express reference to this Clause are deemed to be incorporated in
this Agreement and it is hereby acknowledged that this Agreement (with
the incorporation of any such additional conditions or variation)
constitutes the entire contract between the parties
AS WITNESS the hands of the parties hereto or their duly authorized
agents the day and year first before written
SCHEDULE I
Part A
(The Property)
ALL THAT freehold property known as Churchill Court Hortons Way Westerham Kent
as the same is registered at H M Land Registry under title no. K684114
Part B
(The Second Property)
-18-
<PAGE> 20
All that freehold property as shown edged red in a transfer dated 14 March 1990
made between CNC Properties Limited (1) Skanda Developments Limited (2)
SCHEDULE II
The Leases and the Ancillary Leasehold Documents
<TABLE>
<CAPTION>
Unit 1
Date Document Parties
- ---- -------- -------
<S> <C> <C>
29.08.1995 Letter Skanda Developments Limited (In
Administrative Receivership) (1)
BUPA Purchasing Limited (2)
28.09.1995 Lease Skanda Developments Limited (In
Administrative Receivership) (1)
BUPA Purchasing Limited (2)
Unit 2
07.06.1996 Lease Skanda Developments Limited (In
Administrative Receivership) (1)
Isovel International Limited (2)
[Undated License for Skanda Developments Limited
Alterations (In Administrative
Receivership) (1) Isovel
International Limited (2)]
</TABLE>
-19-
<PAGE> 21
<TABLE>
<CAPTION>
Unit 3
<S> <C> <C>
04.04.1995 Lease Skanda Developments Limited (In
Administrative Receivership) (1)
Wesleyan Assurance Society (2)
</TABLE>
<TABLE>
<CAPTION>
Unit 4
<S> <C> <C>
25.06.1991 Lease Skanda Developments Limited (1)
JDA Software Services Limited (2)
25.06.1991 Agreement Skanda Developments Limited (1)
JDA Software Services Limited (2)
</TABLE>
<TABLE>
<CAPTION>
Unit 5
<S> <C> <C>
25.06.1991 Lease Skanda Developments Limited (In
Administrative Receivership) (1)
JDA Software Services Limited (2)
</TABLE>
<TABLE>
<CAPTION>
Unit 6
<S> <C> <C>
06.03.1995 Lease Skanda Developments Limited (In
Administrative Receivership) (1)
Reflex Information Management
Limited (2)
</TABLE>
-20-
<PAGE> 22
TRANSFER
HM LAND REGISTRY
LAND REGISTRATION ACTS 1925 TO 1986
County & District: Kent - Sevenoaks
Title Number : K684114
Property : Churchill Court Hortons Way Westerham and land adjoining
Date : 1996
1. In consideration of One million two hundred and eighty thousand pounds
(1,280,000 pound sterling) [(plus value added tax thereon of Ninety one
thousand five hundred and forty eight pounds and eighty pence (91,548.80
pound sterling))] the receipt of which is hereby acknowledged SKANDA
DEVELOPMENTS LIMITED (Registered Number 2280899) whose registered office is
at 14-16 Mount Ephraim Road Tunbridge Wells Kent (the "Transferor") acting by
John Neil Harrison (sole administrative receiver) of Harrison Associates of
43 South Street Reading RG1 4QU (the "Receiver") HEREBY TRANSFERS to JDA
INTERNATIONAL LIMITED (Registered Number 2426868) whose registered office is
at 4-5 Churchill Court Hortons Way Westerham Kent TN16 1BT (The "Transferee")
first the land comprised in the above title and secondly ALL THAT right title
and interest of the Vendor in the land transferred to the Vendor by a
Transfer dated 14 March 1990 made between CNC London Properties Limited (1)
the Vendor(2).
2. With the object of affording to the Transferor a full and sufficient
indemnity but not further or otherwise the Transferee HEREBY COVENANTS with
the Transferor that the Transferee and the persons deriving title under it
will at all times hereafter observe and perform the covenants on the part of
the Landlord contained in the Leases specified in the Schedule and will
indemnify and keep indemnified the Transferor from and against all
proceedings, costs, claims and expenses in respect of any future breach,
non-observance or non-performance thereof.
3. The Receiver shall incur not personal liability whatsoever under or by
virtue of this Transfer.
<PAGE> 23
4. This document shall be treated as having been executed and delivered as a
deed only upon being dated.
THE SCHEDULE
UNIT NO. DATE PARTIES
1 28.09.1995 The Transferor (in Administrative Receivership)(1)
BUPA Purchasing Limited (2)
2 07.06.1996 The Transferor (in Administrative Receivership)(1)
Isovel International Limited (2)
3 04.04.1995 The Transferor (in Administrative Receivership)(1)
Wesleyan Assurance Society (2)
4 25.06.1991 The Transferor (1)
The Transferee (2)
5 25.06.1991 The Transferor (1)
The Transferee (2)
6 06.03.1995 The Transferor (in Administrative Receivership)(1)
Reflex Information Management Limited (2)
Executed as a deed by the affixing of the )
Common Seal of Skanda Developments )
Limited (in Administrative Receivership) )
in the presence of: )
Administrative Receiver
Executed as a deed by the affixing of the )
Common Seal of JDA International )
Limited in the presence of: )
Director
Secretary
<PAGE> 24
SCHEDULE III
The form of transfer of the Property and the Second Property
Signed by or on behalf of
the Vendor\Purchaser
/s/ J. N. Harrison
- ----------------------
J. N. Harrison
-21-
<PAGE> 1
EXHIBIT 11.1
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE DATA
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996:
-----
<S> <C>
Weighted average number of shares
outstanding during the period 12,064,144
Shares assumed repurchased from tax
benefit-employee stock options (53,935)
Weighted average number of shares -----------
outstanding as adjusted 12,010,209 (1)
===========
Net Income $ 7,679,835
===========
Net Income Per Share $ .64
===========
</TABLE>
(1) Stock options are not included because it results in dilution of less
than 3%.
<TABLE>
<CAPTION>
1995:
-----
<S> <C>
Common shares outstanding 7,200,000
Shares to be issued upon conversion of the
Series A Preferred Stock 2,800,000
Number of shares required to fund the
redemption of the Series B Preferred Stock
($7,500,000) and $4,881,000 of notes payable
to stockholders which arose from the
Reorganization, assuming a $13.00 per share
price. (Staff Accounting Bulletin Topic 1.B.3) 952,000
-----------
10,952,000
===========
Pro Forma Net Income
Historical net income $ 5,572,828
Adjust income tax provision (1,172,000)(2)
Interest expense on certain stockholders notes 175,000
-----------
Pro forma net income $ 4,575,828
===========
Pro Forma Net Income Per Share $ .42
===========
</TABLE>
(2) To reflect a tax provision as if the U.S. federal income had been taxable
to JDA rather than the stockholders through March 30, 1995.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-05951 of JDA Software Group, Inc. on Form S-8 of our reports dated January
28, 1997, appearing in this Annual Report on Form 10-K of JDA Software Group,
Inc. for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 30,986
<SECURITIES> 0
<RECEIVABLES> 18,078
<ALLOWANCES> 1,124
<INVENTORY> 0
<CURRENT-ASSETS> 49,607
<PP&E> 11,404
<DEPRECIATION> 3,653
<TOTAL-ASSETS> 59,056
<CURRENT-LIABILITIES> 9,775
<BONDS> 0
0
0
<COMMON> 130
<OTHER-SE> 48,531
<TOTAL-LIABILITY-AND-EQUITY> 59,056
<SALES> 47,840
<TOTAL-REVENUES> 47,840
<CGS> 16,854
<TOTAL-COSTS> 16,854
<OTHER-EXPENSES> 18,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (519)
<INCOME-PRETAX> 12,796
<INCOME-TAX> 5,116
<INCOME-CONTINUING> 7,680
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,680
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
