<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 1997
REGISTRATION NO. 333-33385
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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LOGILITY, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 7379 58-2281338
(STATE OR JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
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470 EAST PACES FERRY ROAD, N.E.
ATLANTA, GEORGIA 30305
(404) 261-9777
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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HENRY B. LEVI, ESQ.
GAMBRELL & STOLZ, L.L.P.
SUITE 4300, SUNTRUST PLAZA
303 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30308
(404) 577-6000
FACSIMILE: (404) 221-6501
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE AND
FACSIMILE NUMBERS, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copy to:
WILLIAM B. ASHER, JR., ESQ.
TESTA, HURWITZ & THIBEAULT, LLP
125 HIGH STREET
BOSTON, MASSACHUSETTS 02110
(617) 248-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 1997
2,200,000 SHARES
LOGO
OF LOGILITY, INC. APPEARS HERE
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company. Prior to this offering, there has been no public market for the Common
Stock of the Company. Following this offering, American Software, Inc. will own
approximately 84% of the outstanding shares of Common Stock (assuming no
exercise of the Underwriters' over-allotment option). See "Relationship with
American Software and Certain Transactions."
It is currently estimated that the initial public offering price of the
Common Stock will be between $11.00 and $13.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for quotation on the
Nasdaq National Market, upon completion of this offering, under the symbol
"LGTY."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
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<S> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $850,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 330,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will
total $ and Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any orders in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the offices of Montgomery Securities on or about , 1997.
-----------
Montgomery Securities
Cowen & Company
Interstate/Johnson Lane
Corporation
Hampshire Securities Corporation
, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
Title: Collaborative Planning With Logility
Graphic:
The centerpiece of the diagram is a five-sided pyramid. The face panel is
horizontally divided into four segments, with the four segments containing, from
top to bottom, the words "Global," "Region," "Territory," and "Customer." The
panel immediately left of the face panel is divided into three horizontal
segments, containing, from top to bottom, the words "Batch," "Lot," and "SKU."
The panel immediately right of the face panel is also divided into three
horizontal segments, containing, from top to bottom, the words "Pallet," "Cube,"
and "Unit." The two smaller panels on the far left and far right sides of the
pyramid are each divided into three horizontal segments and neither panel
contains any writing.
Beneath the face panel are two stylized pictures. One picture depicts an
individual sitting at a desk entering or reviewing data on a PC and to the
center-left of the picture is contained the word "sales." The other picture
depicts an individual entering or reviewing data on a PC and the bottom of the
picture contains the word "distributors." Between the picture of the
distributor and the face panel of the pyramid is a globe of the world containing
the word "web." The globe is connected to the face panel of the pyramid and the
picture of the distributor by a wave, and the words "Chicago," "Munich," and
"Melbourne" surround the globe and the PC.
Beneath the panel immediately left of the face panel is a stylized picture
of an individual sitting at her desk reviewing or entering data on a PC. The
bottom of the picture contains the word "manufacturing." Beneath the panel
immediately right of the face panel is a stylized picture of an individual
holding his hard-hat in one hand and leaning over a PC while reviewing data on
the PC. The bottom of the picture contains the word "logistics."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS
OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
Title: Logility Value Chain Solutions
Diagram:
The center of the diagram contains an oval within which are contained eight
smaller circles. The center of the oval contains the words "Logility Value
Chain Solutions" and the eight smaller circles contain the following words:
Demand Planning, Replenishment Planning, Manufacturing Planning, Transportation
Planning, Transportation Management, WarehousePRO, Inventory Planning and Event
Planning. Between the smaller circles and the outer boundary of the oval, to
the center-left are the words "Demand Chain Voyager(TM)" and to the center-right
are the words "Supply Chain Voyager(TM)."
Outside the oval, there are four stylized pictures at the four corners of
the diagram. Each picture depicts a device or object and each picture contains
two PC screens with data or graphs. Beneath the picture at the upper-left corner
of the diagram is a caption titled "Increasing forecast accuracy including
inventory simulations" and the two PC screens with this picture are connected to
the Demanding Planning and Inventory Planning circles within the oval. Beneath
the picture at the upper-right corner of the diagram is a caption titled
"Optimizing manufacturing & replenishment plans" and the two PC screens with
this picture are connected to the Replenishment Planning and Manufacturing
Planning circles within the oval. Beneath the picture at the lower-right corner
of the diagram is a caption titled "Integrating transportation planning and
management" and the two PC screens with this picture are connected to the
Transportation Planning and Transportation Management circles within the oval.
Beneath the picture at the lower-left corner of the diagram is a caption titled
"Improving warehouse operations with configurable workflows" and the two PC
screens with this picture are connected to the WarehousePRO circle within the
oval. The screens are connected to the circles by shaded beams which expand in
width and fade as they extend from the circles to the PC screens.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Combined Financial Statements and
the Notes thereto, appearing elsewhere in this Prospectus. Except as otherwise
noted herein, all information in this Prospectus (i) reflects a 11,300-for-1
split of the shares of Common Stock effected in August 1997 and (ii) assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting."
THE COMPANY
Logility, Inc. ("Logility" or the "Company") develops, markets and supports
software applications that optimize the operating efficiencies of
manufacturers, suppliers, distributors, retailers and other organizations along
the "value chain." The value chain refers to the complex network of
relationships that organizations maintain with trading partners to source,
manufacture and deliver products to the customer. The Company's solution,
Logility Value Chain Solutions, consists of an integrated software suite that
provides advanced collaborative planning and integrated logistics capabilities
that are designed to reduce inventory costs, improve forecast accuracy,
decrease order cycle times, optimize production scheduling, streamline
logistics operations, reduce transportation costs and improve customer service.
The Company markets its solution primarily to Global 2000 enterprises through a
dedicated sales force and through relationships with third-party vendors and
service providers.
Enterprises are under increasing pressure to better manage the value chain as
they seek to improve manufacturing efficiency and logistics operations, while
maintaining flexibility and responsiveness to changing market conditions and
customer demands. To manage and facilitate enhanced collaboration among the
various participants in the value chain, organizations are increasingly
deploying value chain management software solutions to address their planning
and execution requirements. Industry sources estimate that the supply chain
planning and execution software market was $246 million in 1996, and is
projected to grow at a compound annual growth rate of 48% to more than $1.7
billion by 2001. The warehouse management systems software market was
approximately $104 million in 1996, and is projected to grow at a compound
annual growth rate of 41% to $586 million by 2001.
Logility Value Chain Solutions is designed to be an end-to-end solution that
synchronizes demand opportunities with supply constraints and logistics
operations, and consists of two solution groups, Logility Planning Solutions
and Logility Execution Solutions. Logility Planning Solutions enables users to
analyze information to more effectively manage demand and respond to changing
market conditions, while optimizing the use of production and distribution
assets. Logility Execution Solutions is designed to enable users to effectively
and efficiently manage the flow of products through distribution centers and
warehouses and ensure that those products are delivered to the right location
using the optimal transportation alternatives available. Logility Value Chain
Solutions is highly modular, allowing for rapid deployment. In addition, the
software is scaleable to meet the management requirements of complex processes
involving tens of thousands of products across multiple sites.
The Company believes that it is a technology leader in the field of value
chain management software solutions and intends to continue to provide
innovative, advanced solutions to the marketplace. The Company believes that it
was one of the earliest providers of planning software solutions on a client-
server platform, one of the first on Windows NT and the first to introduce a
collaborative planning software solution that operates over the Internet. The
Company intends to leverage its installed base of customers to broaden the
utilization of its solution suite, and to sell newly developed modules that
complement the functionality of its existing product line. The Company has a
number of recent marketing or product relationships with leading Enterprise
Resource Planning ("ERP") vendors and systems integrators, including CAPS
Logistics, Oracle, PeopleSoft, Ross
3
<PAGE>
Systems and SAP. The Company intends to utilize these and future relationships
with other service providers, software vendors and systems consulting
organizations, and to leverage its relationship with its parent, American
Software, Inc. ("American Software"), to enhance its indirect distribution
channels.
The Company has licensed one or more modules of Logility Value Chain
Solutions to more than 200 companies worldwide, including Eastman Chemical,
FINA, Heineken USA, Newell, Pharmacia & Upjohn, Pfizer International, Reynolds
Metals, Sony Electronics and VF Corporation. The Company sells its products
through direct and indirect channels in the United States and Canada and
primarily through indirect channels outside North America. The Company derived
approximately 12% of its revenues in fiscal year ended April 30, 1997 from
international sales.
The Company is currently a wholly-owned subsidiary of American Software.
References herein to the Company include, as required by the context, the
business of the Company as conducted by American Software and certain of its
other subsidiaries prior to the transfer of that business to the Company.
References herein to American Software include, as required by the context,
American Software and certain of its subsidiaries. The Company was incorporated
in Georgia on July 25, 1996. Its principal executive offices are located at 470
East Paces Ferry Road, N.E., Atlanta, Georgia 30305, and its telephone number
is (404) 261-9777.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company. 2,200,000 shares
Common Stock to be outstanding after
the offering....................... 13,500,000 shares(1)
Use of proceeds..................... For (i) research and development, (ii)
sales and marketing, (iii) working capital
and other general corporate purposes and
(iv) possible acquisitions.
Nasdaq National Market symbol ...... LGTY
</TABLE>
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(1) Based on the number of shares of Common Stock outstanding as of the date of
this Prospectus. Excludes an aggregate of 295,000 shares of Common Stock
reserved for future option grants under the Company's 1997 Stock Plan. See
"Management--1997 Stock Plan."
4
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JULY
YEARS ENDED APRIL 30, 31,
------------------------- --------------
1995 1996 1997 1996 1997
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenues............................ $10,210 $16,633 $21,824 $4,792 $7,748
Cost of revenues.................... 3,838 6,023 7,158 1,564 2,279
------- ------- ------- ------ ------
Gross margin........................ 6,372 10,610 14,666 3,228 5,469
------- ------- ------- ------ ------
Operating income (loss)............. (3,246) (2,874) (1,954) (497) 224
Net income (loss)................... $(3,246) $(2,874) $(1,954) $ (497) $ 224
======= ======= ======= ====== ======
Net income (loss) per common share.. $ (0.29) $ (0.25) $ (0.17) $(0.04) $ 0.02
======= ======= ======= ====== ======
Weighted-average common shares
outstanding........................ 11,300 11,300 11,300 11,300 11,300
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1997
----------------------
ACTUAL AS ADJUSTED(1)
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<S> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 400 $24,102
Working capital......................................... 644 24,346
Total assets............................................ 16,651 40,353
Total stockholder's equity.............................. 6,661 30,363
</TABLE>
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(1) Gives effect to the sale of the 2,200,000 shares of Common Stock offered
hereby and the application of the net proceeds therefrom.
FORWARD-LOOKING STATEMENTS
Information contained in this Prospectus includes "forward-looking
statements" that are based largely on the Company's current expectations and
are subject to a number of risks and uncertainties. The Company faces many
risks and uncertainties, including without limitation those described in this
Prospectus under the caption "Risk Factors." Because of these risks and
uncertainties, the Company's actual results may differ materially from any
results presented in or implied by the forward-looking statements included in
this Prospectus.
----------------
Logility, Logility Execution Solutions, Logility Planning Solutions, Logility
Value Chain Solutions, Demand Chain Voyager, Supply Chain Voyager and
WarehousePRO are trademarks of the Company. This Prospectus also contains
trademarks and trade names of companies other than the Company.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Common Stock offered hereby.
RECENT ORGANIZATION; ABSENCE OF OPERATING HISTORY AS AN INDEPENDENT BUSINESS
The Company is a wholly-owned subsidiary of American Software and initially
conducted its business and operations as the Supply Chain Planning division of
American Software. In January 1997, American Software transferred
substantially all of the client-server value chain management software
operations (including research and development), assets and associated
liabilities of its Supply Chain Planning division to the Company. In August
1997, American Software transferred to the Company its WarehousePRO software
and substantially all of the associated operations and liabilities. Also in
August 1997, American Software transferred to the Company the business,
operations, assets and liabilities of Distribution Sciences, Inc., a wholly-
owned subsidiary of American Software, including the software now known as
Transportation Management and Transportation Planning, by merging that
subsidiary into the Company. Accordingly, the Company has only a limited
independent operating history upon which an evaluation of the Company and its
prospects can be based. The Company's management has no experience, as a
group, operating the Company as a stand-alone business. The inability of the
Company to operate successfully as a separate entity would have a material
adverse effect on the Company's business, operating results and financial
condition.
Certain financial information included in the Company's combined results of
operations have been determined on the basis of allocations of expenses and
other items between American Software and the Company, which allocations
management believes to be reasonable. The financial information included
herein does not necessarily indicate the results of operations, financial
position and cash flows of the Company in the future or what the results of
operations, financial position and cash flows would have been had the Company
been operated as a separate, stand-alone business during the periods
presented.
Because the Company operated as a division of American Software until
January 1997, and the name "Logility" was not used by American Software or the
Company in the marketplace until that time, the Company has had only a short
period to establish name recognition in the market for value chain management
software products. Achieving this name recognition may be delayed by the
Company's continuing ties to American Software as a majority-owned subsidiary.
The Company has in place a marketing campaign to establish and enhance name
recognition for its products and services, but there can be no assurance that
this campaign will be successful. Failure to achieve such name recognition
could deprive the Company of sales opportunities and could have a material
adverse affect on the Company's business, operating results and financial
condition. See "Business--Sales and Marketing."
CONTINUING RELIANCE ON AMERICAN SOFTWARE
Because the Company has historically operated as a division of American
Software, until recently it has received substantially all of its financial,
accounting, marketing and management services from American Software. To date,
all sales of WarehousePRO software products have been made by American
Software's sales force. The Company and American Software have entered into an
agreement whereby American Software has agreed to act as a sales and marketing
agent for the Company. The Company expects that it will rely to a substantial
extent on this continuing sales and marketing relationship with American
Software. In addition, the Company will continue to rely on financial,
accounting and management services provided by American Software. Except as
otherwise described in this Prospectus, American Software has no obligation to
provide these services to the Company. The Company's business, operating
results and financial condition may be adversely affected by a reduction or
discontinuation of services from American Software. See "Relationship with
American Software and Certain Transactions."
6
<PAGE>
SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND SEASONALITY;
POTENTIAL QUARTERLY LOSSES
The Company has experienced, and expects to continue to experience,
significant fluctuations in quarterly operating results that may be caused by
many factors, including, among others: the size and timing of orders for the
Company's products; the length of the sales cycle and implementation schedule
for the Company's products, and delays in the implementation process; customer
order deferrals in anticipation of new products and product enhancements;
introduction or enhancement of products by the Company or its competitors;
changes in pricing policy of the Company or its competitors; increased
competition; seasonality of revenue; technological changes in computer systems
and environments; quality control of products sold; readiness of the market to
deploy value chain management products; the Company's success in expanding its
sales, support, service, marketing and product development organizations;
personnel changes; fluctuation in foreign currency exchange rates; mix of
license, maintenance and service revenues; and general economic conditions.
Because a significant portion of the Company's revenues has been, and the
Company believes will continue to be, derived from large orders, the timing of
orders and their fulfillment has caused, and is expected to continue to cause,
material fluctuations in the Company's operating results, particularly on a
quarterly basis. In addition, the Company intends to continue to expand its
direct sales force. The timing of such expansion and the rate at which new
sales personnel become productive has in the past caused, and could in the
future cause, material fluctuations in the Company's quarterly operating
results. As a result of these and other factors, the Company believes that
period-to-period quarterly comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
The Company's future quarterly revenues are difficult to forecast in part
because the value chain management software market is an emerging market that
is subject to rapid change. Further, because the Company generally ships
software products within a short period after receipt of an order, it
typically does not have a material backlog of unfulfilled orders. Accordingly,
license revenues in any quarter are substantially dependent on orders booked
and shipped in that quarter and cannot be predicted with any degree of
certainty. In addition, the Company typically receives a significant portion
of product orders in the last two weeks of a quarter. Because a high
percentage of the Company's expenses, primarily personnel and facilities
costs, are relatively fixed, a small variation in the timing of software
licensing transactions, particularly at or near the end of any quarter, can
cause significant variations in operating results from quarter to quarter, and
may result in losses.
Due to the foregoing factors, it is possible that in future periods the
Company's revenues and thus its operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock could be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Selected Quarterly Operating Results."
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's software products is characterized by rapid
technological advances, evolving industry standards in computer hardware and
software technology, changes in customer requirements and frequent new product
introductions and enhancements. The Company's future success will depend upon
its ability to continue to enhance its current product line, to maintain and
extend compatibility with leading ERP systems and with widely used hardware
and operating system platforms, and to develop and introduce new products that
keep pace with technological developments, satisfy increasingly sophisticated
customer requirements and achieve market acceptance. The introduction of
products using new technologies and the emergence of new industry standards
could render the Company's existing products, and products currently under
development, obsolete and unmarketable. In addition, there are special risks
associated with products, such as the Demand Chain Voyager and Supply Chain
Voyager modules, that must comply with rapidly changing Internet standards.
See "Dependence on and Risks Associated with the Internet and Intranets."
There can be no assurance that the Company will be successful in developing
and marketing, on a timely and cost-effective basis, fully functional product
enhancements or new products that respond to technological advances by others,
or that its new products will achieve market acceptance. The Company's failure
to successfully develop and market
7
<PAGE>
product enhancements or new products could have a material adverse effect on
the Company's business, operating results and financial condition.
As a result of the complexities inherent in client/server computing
environments and the broad functionality and performance demanded by customers
for value chain management products, major new products and product
enhancements can require long development and testing periods. Software
products as complex as those offered by the Company often encounter
development delays and may contain undetected defects when introduced or when
new versions are released. There can be no assurance that the Company will not
encounter product development delays in the future or that, despite testing by
the Company, errors will not be found in new products or product enhancements
after commencement of commercial shipments, resulting in damage to the
Company's reputation, loss of revenue, loss of market share, delay in market
acceptance or warranty claims, any of which could have a material adverse
effect upon the Company's business, results of operations and financial
condition. Although the Company generally attempts to limit by contract its
exposure to incidental and consequential damages, if a court failed to enforce
the liability limiting provisions of the Company's contracts for any reason,
or if liabilities arose which were not effectively limited, the Company's
business, results of operations and financial condition could be materially
and adversely affected. See "Business--Research and Product Development."
DEPENDENCE ON EMERGING MARKET FOR VALUE CHAIN MANAGEMENT SOFTWARE
The Company currently derives, and expects to continue to derive,
substantially all of its revenues from licenses and services related to value
chain management software products. Although demand for these products has
grown in recent periods, the market for value chain management software is
still emerging. There can be no assurance that this market will continue to
grow or, even if it does grow, that businesses will purchase the Company's
products. The Company has spent, and intends to continue to spend,
considerable resources educating potential customers generally about value
chain management software solutions and specifically about the Company's
products. There can be no assurance, however, that such expenditures will
enable the Company to achieve any additional degree of market acceptance. If
the market for value chain management software fails to grow or grows more
slowly than the Company currently anticipates, the Company's business,
operating results and financial condition would be materially and adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Products and Services."
COMPETITION
The Company's products are targeted at emerging markets within the
application software market, which is intensely competitive and characterized
by rapid technological change. The Company's existing competitors are diverse
and offer a variety of solutions directed at various aspects of the value
chain, as well as the enterprise as a whole. In addition, the Company faces
potential competition for the Logility Value Chain Solutions software from
(i) internal development efforts by corporate information technology
departments, (ii) smaller independent companies that have developed or are
attempting to develop value chain management software that competes with the
Company's software solution, and (iii) other business application software
vendors that may broaden their product offerings by internally developing, or
by acquiring or partnering with independent developers of, value chain
management software.
Many of the Company's competitors and potential competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources, greater name recognition and a larger installed base of
customers than the Company. In order to be successful in the future, the
Company must continue to respond promptly and effectively to technological
change and competitors' innovations. The Company's competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and
sale of their products than the Company. The principal competitive factors
affecting the market for the Company's products include vendor and product
reputation; product architecture, functionality and features; costs; ease and
speed of implementation; return on investment; product quality, price and
performance; and level of support. There can be no assurance that the Company
will be able to compete successfully against current and future competitors,
and the failure to do so
8
<PAGE>
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Business--Competition."
MANAGEMENT OF GROWTH; RELIANCE ON MANAGEMENT AND KEY PERSONNEL
The Company's business has grown significantly in the last two fiscal years,
with total revenues increasing to $21.8 million in fiscal year ended April 30,
1997 from $10.2 million in fiscal year ended April 30, 1995. The Company's
recent expansion has resulted in substantial growth in the number of its
employees (to 185 at April 30, 1997 from 81 at July 31, 1995), the scope of
its operations and the geographic distribution of its operations and
customers. This recent growth has placed, and if such growth is maintained
will continue to place, a significant strain on the Company's management and
operations. Moreover, the Chief Financial Officer of the Company, James M.
Modak, recently joined the Company in August 1997. The Company's future
operating results will depend on the ability of its officers and other key
employees to continue to implement and improve its operational, customer
support and financial control systems, and to effectively expand, train and
manage its employee base. There can be no assurance that the Company will be
able to manage any future growth successfully, and any inability to do so
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
The Company's future performance also depends in part upon the continued
service of key members of management, as well as sales, support, service,
marketing and product development personnel. The loss of one or more of the
Company's key personnel could have a material adverse effect on the Company's
business, operating results and financial condition. The Company believes its
future success will depend in part upon its ability to attract and retain
highly skilled management, sales, support, service, marketing and product
development personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be able to retain its key employees
or that it will be successful in attracting, assimilating and retaining such
personnel in the future. Failure to attract and retain key personnel could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Employees" and "Management--Executive
Officers and Directors."
The Company does not have, and does not currently intend to obtain, key man
insurance on any of its executive management. There are generally no post-
employment restrictions on the right of executive management to compete with
the Company or solicit its customers or employees. The absence of key man
insurance and post-employment restrictions could adversely affect the
Company's business, operating results and financial condition, particularly if
an executive officer of the Company elected to terminate his or her employment
and become associated with a competitor of the Company. See "Management--
Executive Officers and Directors."
RELIANCE ON AND NEED TO DEVELOP AND ENHANCE RELATIONSHIPS WITH THIRD PARTIES
Prospective customers of the Company increasingly rely on consulting and
systems integration firms and third-party software and hardware vendors in
selecting and implementing value chain management software solutions.
Accordingly, the Company expects to rely in part on such third parties for
sales and lead generation and for implementation services. The Company has
formal and informal arrangements with a number of third-party software and
hardware vendors and consulting and systems integration firms to enhance its
marketing, sales, support, service and product development efforts as well as
software implementation services. Such firms include CAPS Logistics, Oracle,
PeopleSoft, Ross Systems, SAP, management consulting firms in the United
States, and local consulting and sales organizations in Europe and in the
Asia/Pacific region. Many of these firms have similar, and often more
established, relationships with the Company's competitors. Even when the
Company establishes such a relationship, the success of the relationship will
depend on a variety of factors, some of which will not be within the control
of the Company. Moreover, there can be no assurance that these firms, many of
which have significantly greater financial and marketing resources than the
Company, will not develop or market software products that compete with the
Company's products in the future or will not otherwise
9
<PAGE>
discontinue their relations with or support of the Company. The failure of the
Company to maintain its existing relationships, or to establish new
relationships in the future, for any reason, could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Sales and Marketing."
DEPENDENCE UPON SUCCESSFUL EXPANSION OF MARKETING, SALES, SUPPORT AND SERVICE
ORGANIZATIONS
Many of the personnel in the Company's marketing, sales, support and service
organizations have been employed by the Company for less than one year,
particularly those in the sales organization. The Company's future success
depends upon the successful expansion of these organizations and its ability
to establish indirect distribution channels, including resellers, systems
solution vendors, application software vendors and systems integrators. The
Company currently plans to continue to expand its direct sales force, to
develop additional indirect distribution channels and to expand its customer
service and support organizations. Although the Company believes that such
initiatives ultimately will improve the Company's operating results, to the
extent related expenditures are incurred and revenues do not correspondingly
increase, the Company's operating results will be materially and adversely
affected. In addition, the Company is currently shifting the organization of
its sales force from a geographic focus to a vertical market focus, and has
recently established a new sales organization for the Company's WarehousePRO
software product. There can be no assurance that these steps will be
successful. Further, competition for experienced and effective sales personnel
in the software industry has increased substantially and continues to
increase, making expansion of a sales organization more difficult and
expensive. If the Company is unable to expand its marketing, sales, support
and service organizations or develop additional distribution channels on a
timely basis, the Company's business, operating results and financial
condition could be materially and adversely affected. See "Business--Sales and
Marketing."
INTERNATIONAL OPERATIONS
The Company derived approximately 7%, 12%, 20% and 12% of its total revenues
from international sales in the three months ended July 31, 1997 and in fiscal
years ended April 30, 1997, 1996 and 1995, respectively. The Company believes
that continued growth and profitability will require increased sales in
international markets. In order to successfully expand international sales,
the Company must establish additional foreign operations and hire additional
personnel, as well as expand its indirect sales channels in markets outside
North America. To the extent that the Company is unable to do so in a timely
and effective manner, the Company's growth, if any, in international sales
will be limited, and the Company's business, operating results and financial
condition could be materially adversely affected. In addition, even if
international operations are successfully expanded, there can be no assurance
that the Company will be able to maintain or increase international market
demand for its products or that such operations will be profitable.
The Company's international operations are subject to risks inherent in
international business activities, including, in particular, management and
staffing of an organization spread over various countries, longer accounts
receivable payment cycles in certain countries, compliance with a variety of
foreign laws and regulations, unexpected changes in regulatory requirements,
overlap of different tax structures, foreign currency exchange rate
fluctuations and general economic and political conditions. To date, the
Company's revenues from international operations have primarily been
denominated in United States dollars. Other risks associated with
international operations include import and export licensing requirements,
trade restrictions and changes in tariff rates. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Sales and Marketing."
INTEGRATION OF TRANSPORTATION MANAGEMENT, TRANSPORTATION PLANNING AND
WAREHOUSEPRO PRODUCTS
The Company acquired the Transportation Management, Transportation Planning
and WarehousePRO software products from American Software in August 1997.
Prior to such transfers, these products were not marketed or sold as part of
Logility Value Chain Solutions, but rather were marketed and sold through
separate organizations. To maximize the value of these additional products,
the Company intends to fully integrate them into its software solution suite.
There can be no assurance, however, that these integration efforts will be
effective
10
<PAGE>
or that they will be implemented on a timely basis. Failure to successfully
integrate these products could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--Sales and
Marketing."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
In the future, the Company may be required to raise additional capital in
order to conduct its operations. Such capital may be raised through additional
public or private equity financings, borrowings and other available sources.
There can be no assurance that additional funding, if necessary, will be
available on favorable terms, if at all. In addition, for so long as American
Software desires to include the Company in its consolidated group for federal
income tax purposes, which requires that American Software retain at least 80%
of the total voting power and stock with a value of at least 80% of the total
value of the Company, the Company might be unable to raise capital through
equity financings. If adequate funds are not available, the Company may be
required to meet its working capital requirements with debt financing or to
curtail operations. To the extent that additional capital is raised through
the sale of equity or securities convertible into equity, the issuance of such
securities could result in dilution to the Company's then existing
stockholders. See "Relationship With American Software and Certain
Transactions," "--Continuing Reliance on American Software" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company relies on a combination of trade secrets, copyright and
trademark laws, nondisclosure and other contractual provisions and technical
measures to protect its proprietary rights in its products. The Company has
not sought to patent its software products and thus does not have the
protection that patents might provide. There can be no assurance that the
protections relied upon by the Company will be adequate to protect its
proprietary rights. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties, including customers, 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. In addition, the laws of
certain foreign countries in which the Company's products are or may be
licensed do not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. As a result, there
can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not
independently develop similar technology. Although the Company believes that
its products, trademarks and other proprietary rights do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company. Defense of
such claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
results of operations and financial condition. See "Business--Proprietary
Rights and Licenses."
Certain software used in the Company's products is licensed by the Company
from third parties. There can be no assurance that the Company will continue
to be able to resell this software under its licenses or, if any licensor
terminates its agreement with the Company, that the Company will be able to
develop or otherwise procure replacement software from another supplier on a
timely basis or on commercially reasonable terms. In addition, such third-
party software may contain errors that would be difficult for the Company to
detect and correct.
RELATIONSHIP WITH AMERICAN SOFTWARE
Upon completion of this offering, American Software will own approximately
84% of the Company's outstanding Common Stock (or approximately 82% if the
Underwriters' over-allotment option is exercised in full). As long as American
Software beneficially owns a majority of the outstanding Common Stock,
American Software will be able to determine, without the consent of the other
stockholders of the Company, the outcome
11
<PAGE>
of any corporate action requiring approval of the Company's stockholders,
including the election of the entire Board of Directors of the Company. In
addition, through its beneficial ownership of a majority of the Common Stock
and control of the Board of Directors, American Software will be able to
control the management and affairs of the Company, including all
determinations with respect to acquisitions, dispositions, mergers, and other
business combinations, borrowings, issuances of Common Stock or other equity
securities of the Company, the Company's dividend policy, and any change in
control of the Company. Further, the Amended and Restated Articles of
Incorporation of the Company (the "Articles") permit stockholder action by
written consent if approved by holders of a majority of the outstanding shares
of Common Stock, which currently would permit American Software to act without
calling a meeting of stockholders. See "Description of Capital Stock--Certain
Provisions of Articles and Bylaws."
The Company's relationship with American Software also is governed by
various agreements between the Company and American Software and certain of
American Software's other direct and indirect subsidiaries, including a
Subsidiary Formation Agreement, Services Agreement, Facilities Agreement, Tax
Sharing Agreement, Stock Option Agreement, Technology License Agreement, and
Marketing License Agreement, the material terms of which are summarized
herein. Because the Company was a wholly-owned subsidiary of American Software
at the time these agreements were executed, none of these arrangements have
resulted from arm's-length negotiations and, therefore, the costs charged or
allocated to the Company for services thereunder may be higher or lower than
those that may be charged by third parties. See "Relationship with American
Software and Certain Transactions."
The Articles provide that any agreement or arrangement between the Company
and American Software or an affiliate of American Software, or any amendment
or termination of any such agreement or arrangement, that is (i) approved by a
majority of the Company's directors who are not officers of either the Company
or American Software (or its affiliates) or directors of American Software (or
its affiliates) (the "Disinterested Directors"), or (ii) approved by the
holders of a majority of the Company's outstanding voting stock (not including
stock owned by American Software or an affiliate of American Software), or
(iii) consistent with arrangements, standards, protocols, or guidelines
approved by the Disinterested Directors of the Company, shall be deemed fair
to the Company and its shareholders, provided that no presumption shall arise
that such agreement or arrangement (or amendment or termination thereof) is
not fair to the Company and its shareholders solely by reason of the fact that
the approval procedures described in items (i), (ii) and (iii) above were not
obtained. The Articles also contain provisions allocating corporate
opportunities between American Software (and its affiliates) and the Company
based primarily on the relationship to the Company and American Software (or
its affiliates) of the individual to whom such opportunity is presented. In
general, corporate opportunities are allocated to the entity of which such
individual is an officer or for which the officer is acting when the
opportunity is presented. If at the time the opportunity is presented the
individual is an officer acting for both the Company and American Software, or
if it is unclear for which entity such individual is acting, the opportunity
is allocated to American Software. See "Relationship with American Software
and Certain Transactions" and "Description of Capital Stock."
Conflicts of interest may arise between the Company and American Software in
a number of areas relating to their past and ongoing relationships, including
the nature and quality of services rendered by the Company to American
Software and its affiliates or by American Software and its affiliates to the
Company, potential competitive business activities, shared administrative and
finance functions, shared facilities, tax and employment benefit matters,
stock option agreements, sales or distributions by American Software of all or
any portion of its ownership in the Company, and American Software's ability
to control the management and affairs of the Company. There can be no
assurance that American Software and the Company will be able to resolve
potential conflicts or that, if resolved, the Company would not receive more
favorable resolution than if it were dealing with an unaffiliated party. In
addition, certain of the agreements between the Company and American Software
contain specific procedures for resolving disputes between the Company and
American Software with respect to the subject matter of those agreements.
There can be no assurance that more favorable results to the Company would not
be obtained under different procedures.
12
<PAGE>
As long as American Software desires to include the Company as a member of
its consolidated group for federal income tax purposes (which requires that
American Software owns at least 80% of the total voting power and stock of the
Company with a value equal to at least 80% of the total value of the Company),
the Company will be constrained in its ability to issue stock pursuant to
equity compensation plans, raise equity capital, or issue Common Stock in
connection with acquisitions. For any period of time that the Company
continues to be a member of American Software's consolidated group, it will be
jointly and severally liable for the federal income tax liability of other
members of the consolidated group and for funding and termination liabilities
applicable to the consolidated group's tax-qualified employee benefit plans.
American Software could decide to sell or otherwise dispose of all or a
portion of its ownership of the Company's Common Stock at some future date,
and there can be no assurance that, in any transfer by American Software of a
controlling interest in the Company, any other holders of Common Stock will be
allowed to participate in such transaction or will realize any premium with
respect to their shares of Common Stock. Sales or distributions by American
Software of substantial amounts of Common Stock in the public market or to its
shareholders could adversely affect prevailing market prices for the Common
Stock. See "Relationship with American Software and Certain Transactions" and
"Shares Eligible for Future Sale."
DEPENDENCE ON AND RISKS ASSOCIATED WITH THE INTERNET AND INTRANETS
The Company believes that sales of Demand Chain Voyager and Supply Chain
Voyager will depend in large part upon the adoption of the Internet and
intranets for commerce and communications by businesses and other end-users.
The Internet and intranets are new and evolving, and there can be no assurance
of their widespread adoption for such purposes. Critical issues concerning the
Internet and intranets, including security, reliability, cost, ease of use and
access, and quality of service, remain unresolved at this time, inhibiting
adoption by many enterprises and other end-users. The failure of enterprises
to use the Internet and intranets could have a material adverse effect on the
Company's business, results of operations and financial condition.
SHARES ELIGIBLE FOR SALE AFTER THIS OFFERING
The 11,300,000 shares of Common Stock owned by American Software will become
eligible for resale under Rule 144 promulgated under the Securities Act
commencing in January 1998. In addition, so long as American Software is able
to elect a majority of the Company's Board of Directors, it will have the
ability to cause the Company at any time to register for resale all or a
portion of the Common Stock owned by American Software. American Software and
the Company have agreed not to sell or issue any shares of Common Stock for a
180-day period after the date of this Prospectus, other than (i) shares of
Common Stock to be sold to the Underwriters in this offering, (ii) the grant
of options to purchase shares of Common Stock pursuant to the 1997 Stock Plan
and the issuance of shares of Common Stock upon the exercise of any options,
and (iii) shares issued by the Company in connection with any acquisitions.
American Software may, in the future, elect to distribute its shares of
Common Stock to its shareholders. In that event, it is anticipated that such
shares thereafter would be freely tradeable by persons other than "affiliates"
of the Company, without restriction or registration under the Securities Act.
No assurance can be given that American Software will make any such
distribution, and American Software has advised the Company that it has no
present intention of doing so.
Any shares of Common Stock issued upon exercise of options granted under the
Company's 1997 Stock Plan and any shares of Common Stock issued in connection
with any acquisitions will be subject to a lock-up during the 180-day period
following the date hereof and will become available for future sale in the
public market at prescribed times. Alternatively, the Company may elect to
provide that any options to purchase shares of Common Stock will not vest
during such 180-day period. Montgomery Securities, on behalf of the
Underwriters may, in its sole discretion and at any time without notice,
release all or any portion of the shares subject to lock-up agreements. Sales
of a significant number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock and affect the Company's
13
<PAGE>
ability to raise capital. See "Relationship with American Software and Certain
Transactions" and "Shares Eligible for Future Sale."
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS
The primary purposes of this offering are to increase the Company's equity
capital, create a public market for the Company's Common Stock and to
facilitate future access by the Company to public capital markets. A
significant portion of the anticipated net proceeds to the Company from this
offering have not been designated for specific uses. Accordingly, management
of the Company will have broad discretion with respect to the use of these
funds. A portion of the net proceeds of this offering may also be used to
acquire or invest in products, technologies or businesses that broaden or
enhance the Company's current product offerings. There are no current
agreements or negotiations with respect to any acquisitions, investments or
other transactions. See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS
The Articles and the Amended and Restated Bylaws of the Company (the
"Bylaws") contain certain provisions that, along with American Software's
beneficial ownership of a majority of the Common Stock and control of the
Board of Directors of the Company, may have the effect of discouraging,
delaying, or preventing a change in control of the Company or unsolicited
acquisition proposals that another holder of the Common Stock might consider
favorable. Such provisions include authorizing the issuance of "blank check"
preferred stock, providing for a Board of Directors with staggered, three-year
terms, requiring supermajority voting to effect certain amendments to the
Articles and Bylaws, restricting certain business combinations with interested
shareholders, limiting the persons who may call special meetings of
shareholders, and establishing advance notice requirements for nominations for
election to the Board of Directors or for proposing matters that can be acted
upon at meetings of shareholders. Certain provisions of Georgia law and the
Company's 1997 Stock Plan also may have the effect of discouraging, delaying,
or preventing a change in control of the Company or unsolicited acquisition
proposals. See "Management--1997 Stock Plan" and "Description of Capital
Stock."
DILUTION
Purchasers of the Common Stock offered hereby will suffer an immediate and
substantial dilution in the net tangible book value per share of the Common
Stock of $10.30 from the assumed initial public offering price. See
"Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price will be determined by negotiation between the
Company and the Representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. In the event that the Company fails to appoint two independent
directors within 90 days after this offering, Nasdaq could terminate the
listing of the Company's Common Stock on the Nasdaq National Market, which
would have a material adverse effect on the liquidity and trading price of the
Common Stock. See "Management."
The market price of the Company's Common Stock is likely to be highly
volatile and could be subject to substantial fluctuations in response to
quarterly variations in operating results, losses or additions of significant
customers, announcements of technological innovations or new products by the
Company or its competitors, changes in financial estimates by securities
analysts, or other events or factors, including the risk factors described
herein. In addition, the stock market has experienced significant price and
volume fluctuations that have particularly affected the market prices of
equity securities of many high technology companies and that
14
<PAGE>
often have been unrelated to the operating performance of such companies. In
the past, securities class action litigation has often been instituted against
such companies following periods of volatility in the market price of their
securities. Such litigation, if commenced, could result in substantial costs
and a diversion of management's attention and resources, which could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Underwriting."
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company currently intends to retain its
earnings, if any, for the development of its business. See "Dividend Policy."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $23.7 million, assuming an
initial public offering price of $12.00 per share ($27.4 million if the
Underwriters' over-allotment option is exercised in full), after deducting the
estimated underwriting discount and offering expenses. The Company expects to
use the net proceeds from this offering for research and development, sales
and marketing, working capital and other general corporate purposes. However,
the Company has not allocated any specific portion of the net proceeds to such
purposes and management will have the ability to allocate such proceeds at its
discretion. From time to time in the ordinary course of business, the Company
evaluates the acquisition of products, businesses and technologies that
complement the Company's business, for which a portion of the net proceeds may
be used. Currently, however, the Company does not have any understandings,
commitments or agreements with respect to any such acquisitions. Pending use
of the net proceeds, the Company intends to invest such funds in short-term,
interest-bearing securities. See "Risk Factors--Broad Management Discretion
over Use of Proceeds."
DIVIDEND POLICY
The Company currently anticipates that it will retain all future earnings
for use in its business and does not anticipate that it will pay any cash
dividends in the foreseeable future. The payment of any future dividends will
be at the discretion of the Company's Board of Directors and will depend upon,
among other things, future earnings, operations, capital requirements and the
general financial condition of the Company, general business conditions and
contractual restrictions on payment of dividends, if any. See "Risk Factors--
Relationship with American Software."
16
<PAGE>
CAPITALIZATION
The following table sets forth as of July 31, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company giving effect to the merger of Distribution Sciences, Inc. into the
Company and the contribution of the WarehousePRO division to the Company by
American Software subsequent to July 31, 1997, and (iii) the pro forma
capitalization as adjusted to give effect to the sale of the shares of Common
Stock offered hereby (at an assumed initial public offering price of $12.00
per share and after deducting the estimated underwriting discount and offering
expenses) and the application of the net proceeds therefrom. The table should
be read in conjunction with the Company's Combined Financial Statements and
related Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1997
-----------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Stockholder's equity:
Preferred stock; 2,000,000 shares authorized; no
shares issued.................................. $ -- $ -- $ --
Common stock, no par value; 20,000,000 shares
authorized; 11,300,000 shares issued and
outstanding as of July 31, 1997................ -- -- --
Additional paid-in capital...................... 4,106 10,035 33,737
Divisional equity............................... 5,929 -- --
Accumulated deficit............................. (3,374) (3,374) (3,374)
------ ------ -------
Total stockholder's equity..................... 6,661 6,661 30,363
------ ------ -------
Total capitalization........................... $6,661 $6,661 $30,363
====== ====== =======
</TABLE>
17
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of the Company as of July
31, 1997 was approximately $(729,000), or $(0.06) per share. Pro forma net
tangible book value per share is determined by dividing the Company's net
worth (tangible assets less liabilities) by the number of shares of Common
Stock outstanding. After giving effect to the sale of the shares of Common
Stock offered by the Company hereby at an assumed initial offering price of
$12.00 per share and after deducting the estimated underwriting discount and
offering expenses payable, the pro forma net tangible book value of the
Company as of July 31, 1997 would have been approximately $22,973,000, or
$1.70 per share. This represents an immediate increase in such pro forma net
tangible book value of $1.76 per share to the existing stockholder and an
immediate dilution of $10.30 per share to new investors purchasing shares in
this offering. If the initial public offering price is higher or lower, the
dilution to new investors will be greater or less, respectively. The following
table illustrates the dilution in net tangible book value per share to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $12.00
------
Pro forma net tangible book value (deficit) per share as of
July 31, 1997................................................. $(0.06)
Increase per share attributable to new investors............... 1.76
------
Pro forma, as adjusted, net tangible book value per share after
this offering................................................... 1.70
------
Dilution per share to new investors.............................. $10.30
======
</TABLE>
The following table summarizes, on a pro forma basis as of July 31, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the price paid per share by the existing
stockholder and by new investors purchasing shares in this offering, based on
an assumed initial public offering price of $12.00 per share (before deducting
the estimated underwriting discount and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder....... 11,300,000 83.7% $10,035,000 27.5% $ 0.89
New investors.............. 2,200,000 16.3 26,400,000 72.5 12.00
---------- ----- ----------- -----
Total..................... 13,500,000 100.0% $36,435,000 100.0%
========== ===== =========== =====
</TABLE>
18
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The selected combined financial data presented below as of and for the years
ended April 30, 1995, 1996 and 1997 are derived from combined financial
statements of the Company that have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The combined statements of
operations data for the years ended April 30, 1993 and 1994 and the three
months ended July 31, 1996 and 1997 and the combined balance sheet data at
April 30, 1993 and 1994 and July 31, 1997 are derived from unaudited combined
financial statements that include, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The combined financial
statements as of April 30, 1996 and 1997 and for each of the years in the
three-year period ended April 30, 1997 and the report thereon, together with
the combined financial statements as of July 31, 1997 and for the three months
ended July 31, 1996 and 1997, are included elsewhere in this Prospectus. The
results of operations for the three months ended July 31, 1997 are not
necessarily indicative of the results of operations to be expected for the
full year. The selected combined financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Combined Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED APRIL 30, ENDED JULY 31,
------------------------------------------- ----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Licenses.............. $ 4,330 $ 6,967 $ 5,767 $10,700 $12,359 $ 2,686 $ 4,347
Maintenance........... 1,089 2,040 2,628 3,797 5,051 1,145 1,895
Services.............. 595 1,232 1,815 2,136 4,414 961 1,506
------- ------- ------- ------- ------- ------- -------
Total revenues....... 6,014 10,239 10,210 16,633 21,824 4,792 7,748
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Licenses.............. 1,200 2,097 2,184 4,016 3,970 853 1,231
Maintenance........... 410 539 624 876 1,219 249 353
Services.............. 304 744 1,030 1,131 1,969 462 695
------- ------- ------- ------- ------- ------- -------
Total cost of reve-
nues................ 1,914 3,380 3,838 6,023 7,158 1,564 2,279
------- ------- ------- ------- ------- ------- -------
Gross margin........... 4,100 6,859 6,372 10,610 14,666 3,228 5,469
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and develop-
ment................. 1,208 1,369 1,168 1,452 3,484 694 1,205
Sales and marketing... 2,398 4,249 6,295 9,892 10,628 2,503 3,430
General and adminis-
trative.............. 606 1,529 2,155 2,140 2,508 528 610
------- ------- ------- ------- ------- ------- -------
Total operating ex-
penses.............. 4,212 7,147 9,618 13,484 16,620 3,725 5,245
------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................ (112) (288) (3,246) (2,874) (1,954) (497) 224
Income taxes........... -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)..... $ (112) $ (288) $(3,246) $(2,874) $(1,954) $ (497) $ 224
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
common share.......... $ (0.01) $ (0.03) $ (0.29) $ (0.25) $ (0.17) $ (0.04) $ 0.02
======= ======= ======= ======= ======= ======= =======
Weighted-average common
shares outstanding.... 11,300 11,300 11,300 11,300 11,300 11,300 11,300
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
---------------------------------- --------
1993 1994 1995 1996 1997 1997
----- ------ ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 49 $ 38 $ 66 $ 13 $ 732 $ 400
Working capital.................... 526 2,023 (1,705) 1,223 557 644
Total assets....................... 7,674 10,455 10,081 14,170 16,367 16,651
Total stockholder's equity......... 5,840 7,319 6,302 7,224 6,668 6,661
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements. Actual results
could differ materially. See "Risk Factors."
OVERVIEW
Logility, Inc. ("Logility" or the "Company") develops, markets and supports
software applications that optimize the operating efficiencies of
manufacturers, suppliers, distributors, retailers and other organizations
along the "value chain." The Company's products have been licensed to more
than 200 customers in a variety of industry segments including consumer
packaged goods, chemicals and pharmaceuticals and manufacturing. The Company
markets its products through direct and indirect sales channels in North
America and primarily through indirect sales channels outside North America.
Historically, the Company has financed its operations through its parent,
American Software, as well as through cash generated from operations.
The Company until recently conducted its business and operations as three
separate business units of American Software: a supply chain planning software
group, a warehouse management software group and a transportation management
software group. Effective January 1997, American Software transferred
substantially all of the business, operations (including research and
development), assets and associated liabilities of its Supply Chain Planning
division to the Company. Effective August 1997, American Software transferred
to the Company the WarehousePRO software and substantially all associated
operations, assets and liabilities. Effective August 1997, American Software's
wholly-owned subsidiary, Distribution Sciences, Inc., was merged into the
Company, transferring its business, operations, assets and liabilities,
including the Transportation Planning and Transportation Management software,
to the Company. The Company's combined financial statements included herein
present the combined assets, liabilities and results of operations for the
three business units for all periods.
The Company's revenues are derived primarily from three sources: software
licenses, maintenance and services. Software licenses generally are based upon
the number of modules, servers, users and/or sites licensed. License revenues
are recognized at the time of product delivery, provided no significant future
obligations exist and collection is deemed probable. Maintenance agreements
typically are for a one- to three-year term and usually are entered into at
the time of the initial product license. Maintenance revenues are recognized
ratably over the term of the maintenance agreement. Services revenues consist
primarily of fees from software implementation, training, consulting and
customization services and are recognized as the services are rendered.
Certain software development costs related to completion of internally
developed products are capitalized in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." Research and development expenses are
charged against earnings during the design phase of a project. Certain
research and development expenditures are capitalized after technological
feasibility of the project has been established until the product is generally
available to the public. At general availability, the capitalized costs of the
project are amortized ratably based on the projected revenues associated with
the related software or on a straight-line basis over three years, whichever
method results in a higher level of amortization. In the three months ended
July 31, 1997 and the fiscal years ended April 30, 1997, 1996 and 1995, the
Company capitalized 34%, 45%, 71% and 66%, respectively, of total research and
development expenditures. Total research and development expenditures for such
periods, which included both research and development expenses and capitalized
computer software development costs, were $1.8 million, $6.3 million, $5.1
million and $3.4 million, respectively. Amortization of capitalized computer
software development costs was $918,000 in the three months ended July 31,
1997 and $2.8 million, $1.1 million and $456,000 in fiscal years ended April
30, 1997, 1996 and 1995, respectively.
Certain costs related to the purchase of software that is intended for use
or resale are capitalized. In the three months ended July 31, 1997 and in the
fiscal years ended April 30, 1997, 1996 and 1995, the Company capitalized
$34,000, $36,000, $574,000 and $255,000, respectively, of purchased computer
software. Purchased
20
<PAGE>
computer software costs are amortized using the straight-line method over a
period of three to five years. Amortization of purchased computer software
costs was $73,000, $233,000, $1.2 million and $1.1 million in the three months
ended July 31, 1997 and fiscal years ended April 30, 1997, 1996 and 1995,
respectively. In addition, the Company wrote off $1.2 million of mainframe-
based purchased computer software costs during fiscal year ended April 30,
1996.
The combined financial statements included in this Prospectus have been
derived from American Software's consolidated financial statements and reflect
the revenues and costs (certain costs include allocations from American
Software) of the Company's products, as well as allocations from American
Software's selling, general and administrative expenses. Prior to fiscal year
ended April 30, 1997, the Supply Chain Planning division shared sales and
marketing activities with American Software and, for reporting purposes, sales
and marketing expenses for these periods were allocated to the Company on the
basis of its license revenues as a percentage of the total American Software
license revenues. Beginning in fiscal year ended April 30, 1997, selling
expenses were based on direct costs and also included commissions to American
Software based upon its sales of the Company's products at commissions of 30%
(50% for certain international licenses), while certain marketing expenses
continued to include an allocation from American Software. The Company and its
predecessor, the Supply Chain Planning division, directly incurs research and
development expenditures, while certain general and administrative expenses
are allocated from American Software based on estimated usage of personnel and
facilities and other indirect costs.
For the three years ended April 30, 1997, the WarehousePRO division shared
sales and marketing activities with American Software and, for reporting
purposes, sales and marketing expenses were allocated to the Company on the
basis of its license revenues as a percentage of the total American Software
license revenues. Beginning in the fiscal year ending April 30, 1998, selling
expenses are based on direct costs and also include commissions to American
Software based upon its sales of WarehousePRO at commissions of 30% (50% for
certain international licenses). In addition, the WarehousePRO division
directly incurs research and development expenditures, while certain general
and administrative expenses are allocated from American Software based on
estimated usage of personnel and facilities and other indirect costs.
Distribution Sciences, Inc. has operated as a wholly-owned subsidiary of
American Software since its purchase in June 1992 and since that time it has
conducted its business separately.
Accordingly, the Company's combined financial statements may not reflect the
operating results of a stand-alone company and should not be relied upon as
indicative of future results. After this offering, the Company will continue
to be a subsidiary of American Software, but will operate as a separate
business. American Software provides facilities and services to the Company
pursuant to a Services Agreement, a Facilities Agreement, and a Marketing
License Agreement, each of which became effective August 1, 1997. These
agreements provide the basis for the allocation of shared expenses and the
reimbursement of direct expenses. See "Relationship with American Software and
Certain Transactions."
In accordance with the Company's Tax Sharing Agreement with American
Software, the Company computes a separate, stand-alone income tax provision
and settles balances due to or from American Software on this basis. All
benefits derived from deferred tax assets as defined in the Tax Sharing
Agreement (which include net operating loss and tax credit carryforwards) that
arise prior to this offering will be allocated to American Software.
Accordingly, the Company will not receive any benefit from the $5.8 million of
gross deferred tax assets calculated on a separate return basis at April 30,
1997. However, deferred tax liabilities will be allocated to the Company
(which gave rise to the Company's net deferred tax liability of $2.8 million
at April 30, 1997 and $2.8 million at April 30, 1996). After this offering, to
the extent the tax computation produces a tax benefit for the Company,
American Software will be required to pay such amounts to the Company only if
and when such benefit is realized by American Software by the reduction in
taxes payable with respect to the current tax period. At April 30, 1997,
American Software had net operating loss carryforwards of approximately $20
million, which must be utilized by American Software before the Company would
receive payment for any currently generated tax benefits.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues of certain line items included in the Company's combined
statements of operations:
<TABLE>
<CAPTION>
YEARS THREE MONTHS
ENDED APRIL 30, ENDED JULY 31,
----------------------- ------------------
1995 1996 1997 1996 1997
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
License........................ 56% 64% 57% 56% 56%
Maintenance.................... 26 23 23 24 25
Services....................... 18 13 20 20 19
----- ----- ----- ------- -------
Total revenues................ 100 100 100 100 100
----- ----- ----- ------- -------
Cost of revenues:
License........................ 22 24 18 18 16
Maintenance.................... 6 5 6 5 4
Services....................... 10 7 9 9 9
----- ----- ----- ------- -------
Total cost of revenues........ 38 36 33 32 29
----- ----- ----- ------- -------
Gross margin.................. 62 64 67 68 71
Operating expenses:
Research and development....... 11 9 16 15 16
Sales and marketing............ 62 59 49 52 44
General and administrative..... 21 13 11 11 8
----- ----- ----- ------- -------
Total operating expenses...... 94 81 76 78 68
----- ----- ----- ------- -------
Operating income (loss)......... (32) (17) (9) (10) 3
Income taxes.................... -- -- -- -- --
----- ----- ----- ------- -------
Net income (loss)............. (32)% (17)% (9)% (10)% 3%
===== ===== ===== ======= =======
</TABLE>
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO THREE MONTHS ENDED JULY 31, 1996
REVENUES
Total revenues increased 62% to $7.7 million in the three months ended July
31, 1997 from $4.8 million in the three months ended July 31, 1996. This
increase was attributable to an increase in license revenues generated
primarily from the Company's WarehousePRO product as well as growth in
services and maintenance revenues. International revenues were comparable in
absolute dollars, but decreased to 7% of total revenues in the three months
ended July 31, 1997 from 11% of total revenues in the three months ended July
31, 1996 due to the substantial growth in domestic revenues.
License Revenues. License revenues increased 62% to $4.3 million in the
three months ended July 31, 1997 from $2.7 million in the three months ended
July 31, 1996. The increase was due primarily to increased sales of the
Company's WarehousePRO product.
Maintenance Revenues. Maintenance revenues increased 66% to $1.9 million in
the three months ended July 31, 1997 from $1.1 million in the three months
ended July 31, 1996. The increase was due primarily to a greater number of
customers under maintenance contracts in the 1997 period.
Services Revenues. Services revenues increased 57% to $1.5 million in the
three months ended July 31, 1997 from $1.0 million in the three months ended
July 31, 1996. The increase was attributable to greater demand for services
driven by the growth in the Company's customer base.
22
<PAGE>
COST OF REVENUES
Cost of License Revenues. Cost of license revenues consists primarily of
amortization of capitalized computer software development costs and purchased
computer software costs, salaries and benefits and royalties paid to third-
party software vendors. Cost of license revenues increased 44% to $1.2 million
in the three months ended July 31, 1997 from $853,000 in the three months
ended July 31, 1996. The increase resulted primarily from an increase in the
amortization of capitalized computer software costs. Cost of license revenues
as a percentage of license revenues decreased to 28% from 32% in the three
months ended July 31, 1997 and 1996, respectively. This decrease resulted
primarily from the operating leverage realized through increasing license
revenues.
Cost of Maintenance Revenues. Cost of maintenance revenues consists
primarily of the salaries and benefits of professionals involved in customer
support and product enhancement activities. Cost of maintenance revenues
increased 42% to $353,000 in the three months ended July 31, 1997 from
$249,000 in the three months ended July 31, 1996. Cost of maintenance revenues
as a percentage of maintenance revenues remained relatively flat at 19% in the
three months ended July 31, 1997 versus 22% in the three months ended July 31,
1996, as the cost of supporting maintenance contracts kept pace with the
growth in maintenance revenues.
Cost of Services Revenues. Cost of services revenues consists primarily of
salaries, benefits, and travel expenses related to personnel performing
professional services. Cost of services revenues increased 50% to $695,000 in
the three months ended July 31, 1997 from $462,000 in the three months ended
July 31, 1996. The increase resulted from higher costs related to the hiring
of additional personnel needed to support a growing services business. Cost of
services revenues as a percentage of services revenues decreased to 46% from
48% during the same period as a result of a greater proportion of revenues
generated from higher margin professional services.
OPERATING EXPENSES
Research and Development. Research and development expenditures consist
primarily of salaries, benefits, and certain indirect costs of personnel
responsible for developing new products and enhancing existing ones. Total
research and development expenditures increased 8% to $1.8 million in the
three months ended July 31, 1997 from $1.7 million in the three months ended
July 31, 1996. The increase resulted from increased development of enhanced
features and additional functionality for the Company's value chain management
solution. Research and development expenditures as a percentage of total
revenues decreased to 23% in the three months ended July 31, 1997 from 34% in
the three months ended July 31, 1996. These expenses declined as a percentage
of revenues due to the increased operating leverage generated from the
Company's growth in revenues. Capitalized software decreased 31% to $616,000
in the three months ended July 31, 1997 from $898,000 in the three months
ended July 31, 1996, primarily as a result of the relative stage of
development of projects in the respective periods. Capitalized software as a
percentage of research and development expenditures decreased to 34% from 56%
during the same period. As a result of the above fluctuations, research and
development expenses increased 74% to $1.2 million in the three months ended
July 31, 1997 from $694,000 in the three months ended July 31, 1996.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions, and travel for Company personnel, advertising programs and other
promotional activities. Sales and marketing expenses increased 37% to $3.4
million in the three months ended July 31, 1997 from $2.5 million in the three
months ended July 31, 1996. This increase resulted from higher costs
associated with an expanded sales force. Sales and marketing as a percentage
of total revenues decreased to 44% from 52% during the same period due to the
rapid growth rate of the Company's revenues.
General and Administrative. General and administrative expenses consist
primarily of salaries and benefits of administrative, executive and financial
personnel as well as facilities, legal, business insurance and accounting
expenses. General and administrative expenses increased 16% to $610,000 in the
three months ended July 31, 1997 compared to $528,000 in the three months
ended July 31, 1996. General and administrative expenses as a
23
<PAGE>
percentage of total revenues decreased to 8% from 11% during the same period,
due to the operating leverage realized from the growth in the Company's
revenues.
Income Taxes. For financial reporting purposes, the Company has recorded
income taxes on a separate company basis although the Company is included in
the consolidated Federal income tax return filed by American Software. As a
result of the operating losses incurred since the Company's inception, the
Company did not record any income taxes in the three-month periods ended July
31, 1997 and 1996.
FISCAL YEAR ENDED APRIL 30, 1997 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1996
REVENUES
Total revenues increased 31% to $21.8 million in fiscal year ended April 30,
1997 from $16.6 million in fiscal year ended April 30, 1996. This increase was
primarily attributable to the increased acceptance of the Company's supply
chain planning software products and associated services and maintenance
revenues generated by new licensees, and the introduction of WarehousePRO, the
Company's object-oriented warehouse management solution. International
revenues decreased 24% to $2.6 million in fiscal year ended April 30, 1997
from $3.4 million in fiscal year ended April 30, 1996. As a percentage of
total revenues, international revenues decreased to 12% from 20% during the
same period. The decrease resulted primarily from two substantial orders
received in fiscal year ended April 30, 1996. International revenues were
derived primarily from customers in Canada, Europe, Australia and Asia. The
Company's international revenues are primarily denominated in U.S. dollars.
License Revenues. License revenues increased 16% to $12.4 million in fiscal
year ended April 30, 1997 from $10.7 million in fiscal year ended April 30,
1996. The increase resulted primarily from an increase in revenues generated
by the Company's supply chain planning solution, both from the sale of a
greater number of licenses and from price increases, coupled with the
introduction of WarehousePRO in May 1996.
Maintenance Revenues. Maintenance revenue increased 33% to $5.1 million in
fiscal year ended April 30, 1997 from $3.8 million in fiscal year ended April
30, 1996. The increase resulted from a greater number of customers under
maintenance contracts.
Services Revenues. Services revenues increased 107% to $4.4 million in
fiscal year ended April 30, 1997 from $2.1 million in fiscal year ended April
30, 1996. The increase was attributable to a greater demand for services
generated primarily by increased sales of the Company's products, increased
focus on providing more services to its customers and an increase in the rates
charged for services provided.
COST OF REVENUES
Cost of License Revenues. Cost of license revenues remained flat at $4.0
million in fiscal year ended April 30, 1997 versus April 30, 1996. Cost of
license revenues as a percentage of license revenues decreased to 32% from 38%
during the same period. Cost of license revenues in fiscal year ended April
30, 1996 included a write-off of $1.2 million of purchased computer software
costs. Amortization of capitalized software development costs and purchased
computer software costs increased to $3.1 million in fiscal year ended April
30, 1997 from $2.3 million in fiscal year ended April 30, 1996.
Cost of Maintenance Revenues. Cost of maintenance revenues increased 39% to
$1.2 million in fiscal year ended April 30, 1997 from $876,000 in fiscal year
ended April 30, 1996. The increase resulted from higher costs related to
personnel needed to support a growing maintenance customer base. Cost of
maintenance revenues as a percentage of maintenance revenues remained
relatively flat at 24% in fiscal year ended April 30, 1997 versus 23% in
fiscal year ended April 30, 1996.
Cost of Services Revenues. Cost of services revenues increased 74% to $2.0
million in fiscal year ended April 30, 1997 from $1.1 million in fiscal year
ended April 30, 1996. Cost of services revenues increased
24
<PAGE>
primarily due to higher costs related to personnel needed to provide systems
implementation and consulting services purchased by a growing customer base.
Cost of services revenues as a percentage of services revenues decreased to
45% from 53% during the same period, due to a greater proportion of revenues
generated from higher margin professional services.
OPERATING EXPENSES
Research and Development. Total research and development expenditures, which
include both research and development expenses and capitalized software
development costs, increased 24% to $6.3 million in fiscal year ended April
30, 1997 from $5.1 million in fiscal year ended April 30, 1996 due to an
increase in development personnel. Research and development as a percentage of
total revenues remained relatively flat in both years. Capitalized software
decreased 23% to $2.8 million in fiscal year ended April 30, 1997 from $3.6
million in fiscal year ended April 30, 1996. Capitalized software as a
percentage of total research and development expenditures decreased to 45%
from 71% during the same period. These decreases resulted primarily from the
completion of the development and subsequent commercial release of
WarehousePRO in May 1996. As a result of the above fluctuations, research and
development expenses increased 140% to $3.5 million in fiscal year ended April
30, 1997 from $1.5 million in fiscal year ended April 30, 1996.
Sales and Marketing. Sales and marketing expenses increased 7% to $10.6
million in fiscal year ended April 30, 1997 from $9.9 million in fiscal year
ended April 30, 1996. The increase primarily resulted from costs incurred with
the establishment of a direct sales force in fiscal year ended April 30, 1997.
Sales and marketing expenses as a percentage of total revenues decreased to
49% from 59% during the same period. The decrease resulted primarily from the
Company incurring direct commission rates on sales made by American Software
personnel in fiscal year ended April 30, 1997, which were lower than the
amount allocated to the Company by American Software for sales and marketing
in fiscal year ended April 30, 1996.
General and Administrative. General and administrative expenses increased
17% to $2.5 million in fiscal year ended April 30, 1997 from $2.1 million in
fiscal year ended April 30, 1996. The increase was primarily due to increased
costs of allocated personnel and related costs to support the growing revenue
base. General and administrative expenses as a percentage of total revenues
decreased to 11% from 13% during the same period.
Income Taxes. The Company is included in the consolidated Federal income tax
return filed by American Software. As a result of the operating losses
incurred since the Company's inception, the Company has not recorded any
income taxes in fiscal years ended April 30, 1997 or 1996.
FISCAL YEAR ENDED APRIL 30, 1996 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1995
REVENUES
Total revenues increased 63% to $16.6 million in fiscal year ended April 30,
1996 from $10.2 million in fiscal year ended April 30, 1995. This increase can
be attributed to increases in license, maintenance and services revenues
related to the introduction of a Windows version of the Company's supply chain
planning solution in August 1995. International revenues increased 178% to
$3.4 million in fiscal year ended April 30, 1996 from $1.2 million in fiscal
year ended April 30, 1995. As a percentage of total revenues, international
revenues increased to 20% in fiscal year ended April 30, 1996 from 12% in
fiscal year ended April 30, 1995. The increase resulted primarily from two
substantial orders received in fiscal year ended April 30, 1996.
License revenues. License revenues increased 86% to $10.7 million in fiscal
year ended April 30, 1996 from $5.8 million in fiscal year ended April 30,
1995. The increase was due to increased demand for the Company's planning
solution generated by the introduction of a Windows version of the supply
chain planning solution in August 1995.
Maintenance Revenues. Maintenance revenues increased 44% to $3.8 million in
fiscal year ended April 30, 1996 from $2.6 million in fiscal year ended April
30, 1995. The increase was primarily due to a greater number of customers
under maintenance contracts.
25
<PAGE>
Services Revenues. Services revenues increased 18% to $2.1 million in fiscal
year ended April 30, 1996 from $1.8 million in fiscal year ended April 30,
1995. The increase was attributable to a greater demand for services
associated with the growth in the Company's customer base.
COST OF REVENUES
Cost of License Revenues. Cost of license revenues increased 84% to $4.0
million in fiscal year ended April 30, 1996 from $2.2 million in fiscal year
ended April 30, 1995. The increase resulted primarily from a write-off of $1.2
million of purchased computer software costs related to an older version of
the Transportation Management module, together with higher third-party
royalties paid out with the release of the Windows version of the Company's
planning solution in fiscal year ended April 30, 1996. Cost of license
revenues as a percentage of license revenues remained constant at 38% during
both periods. Excluding the one-time charge in fiscal year ended April 30,
1996, cost of license revenues as a percentage of license revenues decreased
to 27% from 38%.
Cost of Maintenance Revenues. Cost of maintenance revenues increased 40% to
$876,000 in fiscal year ended April 30, 1996 from $624,000 in fiscal year
ended April 30, 1995. Cost of maintenance revenues as a percentage of
maintenance revenues remained relatively flat at 23% in fiscal year ended
April 30, 1996 versus 24% in fiscal year ended April 30, 1995, as the cost of
supporting maintenance contracts kept pace with the growth in maintenance
revenues.
Cost of Services Revenues. Cost of services revenues increased 10% to $1.1
million in fiscal year ended April 30, 1996 from $1.0 million in fiscal year
ended April 30, 1995. The increase resulted from higher costs related to
additional personnel needed to support a growing services business. Cost of
services revenues as a percentage of services revenues decreased to 53% from
57% during the same period.
OPERATING EXPENSES
Research and Development. Total research and development expenditures
increased 49% to $5.1 million in fiscal year ended April 30, 1996 from $3.4
million in fiscal year ended April 30, 1995. The increase resulted from the
hiring of approximately 20 new research and development personnel focused on
developing enhanced features and additional functionality for the Company's
value chain management solution. Research and development expenditures as a
percentage of total revenues decreased to 30% in fiscal year ended April 30,
1996 from 33% in fiscal year ended April 30, 1995. These expenditures declined
as a percentage of revenues due to the increased operating leverage generated
from the Company's growth in revenues. Capitalized software increased 62% to
$3.6 million in fiscal year ended April 30, 1996 from $2.2 million in fiscal
year ended April 30, 1995, primarily as a result of increased development
costs related to the Company's WarehousePRO product line, which was not
generally available until May 1996. Capitalized software as a percentage of
research and development expenditures increased to 71% from 66% during the
same period. As a result of the above fluctuations, research and development
expenses increased 24% to $1.5 million in fiscal year ended April 30, 1996
from $1.2 million in fiscal year ended April 30, 1995.
Sales and Marketing. Sales and marketing expenses increased 57% to $9.9
million in fiscal year ended April 30, 1996 from $6.3 million in fiscal year
ended April 30, 1995. This increase resulted from a greater allocation of
sales and marketing expenses from American Software due to the growth in the
Company's license revenues. Sales and marketing as a percentage of total
revenues decreased to 59% from 62% during the same period.
General and Administrative. General and administrative expenses were
relatively flat at $2.1 million in fiscal year ended April 30, 1996 versus
$2.2 million in fiscal year ended April 30, 1995. General and administrative
expenses as a percentage of total revenues decreased to 13% from 21% during
the same period, due to the growth in the Company's revenues.
Income Taxes. The Company is included in the consolidated Federal income tax
return filed by American Software. As a result of the operating losses
incurred since the Company's inception, the Company has not recorded any
income taxes in fiscal years ended April 30, 1996 or 1995.
26
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth the unaudited quarterly results of operations
for each of the eight most recent fiscal quarters, as well as the percentage of
the Company's total revenue by each item. In management's opinion, this
unaudited quarterly information has been prepared on the same basis as the
annual combined financial statements and includes all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented when read in conjunction with the
audited combined financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------
OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License................ $2,592 $2,699 $ 2,416 $2,686 $ 1,724 $4,360 $3,589 $4,347
Maintenance............ 861 1,038 1,127 1,145 1,208 1,346 1,352 1,895
Services............... 560 451 556 961 957 946 1,550 1,506
------ ------ ------- ------ ------- ------ ------ ------
Total revenues......... 4,013 4,188 4,099 4,792 3,889 6,652 6,491 7,748
------ ------ ------- ------ ------- ------ ------ ------
Cost of revenues:
License................ 562 829 2,095 853 907 937 1,273 1,231
Maintenance............ 231 215 254 249 291 316 363 353
Services............... 297 257 288 462 463 417 627 695
------ ------ ------- ------ ------- ------ ------ ------
Total cost of
revenues............. 1,090 1,301 2,637 1,564 1,661 1,670 2,263 2,279
------ ------ ------- ------ ------- ------ ------ ------
Gross margin............ 2,923 2,887 1,462 3,228 2,228 4,982 4,228 5,469
------ ------ ------- ------ ------- ------ ------ ------
Operating expenses:
Research and
development........... 367 284 481 694 827 642 1,320 1,205
Sales and marketing.... 2,558 2,305 2,497 2,503 2,373 3,160 2,592 3,430
General and
administrative........ 434 607 692 528 572 716 693 610
------ ------ ------- ------ ------- ------ ------ ------
Total operating
expenses............. 3,359 3,196 3,670 3,725 3,772 4,518 4,605 5,245
------ ------ ------- ------ ------- ------ ------ ------
Operating income (loss). (436) (309) (2,208) (497) (1,544) 464 (377) 224
Income taxes............ -- -- -- -- -- -- -- --
------ ------ ------- ------ ------- ------ ------ ------
Net income (loss)....... $ (436) $ (309) $(2,208) $ (497) $(1,544) $ 464 $ (377) $ 224
====== ====== ======= ====== ======= ====== ====== ======
Net income (loss) per
common share........... $(0.04) $(0.03) $ (0.20) $(0.04) $(0.14) $ 0.04 $(0.03) $ 0.02
====== ====== ======= ====== ======= ====== ====== ======
Weighted average common
shares outstanding..... 11,300 11,300 11,300 11,300 11,300 11,300 11,300 11,300
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------
OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License................ 64.6% 64.4% 58.9% 56.1% 44.3% 65.5% 55.3% 56.1%
Maintenance............ 21.5 24.8 27.5 23.9 31.1 20.2 20.8 24.5
Services............... 13.9 10.8 13.6 20.0 24.6 14.3 23.9 19.4
------ ------ ------- ------ ------- ------ ------ ------
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------- ------ ------- ------ ------ ------
Cost of revenues:
License................ 14.0 19.8 51.1 17.8 23.3 14.1 19.6 15.9
Maintenance............ 5.8 5.1 6.2 5.2 7.5 4.7 5.6 4.5
Services............... 7.4 6.2 7.0 9.6 11.9 6.3 9.7 9.0
------ ------ ------- ------ ------- ------ ------ ------
Total cost of reve-
nues................. 27.2 31.1 64.3 32.6 42.7 25.1 34.9 29.4
------ ------ ------- ------ ------- ------ ------ ------
Gross margin............ 72.8 68.9 35.7 67.4 57.3 74.9 65.1 70.6
------ ------ ------- ------ ------- ------ ------ ------
Operating expenses:
Research and develop-
ment.................. 9.2 6.8 11.7 14.5 21.3 9.6 20.3 15.5
Sales and marketing.... 63.7 55.0 61.0 52.3 61.0 47.5 39.9 44.3
General and administra-
tive.................. 10.8 14.5 16.9 11.0 14.7 10.8 10.7 7.9
------ ------ ------- ------ ------- ------ ------ ------
Total operating ex-
penses............... 83.7 76.3 89.6 77.8 97.0 67.9 70.9 67.7
------ ------ ------- ------ ------- ------ ------ ------
Operating income
(loss)................ (10.9) (7.4) (53.9) (10.4) (39.7) 7.0 (5.8) 2.9
Income taxes........... -- -- -- -- -- -- -- --
------ ------ ------- ------ ------- ------ ------ ------
Net income (loss)...... (10.9)% (7.4)% (53.9)% (10.4)% (39.7)% 7.0% (5.8)% 2.9%
====== ====== ======= ====== ======= ====== ====== ======
</TABLE>
27
<PAGE>
The Company's results of operations have been, and in the future will be,
subject to significant quarterly fluctuations that may be caused by many
factors, including among others: the size and timing of orders for the
Company's products; the length of the sales cycle and implementation schedule
for the Company's products, and delays in the implementation process; customer
order deferrals in anticipation of new products and product enhancements;
introduction or enhancement of products by the Company or its competitors;
changes in pricing policy of the Company or its competitors; increased
competition; seasonality of revenues; technological changes in computer
systems and environments; quality control of products sold; readiness of the
market to deploy value chain management products; the Company's success in
expanding its sales, support, service, marketing and product development
organizations; personnel changes; fluctuation in foreign currency exchange
rates; mix of license, maintenance and services revenues; and general economic
conditions. These uncertainties, combined with the fact that the value chain
management software market is an emerging market that is subject to rapid
change, make the estimation of revenues and results of operations on a
quarterly basis difficult and increase the potential margin for error in
performance forecasts derived from such estimates. As a result, the Company
believes that period-to-period comparisons of its results of operations are
not necessarily meaningful and should not be relied upon as an indication of
future performance.
License revenues are difficult to forecast on a quarter-to-quarter basis as
no significant backlog typically exists at the end of any quarter. Revenues
are substantially dependent on deliveries related to new contracts executed in
that quarter. Additionally, orders for a significant portion of the Company's
license revenues typically are received in the last two weeks of a quarter.
See "Risk Factors--Significant Fluctuations in Quarterly Operating Results
and Seasonality; Potential Quarterly Losses."
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has received funding from American Software to
support its research and development efforts and to fund its growth and
working capital requirements. Following the completion of this offering, the
Company's principal sources of liquidity will consist of cash and investments
and cash generated from operations.
The Company's operating activities provided cash of $864,000 and $2.7
million during the three months ended July 31, 1997 and fiscal year ended
April 30, 1997, respectively, and used cash of $197,000 and $309,000 during
the two fiscal years ended April 30, 1996 and 1995, respectively. The cash
provided by operations during the three months ended July 31, 1997 was
primarily attributable to non-cash depreciation and amortization expense of
$1.1 million, an increase in deferred revenues of $955,000 and net income of
$224,000, which were partially offset by an increase in accounts receivable of
$723,000 and a decrease in accounts payable, accrued costs and other current
liabilities of $553,000. The cash provided by operations during fiscal year
ended April 30, 1997 was attributable to non-cash depreciation and
amortization expense of $3.3 million, an increase in accounts payable, accrued
costs and other current liabilities of $1.8 million and an increase in
deferred revenues of $933,000. These increases were partially offset by an
increase in accounts receivable of $1.2 million and a net loss from operations
of $2.0 million. The Company's use of cash for the year ended April 30, 1996
was primarily caused by an operating loss of $2.9 million and a net increase
in accounts receivable of $2.8 million. These uses of cash were offset by
depreciation and amortization of $2.4 million, a write-off of purchased
computer software costs of $1.2 million, and an increase in deferred revenues
of $1.7 million. The Company's use of cash for fiscal year ended April 30,
1995 was primarily caused by an operating loss of $3.2 million. This use of
cash was offset by depreciation and amortization of $1.6 million and a
decrease in accounts receivable of $1.4 million.
Cash used in investing activities was approximately $854,000, $3.4 million,
$4.6 million and $2.6 million in the three months ended July 31, 1997 and
fiscal years ended April 30, 1997, 1996 and 1995, respectively. The majority
of the cash was used for computer software development costs.
28
<PAGE>
The Company believes that its sources of liquidity and capital resources
will be sufficient to satisfy its cash requirements for the next twelve
months. To the extent that such amounts are insufficient to finance the
Company's capital requirements, the Company will be required to raise
additional funds through equity or debt financing. No assurance can be given
that such financing will be available on terms acceptable to the Company. If
available, such financing may result in further dilution to the Company's
shareholders and higher interest expense.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS 128,
Earnings per Share. SFAS 128 specifies modifications to the calculation of
earnings per share from those currently utilized by the Company. Under SFAS
128, "basic" earnings per share will be calculated based upon the weighted
average number of common shares actually outstanding, and "diluted" earnings
per share will be calculated based upon the weighted average number of common
shares and dilutive potential common shares. SFAS 128 is effective in the
Company's fourth quarter of fiscal year ending April 30, 1998 and the Company
intends that it will be adopted at that time. The Company believes that the
adoption of SFAS 128 will have no effect on the Company's financial position
or cash flows.
In February 1997, the Financial Accounting Standards Board issued SFAS 129,
Disclosure of Information about Capital Structure. SFAS 129 requires companies
to disclose descriptive information about securities that is not necessarily
related to the computation of earnings per share. It also requires disclosure
of information about the liquidation preference of preferred stock and
redeemable stock. SFAS 129 is effective for financial statements for periods
ending after December 15, 1997. The Company does not expect that SFAS 129 will
require significant revision of prior disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income. SFAS 130 requires companies to display, with
the same prominence as other financial statements, the components of other
comprehensive income. SFAS 130 requires that an enterprise classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet. SFAS 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company's financial
statements will include the disclosure of other comprehensive income in
accordance with the provisions of SFAS 130 beginning in the first quarter of
fiscal year ending April 30, 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS 131
requires that an enterprise disclose certain information about operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. The Company will evaluate the need for such
disclosures at that time.
29
<PAGE>
BUSINESS
COMPANY OVERVIEW
Logility develops, markets and supports software applications that optimize
the operating efficiencies of manufacturers, suppliers, distributors,
retailers and other organizations along the value chain. The Company's
solution, Logility Value Chain Solutions, consists of an integrated software
suite that provides advanced collaborative planning and integrated logistics
capabilities that are designed to reduce inventory costs, improve forecast
accuracy, decrease order cycle times, optimize production scheduling,
streamline logistics operations, reduce transportation costs and improve
customer service. The Company's software solution is modular and scaleable to
meet the management requirements of complex processes involving tens of
thousands of products across multiple sites. In addition, it can be integrated
with existing software systems and a variety of client-server operating
environments and platforms.
The Company has licensed one or more modules of Logility Value Chain
Solutions to more than 200 companies worldwide, including Eastman Chemical,
FINA, Heineken USA, Newell, Pharmacia & Upjohn, Pfizer International, Reynolds
Metals, Sony Electronics and VF Corporation. The Company sells its products
through direct and indirect channels in the United States and Canada and
primarly through indirect channels outside North America. The Company derived
approximately 12% of its revenues in fiscal year ended April 30, 1997 from
international sales.
INDUSTRY BACKGROUND
In response to global competitive pressures, companies are continually
seeking new ways to enhance the productivity of their enterprise business
systems and processes. Significant competitive advantages in the form of lower
costs and greater customer responsiveness can be realized by those companies
that effectively communicate, collaborate and integrate with their suppliers,
distributors, retailers, consumers and other parties within the "value chain."
Value chain management refers to the process of managing the complex network
of relationships that organizations maintain with trading partners to source,
manufacture and deliver goods and services to the customer. Value chain
management involves both the activities related to supplying products or
services as well as the sales and marketing activities that impact the demand
for goods and services, such as promotions, pricing and forecasting.
Today, several market trends are driving organizations to expand
collaboration with trading partners along the value chain. A general shift in
market power has forced manufacturers and distributors to become more
responsive to retailers and consumers, which has created a need for improved
planning capabilities. At the same time, competitive pressures are forcing
manufacturers to reduce costs, decrease order cycle times and improve
operating efficiencies. As a result, manufacturers are increasingly under
pressure to better manage the value chain, as they seek to improve
manufacturing efficiency and logistics operations while maintaining
flexibility and responsiveness to changing market conditions and customer
demands. These pressures are compounded by the increasing complexity and
globalization of the interactions among suppliers, manufacturers,
distributors, retailers and consumers.
Advances in communications and computing technology have enhanced the
ability of organizations along the value chain to integrate their processes
through collaborative information sharing and planning and to improve internal
operations through refined workflow management. These technology developments
include the proliferation of the client-server computing environment, the
introduction of data collection technology such as point of sale and radio
frequency devices, the growth of the wide area network infrastructure and the
emergence of the Internet and corporate intranets. In addition, businesses are
beginning to extend their corporate intranets to establish dedicated links, or
extranets, with suppliers and customers. Corporations are increasingly taking
advantage of this technology and the general availability of more powerful
software applications to improve the effectiveness of their information
gathering and analysis processes, which in turn is leading to improved
decision-making capabilities.
30
<PAGE>
To manage and facilitate enhanced collaboration among the various
participants in the value chain, organizations are increasingly deploying
value chain management software solutions to address their planning and
execution requirements. The planning function involves the proactive use of
information to facilitate the delivery of the right products on time to the
correct location and at the lowest cost. The planning process focuses on
demand forecasting, inventory simulation, distribution, transportation and
manufacturing planning and scheduling. Planning software is designed to
improve forecast accuracy, optimize production scheduling, reduce inventory
costs, decrease order cycle times, reduce transportation costs, and improve
customer service. The execution function addresses procuring, manufacturing
and distributing products throughout the value chain. Within the execution
function, increasing focus is being placed by organizations on the effective
management of warehouse and transportation operations and the need for their
integration with planning systems and other enterprise software applications.
The market for value chain management solutions is relatively new and is
experiencing rapid growth. Industry sources estimate that the supply chain
planning and execution software market was $246 million in 1996, and is
projected to grow at a compound annual growth rate of 48% to more than $1.7
billion by 2001. The warehouse management systems software market was
approximately $104 million in 1996, and is projected to grow at a compound
annual growth rate of 41% to $586 million by 2001.
Organizations increasingly are recognizing that an integrated value chain
management solution has a measurable impact on productivity and is critical in
addressing changing market requirements. An important element of managing the
value chain is the ability to incorporate the requirements of a diverse group
of constituents both within and outside the organization to create an
integrated, accurate consensus plan that can be synchronized with the
manufacturing, distribution, transportation and warehousing processes. In
general, existing value chain management solutions do not provide robust,
integrated, end-to-end solutions that address the needs of the entire value
chain and do not synchronize demand opportunities with supply constraints and
logistics operations.
In order to effectively manage and coordinate value chain activities,
companies require planning and execution software that provides for integrated
communication and collaboration among the various constituents along the value
chain. This enhanced collaboration synchronizes production plans with demand
forecasts, thereby minimizing bottlenecks that lead to production delays and
excess inventory. In addition, companies seek integrated planning and
execution systems that further optimize the flow of products to the customer
through enhanced transportation and warehouse management capabilities.
Organizations are also demanding solutions that are modular and scaleable to
fit the changing needs of the organization and that can be rapidly deployed.
LOGILITY VALUE CHAIN SOLUTIONS
The Company's integrated product line, Logility Value Chain Solutions, is a
value chain management software suite that enables manufacturers, distributors
and retailers to more effectively manage the activities along their respective
value chains.
The key benefits of the Company's software solution include the following:
Integrated End-to-End Value Chain Solution. The Company's Logility Value
Chain Solutions provides functionality that addresses both the flow of
information and the flow of products throughout the value chain. By
synchronizing its comprehensive planning software suite with its
transportation and warehouse management software solutions, the Company's
product suite can more efficiently and accurately coordinate the delivery
of products to the customer. This end-to-end approach allows maximum
synchronization of activities along the value chain.
Comprehensive Planning Solution. The Company's planning solution is
comprised of demand, inventory, manufacturing, replenishment and
transportation planning modules that balance demand opportunities with
supply constraints through the synchronization of information gathered from
value chain
31
<PAGE>
participants. A key component of the Company's planning solution is its
emphasis on addressing the full range of complex demand planning
requirements of its customers, including comprehensive forecasting
capabilities that take into account each user's unique perspective of the
value chain.
Advanced Collaborative Planning Functionality. The Company's products
allow for collaboration among the various levels within an organization and
among external constituents throughout the value chain. The architecture of
Logility Planning Solutions enables key constituents to participate in the
planning process, including marketing, sales, manufacturing, procurement,
logistics and transportation personnel, so that the requirements of all
groups are factored in to create one consensus plan. The Company's
collaborative planning functionality is further enhanced with the Company's
Demand Chain Voyager and Supply Chain Voyager modules, which leverage
Internet technology to facilitate information sharing directly with trading
partners.
Robust Warehouse Management Solution. The Company's integrated
WarehousePRO solution is designed to optimize operations within the
warehouse by improving inventory turnover, increasing inventory accuracy
and customer service and reducing inventory levels. The solution's object-
oriented design and user-configurable architecture allows for flexible and
rapid implementation. In addition, the solution features a comprehensive
library of industry best-practice workflows that can be configured by the
customer, thereby minimizing the need for custom programming.
Rapid Deployment. The Company's products utilize a modular design,
thereby streamlining implementation and allowing deployment in a relatively
short time frame. The comprehensive functionality of each module generally
permits customers to implement the solutions with nominal modifications. In
addition, the Company's software combines sophisticated techniques and
tools with an intuitive, Windows-based interface to reduce training
requirements and implementation tasks.
Open, Scaleable, Client-Server Architecture. Logility's software has been
designed to integrate with existing in-house and third-party software
applications and a variety of operating environments and platforms. The
software is scaleable to manage complex processes involving tens of
thousands of products across multiple sites.
STRATEGY
The Company's objective is to become the leading provider of value chain
management software solutions that are designed to enhance collaboration among
participants along the value chain and optimize the operations associated with
manufacturing and the distribution of products. The Company's strategy
includes the following key elements:
Leverage and Expand Installed Base of Customers. The Company currently
targets businesses in both the discrete and process manufacturing
industries, including consumer packaged goods, chemicals and
pharmaceuticals, food and beverage, and telecommunications and utilities.
The Company intends to continue to leverage its installed base of more than
200 customers to introduce additional functionality, product upgrades and
complementary modules. In addition, the Company intends to expand sales to
new customers in its existing vertical markets and to target additional
vertical markets.
Continue to Expand Sales and Marketing. The Company intends to continue
to pursue an increased share of the market for value chain management
software solutions by expanding its sales and marketing activities. The
Company intends to continue building a direct sales force that is focused
on selected vertical markets, such as chemicals and pharmaceuticals and
consumer packaged goods manufacturers.
Maintain Technology Leadership. The Company believes that it is a
technology leader in the field of value chain management software solutions
and intends to continue to provide innovative, advanced solutions to this
market. The Company believes that it was one of the earliest providers of
value chain planning software solutions on a client-server platform and on
Windows NT, and the first to introduce a value chain planning software
solution that operates over the Internet. The Company intends to continue
to develop and introduce new or enhanced products and keep pace with
technological developments and emerging industry standards.
32
<PAGE>
Focus on Integrated Planning and Logistics Execution Solution. The
Company believes it is one of the few providers of integrated value chain
management software solutions addressing both demand and supply planning as
well as transportation and warehousing logistics requirements. The Company
is focused on providing the most comprehensive planning and execution
solution aimed at optimizing operations along the value chain. The Company
intends to continue to focus its development initiatives on enhancing its
end-to-end solution and introducing additional capabilities that complement
its integrated solution.
Increase Penetration of International Markets. In fiscal year ended April
30, 1997, the Company generated 12% of its total revenues from
international sales and has marketing relationships with a number of
foreign distributors. The Company intends to expand its international
presence by adding additional direct sales personnel to address
international markets and creating additional relationships with
distributors in Europe, Latin America and the Asia/Pacific region.
Leverage Strategic Relationships. The Company has a number of recent
marketing or product relationships with leading ERP providers, systems
integrators and systems consulting organizations, including Andersen
Consulting, CAPS Logistics, Deloitte & Touche, Oracle, PeopleSoft, Ross
Systems and SAP. The Company intends to utilize these and future
relationships with other service providers and hardware and software
vendors to enhance its sales and marketing efforts. The Company also
intends to leverage its relationship with American Software by selling
through its established distribution channels, targeting both existing and
new customers.
Continue to Focus on Providing High Quality Customer Service. Providing
high quality customer service is a critical element of the Company's
strategy. The Company intends to continue to invest in technology and
personnel to accommodate the needs of its growing customer base. The
Company is installing a new help desk solution to further enhance the
service function and expects to add additional service and support staff
going forward.
PRODUCTS
Logility Value Chain Solutions is an integrated suite of value chain
management solutions designed to synchronize demand opportunities with supply
constraints and logistics operations. The suite is comprised of two solution
groups: Logility Planning Solutions and Logility Execution Solutions, which in
turn are comprised of a series of integrated modules. These modules can be
implemented individually in certain cases, as well as in combinations or as a
full solution suite. Logility Value Chain Solutions supports multiple
communications protocols and is designed to operate with industry-standard
open technologies, including leading client-server environments, such as
HP9000, IBM RS/6000 and Intel-based servers running Windows NT. The Company's
WarehousePRO solution operates on the OS/2 platform and is designed to
interface with a broad range of operating systems and platforms. A Windows NT
version is under development and scheduled for general availability by the end
of 1997. The following table summarizes the Company's product line:
33
<PAGE>
<TABLE>
<CAPTION>
SOLUTION GROUP MODULE FEATURES
- -------------------------------------------------------------------------------
<C> <C> <S>
LOGILITY PLANNING
SOLUTIONS Demand Planning . Item and group forecasting
. Self selecting forecast
models
. Personalized data views
. Item stratification
. Product life cycle
management with simulation
. Drag and drop data
manipulation
- -------------------------------------------------------------------------------
. Time-phased view of
Inventory Planning inventory
. Graphical simulations of
inventory trade-offs
. Views of dependent and
independent demand
. Inventory management
variables
- -------------------------------------------------------------------------------
Event Planning* . Promotion planning
. Self-learning capabilities
using artificial
intelligence
. Causal-based forecasting
. Promotion profitability
simulations
- -------------------------------------------------------------------------------
Demand Chain Voyager . Forecast retrieval and
modifications via the
Internet
. Tight integration with
Demand Planning
. Promotion planning
calendars
. Comprehensive security
features
. Collaborative planning
with trading partners
- -------------------------------------------------------------------------------
. Enterprise-wide capacity
Manufacturing Planning planning
. Plant-level scheduling
. Supports activity-based
costing
. Optimizes sourcing
decisions' actual costs
. Interactive simulation
. Real-time, in memory model
- -------------------------------------------------------------------------------
. Supports continuous
Replenishment Planning replenishment strategies
. Constrained, time-phased
distribution
requirements planning
. Proactive action messages
. EDI integration
. Available to promise
methodologies
. Multi-site sourcing and
allocation
- -------------------------------------------------------------------------------
Transportation Planning . Load Control Center
. Shipment planning and
consolidation
. Freight rating and routing
. Carrier selection
- -------------------------------------------------------------------------------
Supply Chain Voyager . Replenishment ordering via
the Internet
. Tight integration with
Replenishment Planning
. Remote analysis of orders
. Comprehensive security
features
. Collaborative planning
with trading partners
- -------------------------------------------------------------------------------
LOGILITY EXECUTION Transportation
SOLUTIONS Management . Load tendering
. Shipment confirmation
. Freight audit and payment
control
. Shipment documentation and
tracking
- -------------------------------------------------------------------------------
. Object oriented
WarehousePRO architecture
. User configurable options
. Advanced workflow
technology
. Dynamic label and report
printing
. Integrated graphical user
interface
</TABLE>
*Under development. See "--Research and Product Development."
34
<PAGE>
LOGILITY PLANNING SOLUTIONS
Logility Planning Solutions is designed to optimize demand opportunities
with supply constraints. The solution enables users to generate and analyze
information to effectively manage demand and respond to changes in the
marketplace while optimizing the utilization of production, distribution and
transportation assets. Demand Chain Voyager and Supply Chain Voyager enhance
the functionality of Logility Planning Solutions by utilizing the Internet to
extend planning capabilities to remote users and trading partners.
Demand Planning. The Demand Planning module reconciles demand history,
existing customer orders, point-of-sale data, market forecasts and other
information to generate a graphical representation of demand by item,
location, customer and/or group. Demand Planning has an automatic self-
correcting, self-selecting modeling process that utilizes a number of
advanced forecasting models to generate sales, marketing, logistics and
other forecasts. The system allows for user-override of certain modeling
parameters, such as quantities or percentages, to account for promotions,
supply constraints and other "what-if" scenarios.
Inventory Planning. The Inventory Planning module is designed to
determine the optimal balance between inventory and service levels. With
extensive simulation capabilities, Inventory Planning helps manufacturers
and distributors reduce inventory costs while meeting customer service
requirements at the individual stock keeping unit ("SKU") level. Built
around industry best-practices, Inventory Planning can enhance planning and
scheduling of inventory while taking into consideration replenishment
frequency and order size, seasonal build and manufacturing plans. Service
level targets and policies can be applied individually to every product
within an enterprise or uniformly throughout the various product lines.
Event Planning. The Company is developing an Event Planning module that
is currently scheduled for general availability by the end of 1997. The
Event Planning module will be a causal-based forecasting solution designed
to facilitate product life-cycle management and promotion planning, and
will provide forecasting capabilities to help determine the impact of
promotions, price changes or other events, enabling manufacturers to adjust
production to match changing demand. Event Planning will utilize advanced
forecasting algorithms based on neural network techniques that allow the
system to refine forecasting by incorporating the results of ongoing
promotions and other activities.
Demand Chain Voyager. Through the use of the Internet, the Demand Chain
Voyager module extends the reach of Demand Planning by allowing remote
users to view corporate forecasts and to input demand data in real-time.
Demand Chain Voyager provides an online, updated schedule of events
including promotions, product launches and holidays. In addition, it allows
for the revision of inventory goals and objectives such as service levels
and turns.
Manufacturing Planning. The Manufacturing Planning module is designed as
a constraint-based planning solution that balances manufacturing processes
and resources with demand priorities and corporate objectives.
Manufacturing Planning models the operations of a business by capturing
capacity constraints such as equipment capabilities, intermediate storage
limitations, shop floor calendars and raw material availability and
production constraints such as synchronization of multi-step operations,
product sequencing, production changeovers and inventory policies.
Manufacturing Planning enables collaborative decision-making by comparing
the feasibility and cost effectiveness of various scheduling strategies
through the use of simulation.
Replenishment Planning. The Replenishment Planning module addresses the
planning needs of an organization to determine the optimal balance between
customer service levels and inventory. Replenishment Planning takes into
account manufacturing constraints, inventory investment, desired service
levels, and current orders and commitments. Features of Replenishment
Planning include automatic detailed item planning to balance delivery loads
and orders, filtered order review, SKU change simulation, and constrained
distribution requirements planning. The benefits of Replenishment Planning
include, among others, faster inventory turns, optimized inventory levels
and the ability to allocate customer orders based
35
<PAGE>
on user-defined priorities. Replenishment Planning provides support for
continuous replenishment strategies, such as Vendor Managed Inventory,
Quick Response and Efficient Consumer Response.
Transportation Planning. The Transportation Planning module synchronizes
transportation plans with demand, inventory, manufacturing and
replenishment strategies. Transportation Planning consolidates shipments
and determines the optimal transportation mode and carrier while providing
a list of alternatives. The solution includes a Load Control Center that
reviews all inbound, outbound and inter-facility shipments and provides an
integrated view of all orders requiring shipping decisions. The product is
designed to reduce freight costs, improve customer service levels and
increase responsiveness to customer requirements. A Windows NT version of
Transportation Planning is under development and is currently scheduled for
general availability by the end of 1997.
Supply Chain Voyager. The Supply Chain Voyager module operates over the
Internet and provides trading partners with enhanced functionality for
consumption monitoring and order review, approval and tracking. Consumption
monitoring facilitates the process of tracking inventory consumption at the
point of demand and comparing real-time inventory levels to inventory
targets. Order review, approval and tracking automatically generate
proposed replenishment orders and allow trading partners to track the
status of orders.
LOGILITY EXECUTION SOLUTIONS
Logility Execution Solutions is designed to enable users to effectively and
efficiently manage the flow of products through distribution centers and
warehouses and helps ensure that products are delivered to the right location
using the best transportation alternatives available. Integrated analysis
reporting is included to allow users to analyze cost and productivity across
the value chain, enabling companies to make real-time decisions about the
operations of their warehouses and the transport of products.
Transportation Management. Transportation Management facilitates the
timely execution of the optimized shipping plan developed by the
Transportation Planning module. Load tendering and shipment tracking are
included via Electronic Data Interchange ("EDI"), E-mail or automatic fax.
The freight audit and payment capabilities enable flexible reporting of
landed cost by shipment, customer or product group. The module is designed
to reduce freight costs, improve carrier utilization and provide
comprehensive freight management reporting. A Windows NT version of
Transportation Management is currently under development and is scheduled
for general availability by the end of 1997.
WarehousePRO. WarehousePRO incorporates advanced workflow technology,
industry-specific best practices and radio frequency data collection
terminals to optimize warehouse operations. The software's object-oriented
design allows users to define the properties of specific items, locations,
or processes, thereby reducing the need for custom programming. The
solution is highly flexible and can be reconfigured by the user to adapt to
changing business requirements. WarehousePRO features an extensive workflow
library of user-selected templates incorporating industry-specific best-
practice warehousing techniques. With built-in standard interfaces to major
radio frequency data collection systems, the software delivers more
accurate inventory accountability and improved warehouse efficiency.
WarehousePRO's performance analysis tools generate graphical reports that
illustrate productivity gains, warehouse efficiency and inventory controls,
enabling users to make real-time management decisions. A Windows NT version
of WarehousePRO is under development and is currently scheduled for general
availability by the end of 1997.
The price for the Company's products typically is determined based upon the
number of modules licensed and the number of servers, users and/or sites for
which the solution is designed. During fiscal year ended April 30, 1997,
license fees for a new customer generally ranged from $200,000 to $1,000,000.
36
<PAGE>
CUSTOMERS
The Company primarily targets businesses in the consumer packaged goods,
chemicals and pharmaceuticals and manufacturing industries. As of July 31,
1997, one or more of the Company's solutions had been licensed to more than
200 customers worldwide. No single customer accounted for 10% or greater of
the Company's revenues in the three years ended April 30, 1997. The following
companies purchased at least $200,000 in products and services from the
Company on a cumulative basis since April 30, 1995:
<TABLE>
<CAPTION>
CONSUMER CHEMICALS AND
PACKAGED GOODS PHARMACEUTICALS MANUFACTURING AND OTHERS
-------------- --------------- ------------------------
<S> <C> <C>
Bausch & Lomb Eastman Chemical Appleton Paper
Goody (a division of FINA Inc. British Telecommunications
Newell Company) Pfizer International Mercury Marine
Heineken USA Pharmacia & Upjohn Reynolds Metals
Nestle Rhone-Poulenc Siecor (joint venture
Sara Lee Knit Products Sigma-Aldrich Corporation between Siemens & Corning)
S.C. Johnson & Sons Sony Electronics
The Glidden Company Union Camp
Tiffany's
VF Corporation
</TABLE>
The following examples illustrate how certain customers have adopted and are
implementing the Company's solutions:
Heineken USA, a subsidiary of Heineken, NV, is the sole US importer for
the Heineken, Amstel and Murphy's brands of beer. With a network of more
than 400 independent distributors, Heineken USA was evaluating solutions
that could provide enhanced collaboration within its network. Specifically,
Heineken USA was looking to increase forecast accuracy and streamline
replenishment orders, thereby reducing order cycle times. After a
competitive sales process, Heineken USA selected Logility Planning
Solutions primarily for its ability to leverage the functionality of the
Internet in a cost-effective manner to allow for real-time collaboration
with its distributors. Heineken USA implemented the Demand Planning,
Inventory Planning and Replenishment Planning modules into its core ERP
system and connected its distribution network via the Internet utilizing
the Demand Chain Voyager and Supply Chain Voyager modules. Distributors are
now able to report sales and place replenishment orders on a customized
Heineken Web page based upon forecasts and replenishment recommendations
provided by Heineken USA. Although the system has only been operational
since January 1997, order cycle times have been reduced substantially,
resulting in improved customer satisfaction.
FINA Inc. is an integrated oil and chemical company that produces a
number of plastic products including polystyrene, polypropylene and
polyethylene. These plastics are sold to manufacturers who make various
products including medical devices, cutlery, toys, appliances, food
packaging, plastic bags and carpet. FINA was looking for an integrated
software solution to help improve forecasting, inventory management and
manufacturing planning. Because FINA maintains a multi-tiered distribution
system, it was important to have the right inventory at the right warehouse
at the right time. After a competitive evaluation, FINA selected the
Company's Demand Planning, Inventory Planning, Replenishment Planning, and
Manufacturing Planning modules. As a result of implementing Logility
Planning Solutions, FINA expects to optimize inventory, improve production
scheduling and increase customer service levels. Benefits achieved to date
include a significant reduction in the time needed to generate a production
schedule and to make decisions regarding inventory replenishments at
outside warehouses. FINA also is benefiting from the ability to review the
future effects of a time-phased inventory.
37
<PAGE>
Goody, a division of Newell Company, is a leading manufacturer of hair
accessories such as combs, hair brushes and barrettes. With a broad and
complex product line consisting of manufactured and sourced products,
accurate and timely order fulfillment is an important element to Goody's
success. Following an evaluation process, Goody chose the Company as its
partner and purchased the Company's WarehousePRO product to manage all
warehouse operations in its 290,000-square-foot facility. Goody selected
the Company on the basis of its ability to meet and support an aggressive
implementation schedule and the ability to integrate WarehousePRO with its
existing systems. Since implementing WarehousePRO in May 1997, Goody has
substantially enhanced its ability to accommodate increasingly demanding
order response times.
SALES AND MARKETING
The Company markets its products through direct and indirect sales channels
in the United States and Canada and primarily through indirect channels
outside North America. The Company conducts its principal sales and marketing
activities from corporate headquarters in Atlanta, Georgia, and has sales
and/or support offices in Boston, Chicago, Columbus, Dallas, Detroit,
Minneapolis, Newport Beach, Philadelphia, Raleigh, and Toronto, Canada. Sales
channels outside of North America are managed from a sales office in the
United Kingdom.
The Company has a number of joint-marketing relationships with business
application software vendors, including CAPS Logistics, PeopleSoft and Ross
Systems. The Company also has a sales and marketing relationship with its
parent, American Software. See "Relationship with American Software and
Certain Transactions." These agreements promote the cross-marketing of the
Company's products with the products of these other vendors.
The Company has arrangements with independent distributors and resellers
throughout Europe and the Asia/Pacific region which distribute the Company's
product line in foreign countries. These vendors typically sell their own
consulting and systems integration services in conjunction with the licensing
of the Company's products.
As of July 31, 1997, the Company employed 66 sales and marketing personnel.
The Company intends to increase expenditures to expand its direct sales and
marketing organizations in the United States, Europe and the Asia/Pacific
region, as well as increase the name recognition of the Company and its
products.
To support its direct sales force, the Company conducts marketing programs
that include public relations, direct mail, advertising campaigns, trade
shows, product seminars, user group conferences and ongoing customer
communication programs.
CUSTOMER SERVICE AND SUPPORT
The Company believes that providing a high level of customer service and
technical support is essential to customer satisfaction and timely
implementation of the Logility Value Chain Solutions. As of July 31, 1997, the
Company had 59 employees in its customer service and support organization,
providing software maintenance and support, training and consulting services.
The Company provides the following services and support to its customers:
Implementation; Training Services. The Company offers its customers post-
delivery professional services consisting primarily of implementation and
training services, for which the Company charges separately on either an
hourly or daily basis. Customers that choose to purchase implementation
services receive assistance in integrating the Company's solution with
existing software applications and databases. Implementation of Logility
Value Chain Solutions typically requires three to twelve months, depending
on the complexity of a customer's existing system, the number of modules
purchased, and the training requirements.
38
<PAGE>
Product Maintenance and Updates; Support Services. The Company provides
its customers with ongoing product support services. Support or maintenance
contracts typically are sold to customers for a one- to three-year term at
the time of the initial product license and may be renewed for additional
periods. Under these contracts, the Company provides telephone consulting,
product updates and releases of new versions of products previously
purchased by the customer, as well as error reporting and correction
services. The Company provides ongoing support and maintenance services on
a seven-days-a-week, 24-hours-a-day basis through telephone and electronic
mail, using a call logging and tracking system for quality assurance.
RESEARCH AND PRODUCT DEVELOPMENT
The Company has dedicated significant resources to the development of the
Logility Value Chain Solutions and its associated modules. The Company's
product development expenditures (including capitalized software costs) in
fiscal years ended April 30, 1997, 1996 and 1995 were $6.3 million, $5.1
million and $3.4 million, respectively. As of July 31, 1997, the Company had
53 employees devoted to product development. The Company intends to continue
to increase its investment in product development in future periods.
The Company believes that its future success depends in part upon its
ability to continue to enhance existing products, respond to changing customer
requirements, develop and introduce new or enhanced products and keep pace
with technological developments and emerging industry standards. The Company's
development efforts are focused on, but are not limited to, enhancing
operability of its products across distributed and changing heterogeneous
hardware platforms, operating systems and relational databases and the
addition of new functionality to existing products.
The Company is in the process of releasing version 5.0 of Logility Planning
Solutions. This version is based on an integrated object-oriented architecture
for maximum scaleability and messaging functionality that supports the
increasingly distributed nature of value chain planning. The product
incorporates advanced Microsoft technology, including ActiveX and DCOM. The
Event Planning module is currently under development and is currently
scheduled for general availability by the end of 1997. Windows NT versions of
the Company's Transportation Planning, Transportation Management and
WarehousePRO modules are currently under development and are currently
scheduled for general availability by the end of 1997. The Company has
developed interfaces with PeopleSoft's manufacturing application and has
active interface development initiatives with other leading ERP vendors, such
as Oracle and SAP.
There can be no assurance that the Company will be successful in developing
these new or enhanced products or other new products on a timely basis, or
that such enhancements or new products, when introduced, will achieve market
acceptance or will adequately address the changing needs of the marketplace.
See "Risk Factors--Rapid Technological Change and New Products."
COMPETITION
The Company's products are targeted at emerging markets within the
application software market, which is intensely competitive and characterized
by rapid technological change. The Company's competitors are diverse and offer
a variety of solutions directed at various aspects of the value chain, as well
as the enterprise as a whole. The Company's existing competitors include
application software vendors, such as BDM, i2 Technologies, Manugistics,
Numetrix, Optum and Weseley Software. In addition, the Company faces potential
competition for the Logility Value Chain Solutions from (i) internal
development efforts by corporate information technology departments, (ii)
smaller independent companies that have developed or are attempting to develop
value chain management software that competes with the Company's software
solution, and (iii) other business application software vendors that may
broaden their product offerings by internally developing, or by acquiring or
partnering with independent developers of, value chain management software.
39
<PAGE>
In addition, the Company may face competition from other application
software vendors, including ERP vendors, that from time to time jointly market
the Company's products as a complement to their own systems. To the extent
such vendors develop or acquire systems with functionality comparable or
superior to Logility's products, their significant installed customer base,
long-standing customer relationships and ability to offer a broad solution
could provide a significant competitive advantage over the Company.
The Company also expects to face additional competition as other established
and emerging companies enter the market for value chain management software
and new products and technologies are introduced. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Increased competition could result in price reductions, fewer customer
orders, reduced gross margins and loss of market share.
Many of the Company's competitors and potential competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources, greater name recognition and a larger installed base of
customers than the Company. In order to be successful in the future, the
Company must continue to respond promptly and effectively to technological
change and competitors' innovations. The Company's competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and
sale of their products than the Company. The principal competitive factors
affecting the market for the Company's products include vendor and product
reputation; product architecture, functionality and features; costs; ease and
speed of implementation; return on investment; product quality, price and
performance; and level of support. See "Risk Factors--Competition."
PROPRIETARY RIGHTS AND LICENSES
The Company's success and ability to compete is dependent in part upon its
proprietary technology. To protect its proprietary technology, the Company
relies on a combination of copyright and trade secret laws, confidentiality
procedures and contractual provisions, 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 confidential and contractual
procedures and intellectual property laws, it also believes that factors such
as the technological and creative skills of its personnel, new product
developments, frequent product enhancements and reliable maintenance are
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 Company provides its software products to customers under non-exclusive
license agreements. As is customary in the software industry, in order to
protect its intellectual property rights, the Company does not sell or
transfer title to its products to its customers. Under the Company's current
standard form of license agreement, licensed software may be used solely for
the customer's internal operations. Although the license agreements place
restrictions on the use by the customer of the Company's products, there can
be no assurance that unauthorized use of the Company's products will not
occur. In addition, the Company has licensed the source code for its software
to American Software on a limited basis to enable American Software to perform
warranty, maintenance and support obligations for certain customers, for which
it is responsible under certain license agreements that were not assigned to
the Company in connection with the formation of the Company. See "Relationship
with American Software and Certain Transactions."
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,
40
<PAGE>
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.
In the future, the Company may increasingly be subject to claims of
intellectual property infringement as the number of products and competitors
in the Company's industry segment grows and the functionality of products in
different industry segments overlaps. Although the Company is not aware that
any of its products infringes upon the proprietary rights of third parties,
there can be no assurance that third parties will not claim infringement by
the Company 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 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.
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 a substantial amount of attention from management, 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. See "Risk Factors--Dependence on Proprietary Technology."
The Company has resold and expects in the future to resell certain software
that it licenses from third parties for use in connection with the Company's
products. There can be no assurance that these third-party software licenses
will continue to be available to the Company on commercially reasonable terms,
if at all. 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. Further, any such delay, to the
extent it becomes extended, could result in a material adverse effect on the
Company's results of operations.
EMPLOYEES
As of July 31, 1997, the Company had 185 full-time employees, consisting of
66 in sales and marketing, 53 in product development, 59 in customer support
and 7 in administration and finance. In addition, the Company shares a number
of administrative and finance personnel with American Software. See
"Relationship with American Software and Certain Transactions." None of the
Company's employees is represented by a labor union or is subject to a
collective bargaining agreement. The Company believes its employee relations
are good.
FACILITIES
The Company maintains its headquarters in Atlanta, Georgia. Some of the
Company's offices are occupied pursuant to the Facilities Agreement. The
Company believes its existing facilities are adequate for its current needs
and that suitable additional or substitute space will be available as needed
on commercially reasonable terms. See "Relationship with American Software and
Certain Transactions."
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
41
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
James C. Edenfield......................... 62 Chairman of the Board of
Directors
J. Michael Edenfield....................... 39 Chief Executive Officer,
President and Director
James M. Modak............................. 40 Chief Financial Officer and
Senior Vice President
Larry R. Olin.............................. 45 Vice President--Sales, North
America
Donald L. Thomas........................... 50 Vice President--Customer
Service
Andrew G. White............................ 32 Vice President--Research and
Development
</TABLE>
James C. Edenfield has served as Chairman of the Board of Directors of the
Company since January 1997. He is a co-founder of American Software, where he
has served as Chief Executive Officer and Director since 1971. Prior to
founding American Software, Mr. Edenfield held several executive positions at
and was a Director of Management Science America, Inc., an applications
software development and sales company. He holds a Bachelor of Industrial
Engineering degree from the Georgia Institute of Technology.
J. Michael Edenfield has served as a Director and as President and Chief
Executive Officer of the Company since January 1997. He also serves as
Executive Vice President and Chief Operating Officer of American Software,
Inc. and its principal operating subsidiary, American Software USA, Inc.,
positions he has held since June 1994. Mr. Edenfield intends to resign his
position as Chief Operating Officer of American Software USA, Inc. upon the
completion of this offering. Prior to June 1994, Mr. Edenfield served in the
following positions with American Software USA, Inc.: Senior Vice President of
North American Sales and Marketing from July 1993 to June 1994, Senior Vice
President of North American Sales from August 1992 to July 1993, Group Vice
President from May 1991 to August 1992 and Regional Vice President from May
1987 to May 1991. Mr. Edenfield holds a Bachelor of Industrial Management
degree from the Georgia Institute of Technology. Mr. Edenfield is the son of
James C. Edenfield, Chairman of the Board of Directors of the Company.
James M. Modak has served as Chief Financial Officer and Senior Vice
President of the Company since August 1997. From January 1996 to July 1997,
Mr. Modak served as Senior Vice President--Finance of Total System Services,
Inc., a New York Stock Exchange-listed credit card processing company. From
September 1993 to January 1996, Mr. Modak served as Senior Vice President--
Financial Analysis of First Financial Management Corp., a financial services
processing company. From February 1993 to August 1993 he was Chief Financial
Officer of Shop 'N Chek, a quality service provider for the retail industry.
From July 1991 to February 1993, Mr. Modak was Senior Vice President--
Controller of DF Southeastern, Inc., a savings bank holding company. From 1979
to 1991 he was a CPA with KPMG Peat Marwick. Mr. Modak is a Certified Public
Accountant with a Bachelor of Business Administration degree from the
University of Notre Dame.
Larry R. Olin has served as Vice President, North American Sales of the
Company since January 1997. From November 1996 to January 1997, Mr. Olin
served as Vice President of Sales of the Supply Chain Planning division of
American Software USA, Inc. From August 1992 to November 1996, he was Group
Vice President of American Software USA, Inc. He holds a B.S. degree in
Business Administration from Lake Superior State University and an M.B.A. in
Finance from Central Michigan University.
Donald L. Thomas has served as Vice President, Customer Service of the
Company since January 1997. From October 1976 to January 1997, he served in a
variety of positions with American Software, most recently as Vice President,
Customer Service of the Supply Chain Planning division of American Software
USA, Inc. He holds a B.S. degree in Industrial Engineering from Auburn
University.
42
<PAGE>
Andrew O. White has served as Vice President, Research and Development of
the Company since January 1997. From March 1992 to January 1997, Mr. White was
employed by American Software (UK) Ltd. and American Software USA, Inc., most
recently as the Vice President of Research and Development of American
Software USA, Inc. He holds a Bachelor of Arts (Honors) degree in Economics
from The Open University in the United Kingdom.
Each Director holds office until the next annual meeting of the stockholders
of the Company or until his successor is duly elected and qualified. At such
time as the Board of Directors is comprised of more than two directors,
however, directors will be assigned to classes and will serve staggered three-
year terms. Officers are chosen by, and serve at the discretion of, the Board
of Directors.
The Company has received commitments from three individuals, C. Tycho Howle,
Parker H. Petit and Dr. John A. White, to serve as members of the Board of
Directors of the Company, with terms to commence following completion of this
offering. Each of these individuals would be considered an "independent
director", having no employment or other business relationship with the
Company or with American Software. It is anticipated that two or more of these
individuals will serve, at least initially, on each of the Audit and
Compensation Committees of the Board of Directors of the Company. The
following is summarized biographical information about these individuals:
C. Tycho Howle, age 48, was a founder and since 1983 has served as Chairman
of Harbinger Corporation, a Nasdaq-listed world-wide provider of electronic
commerce products and services, and served as its Chief Executive Officer from
1983 to March 1997. From 1981 to 1983, Mr. Howle was a consultant with
McKenzie and Company, a management consulting firm. From 1979 to 1981, Mr.
Howle was a product line manager with Hewlett-Packard. From 1973 to 1977, he
was a project manager with Booz, Allen and Hamilton's Applied Research Unit.
Mr. Howle holds a BS degree (with honors) in Physics and an MS degree in
Systems Engineering from Clemson University and an MBA from the Harvard
Business School.
Parker H. Petit, age 58, was the founder of Healthdyne, Inc. and served as
its Chairman and Chief Executive Officer from 1970 to March 1996. Healthdyne
spun off to its shareholders two of its subsidiaries, Healthdyne Technologies
(Nasdaq: HDTC) and Healthdyne Information Enterprises (Nasdaq: HDIE) in 1995.
Subsequently, its remaining subsidiary, Healthdyne Maternity Management, was
merged with Tokos Medical Corporation to form Matria Healthcare (Nasdaq: MATR)
in 1996. Mr. Petit currently serves as Chairman of Healthdyne Technologies,
Healthdyne Information Enterprises and Matria Healthcare. Mr. Petit is a
member of the Board of Directors of Atlantic Southeast Airlines, a regional
air carrier, and Intelligent Systems Corporation, a technology company. He is
also a director of the Georgia Research Alliance, a coalition of government
and industry leaders formed to encourage development of high technology
business in Georgia, and has been elected to the Georgia Technology Hall of
Fame.
John A. White, age 57, is Chancellor of the University of Arkansas. From
July 1991 to July 1997, Dr. White served as Dean of Engineering at Georgia
Institute of Technology, having been a member of the faculty since 1975. From
July 1988 to September 1991, he served as Assistant Director of the National
Science Foundation in Washington, D.C. Mr. White is a member of the Board of
Directors of Motorola, Eastman Chemical Company, CAPS Logistics and Russell
Corporation. He is a member of the National Science Board and the National
Academy of Engineering, a past President of the Institute of Industrial
Engineers and past Chairman of the American Association of Engineering
Societies. Dr. White founded SysteCon, a logistics consulting firm, and served
as its Chairman and Chief Executive Officer until its acquisition by Coopers
and Lybrand. Dr. White received a B.S.I.E. degree from the University of
Arkansas, a M.S.I.E. degree from Virginia Polytechnic Institute and State
University and a Ph.D. from The Ohio State University.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors currently acts as the Compensation
Committee, and reviews and approves compensation and benefits for the
Company's executive officers and administers the Company's 1997 Stock Plan.
The Board is currently comprised of James C. Edenfield and J. Michael
Edenfield. James C.
43
<PAGE>
Edenfield is Chief Executive Officer of American Software and J. Michael
Edenfield is Chief Executive Officer of the Company and Chief Operating
Officer of American Software, Inc. and American Software USA, Inc. J. Michael
Edenfield intends to resign his position as Chief Operating Officer of
American Software USA, Inc. upon the completion of this offering. The Board
expects to appoint independent directors to the Compensation Committee within
30 days following the date of this Prospectus. See "Relationship with American
Software and Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued in fiscal
year ended April 30, 1997 by the Company's chief executive officer and its two
other most highly compensated executive officers who were serving as executive
officers and whose total annual salary and bonus exceeded $100,000 per year
during fiscal year ended April 30, 1997 (together, the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION(1) COMPENSATION
----------------- ------------
SECURITIES ALL OTHER
BASE UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (1) (2)
--------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
J. Michael Edenfield .............. $240,000 $102,735 30,000(3) $-0-
President and Chief Executive Of-
ficer
Larry R. Olin...................... 175,000 84,281 -0- -0-
Vice President--Sales, North Amer-
ica
Donald L. Thomas................... 133,000 4,000 -0- -0-
Vice President--Customer Service
</TABLE>
- --------
(1) The Company was organized in January 1997, and the persons named in the
table above became executive officers of the Company at that time or
shortly thereafter. Reported in the table are the total amounts paid and
options granted to purchase shares of American Software to such persons
for their services in all capacities to American Software and its
subsidiaries, including the Company.
(2) The aggregate amount of perquisites and other personal benefits,
securities or property given to each Named Officer, valued on the basis of
aggregate incremental cost to American Software or the Company, was less
than either $50,000 or 10% of the total annual salary and bonus for that
individual.
(3) Consists entirely of options granted in fiscal year ended April 30, 1997
under the American Software, Inc. Director and Officer Stock Option Plan.
44
<PAGE>
STOCK OPTION GRANTS
The following table sets forth information with respect to options granted
during fiscal year ended April 30, 1997, by American Software under its
Director and Officer Stock Option Plan, to J. Michael Edenfield, who was the
only Named Officer who received option grants during that fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
PERCENT OF POTENTIAL
TOTAL REALIZED VALUE
OPTIONS AT ASSUMED MARKET VALUE
GRANTED TO ANNUAL RATES OF AT END OF 10
AMERICAN STOCK PRICE YEARS ASSUMING
SOFTWARE FAIR MARKET APPRECIATION FOR 5%/10% PER
NUMBER OF EMPLOYEES EXERCISE OR VALUE ON OPTION TERM(2) ANNUM
OPTIONS IN FISCAL BASE PRICE EXPIRATION DATE OF ------------------ COMPOUNDED
NAME GRANTED(1) YEAR (PER SHARE) DATE GRANT 5% 10% INCREASE
---- ---------- ---------- ----------- ---------- ----------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Michael Edenfield ... 30,000 4% $4.375 08/06/2006 $4.375 $82,650 / $209,250 $7.13 / $11.35
</TABLE>
- --------
(1) Such options may not be exercised earlier than one year after the date of
grant. Options vest ratably over a period of four years.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of American Software's Class A Common Stock and overall market
conditions. The amounts reflected in this table may not necessarily be
achieved.
STOCK OPTION EXERCISES AND OUTSTANDING OPTIONS
The following table contains information, with respect to the Named
Officers, regarding options to purchase shares of American Software common
stock outstanding as of April 30, 1997. No stock options were exercised by the
Named Officers during fiscal year ended April 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ------------------------- ----------------------------
<S> <C> <C>
J. Michael Edenfield.... 65,969 / 95,031 $195,332 / $221,156
Larry R. Olin........... 56,000 / 56,000 168,000 / 168,000
Donald L. Thomas........ 23,750 / 31,250 67,950 / 83,850
</TABLE>
- --------
(1) The market price of American Software's Class A Common Stock on April 30,
1997 was $5.75.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Modak on July 24,
1997, pursuant to which he serves as Chief Financial Officer and Senior Vice
President of the Company. The agreement provides that Mr. Modak is entitled to
receive a base salary of $150,000 per year and is eligible to receive an
incentive bonus based upon the Company's completion of this offering, the
average price of the Company's common stock during a pre-determined period and
the revenue growth of the Company for the twelve-month period ending July 31,
1998. In addition, the agreement provides for Mr. Modak to receive an option
to purchase 35,000 shares of American Software common stock. The agreement
also provides for an option to purchase 10,000 shares of the Company's Common
Stock, to be granted under the 1997 Stock Plan. In the event there is a change
in the ownership of the Company, and if Mr. Modak's employment is terminated
by him or by the Company within six months of such change of control, Mr.
Modak will be entitled to receive severance compensation in an amount equal to
two years of his then-current salary.
None of the other executive officers of the Company has entered into an
employment agreement with the Company. Each of the other executive officers,
however, is entitled to incentive compensation based on certain individualized
fiscal 1998 performance standards.
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<PAGE>
1997 STOCK PLAN
The Company's 1997 Stock Plan (the "Stock Plan") was adopted by the Board of
Directors and approved by the sole stockholder of the Company in August 1997.
Up to 295,000 shares of Common Stock (subject to adjustment in the event of
stock splits and other similar events) may be issued pursuant to stock options
granted under the Stock Plan. Up to 300,000 stock appreciation right ("SAR")
units may be granted under the Stock Plan, each SAR unit being equivalent to
the appreciation in the market value of one share of Common Stock. The Company
will be required to recognize compensation expense over the vesting period of
any SAR's granted. No options or SARs are outstanding under the Stock Plan.
The Stock Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), nonstatutory stock options and SARs (collectively, "Awards").
Officers, employees, directors, advisors and consultants of the Company and
any subsidiaries of the Company are eligible to be granted Awards under the
Stock Plan. Under present law, however, incentive stock options may only be
granted to employees.
Optionees receive the right to purchase a specified number of shares of
Common Stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Options may
be granted at an exercise price that may be less than, equal to or greater
than the fair market value of the Common Stock on the date of grant. Under
present law, incentive stock options may not be granted at an exercise price
less than the fair market value of the Common Stock on the date of grant (or
less than 110% of the fair market value in the case of incentive stock options
granted to optionees holding more than 10% of the voting power of the
Company). The Stock Plan permits the payment of the exercise price of options
to be in the form of cash, by surrender to the Company of shares of Common
Stock or by any combination of these two forms of payment.
Under the terms of the Stock Plan, each independent, nonemployee director
automatically receives an option to purchase 2,000 shares of the Company's
Common Stock upon his or her election to the Board. Each non-employee director
also automatically receives an option to purchase an additional 1,000 shares
on the last day of each fiscal quarter. The exercise price of each option will
be equal to the fair market value of the Company's Common Stock on the date it
is granted.
Approximately 185 persons are eligible to receive Awards under the Stock
Plan, including the Company's five executive officers. The granting of Awards
under the Stock Plan is discretionary.
The Stock Plan will be administered by the Board of Directors and by two
stock option committees to be appointed by the Board of Directors. A committee
to be composed of nonemployee directors, which also is expected to act as the
Compensation Committee, will be responsible for the administration and
granting of Awards granted to executive officers of the Company. The Stock
Option Committee of the Board of Directors, consisting of other directors of
the Company, will be responsible for the administration and granting of Awards
to other employees and eligible persons. To date, neither of such Committees
has been formed, pending the election of nonemployee directors to the Board of
Directors. The Board and the Stock Option Committee will have the authority to
adopt, amend and repeal the administrative rules, guidelines and practices
relating to the Stock Plan generally and to interpret the provisions thereof.
The Board of Directors, and the respective committees when they are
established, may amend, modify or terminate any outstanding Award and with
respect to new Awards will determine (i) the number of shares of Common Stock
or units covered by options or SARs and the dates upon which such options or
SARs become exercisable, (ii) the exercise price of options and SARs, and
(iii) the duration of options and SARs.
The stock option agreements and stock appreciation rights agreements will
provide that in the event of a Change in Control (as defined in the Stock
Plan) of the Company, or a threatened Change in Control of the Company as
determined by the Board of Directors, outstanding Awards will automatically
become fully exercisable, subject to the right of the individual Award holder
to accept a substitute stock option or similar equity right from the surviving
entity in the Change of Control transaction.
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<PAGE>
No Award may be made under the Stock Plan after August 2007, but Awards
previously granted may extend beyond that time. The Board of Directors may at
any time terminate the Stock Plan. Any such termination will not affect
outstanding options or SARs.
So long as the Company remains a majority-owned subsidiary of American
Software, officers and other employees of the Company will be eligible to
receive grants of stock options under stock option plans of American Software.
The grant of such options, if any, will be entirely within the discretion of
the respective committees of the American Software board of directors. James
C. Edenfield, a director of the Company, serves on a committee of the American
Software board which has authority over one of the American Software stock
option plans. See "Relationship with American Software and Certain
Transactions."
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Articles include provisions that limit the personal liability of the
Company's directors to the Company or its shareholders for monetary damages
for any action taken, or the failure to take any action, as a director of the
Company to the fullest extent permitted under the Georgia Business Corporation
Code (the "Georgia Code"). In accordance with the Georgia Code, however, the
Articles do not eliminate liability (i) for any appropriation, in violation of
a director's duties, of any business opportunity of the Company; (ii) for acts
or omissions that involve intentional misconduct or a knowing violation of
law; (iii) for unlawful payment of dividends or unlawful stock repurchases or
redemptions; or (iv) for any transaction for which a director derived an
improper personal benefit. In addition, the Articles and Bylaws provide that
the Company shall indemnify its directors and officers to the fullest extent
permitted under the Georgia Code, including those circumstances in which
indemnification would otherwise be discretionary, subject to certain
exceptions.
The Company will enter into Indemnification Agreements with each of its
directors and executive officers that provide the maximum indemnification
allowed to directors and executive officers under the Georgia Code, subject to
certain exceptions. In addition, as authorized by the Bylaws and Georgia Code,
the Indemnification Agreements will provide generally that the Company will
advance expenses incurred by directors and executive officers in any action or
proceeding as to which they may be entitled to indemnification, subject to
certain exceptions.
The indemnification provisions in the Company's Articles and Bylaws and the
Indemnification Agreements described above may permit indemnification of
directors and executive officers for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"). Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and, therefore, is unenforceable.
American Software currently maintains directors and officers liability
insurance for the benefit of its and the Company's directors and officers.
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<PAGE>
RELATIONSHIP WITH AMERICAN SOFTWARE AND CERTAIN TRANSACTIONS
Since January 1, 1994, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than five percent of the Common
Stock of the Company had or will have a direct or indirect material interest
other than (i) compensation agreements which are described, where required, in
"Management," and (ii) the transactions described below.
The descriptions of agreements set forth below are intended to be summaries
and, while material terms of the agreements are set forth herein, the
descriptions are qualified in their entirety by reference to the relevant
agreements filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
SERVICES AGREEMENT
The Company and American Software have entered into a Services Agreement
effective August 1, 1997 (the "Services Agreement") with respect to certain
services to be provided by American Software (or subsidiaries of American
Software) to the Company. The Services Agreement provides that such services
are provided in exchange for fees which (based on the current cost for such
services) management of the Company believes would not be substantially
different from fees that would be paid if such services were provided by
independent third parties. Such fees are payable monthly in arrears. The
Company may request an expansion of services, in which case the parties will
discuss, without obligation, the provision of such services and an appropriate
increase in charges for such services. Services are provided to the Company
based on a number of billing and allocation methodologies including: (i) a
"customary billing method," whereby specified services are provided to the
Company at costs comparable to those charged from time to time to other
businesses operated by American Software; (ii) a "pass-through billing
method," whereby specified services are provided to the Company at the cost or
expense incurred by American Software; and (iii) a "cost-plus billing method,"
whereby specified services are provided to the Company at the cost or expense
incurred by American Software to a third party, plus an additional specified
fixed percentage of such cost or expense.
The purpose of the Services Agreement is to ensure that American Software
continues to provide the Company with the range of services that American
Software provided to the Company prior to this offering. With respect to
matters covered by the Services Agreement, the relationship between American
Software and the Company is intended to continue in a manner generally
consistent with current practices. The services initially provided by American
Software to the Company under the Services Agreement include, among other
things, certain accounting, corporate development, professional services,
employee benefit plan administration, human resources and compensation,
general and administrative services, and risk management and tax services.
In addition to the identified services, American Software has agreed to
allow eligible employees of the Company to participate in certain of American
Software's employee benefit plans. In addition to a monthly services fee under
the Services Agreement, the Company will reimburse American Software for
American Software's costs (including any contributions and premium costs and
including third-party expenses and allocations of certain personnel expenses),
generally in accordance with past practice relating to the participation by
the Company's employees in any of American Software's benefit plans.
The Services Agreement has an initial term of three years and is renewed
automatically thereafter for successive one-year terms unless either the
Company or American Software elects not to renew its term. The Company may
terminate the Services Agreement with respect to one or more services
following 60 days' notice to American Software, and American Software may
terminate the Services Agreement with respect to one or
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<PAGE>
more services following 120 days' notice to the Company. Additionally, the
Services Agreement is subject to early termination at any time by either the
Company or American Software upon 90 days' prior written notice if American
Software ceases to own shares of Common Stock representing more than 50% of
the voting power of the Common Stock of the Company.
Pursuant to the Services Agreement, the Company will indemnify American
Software against any damages that American Software may incur in connection
with its performance of services under the Services Agreement (other than
those arising from American Software's gross negligence or willful
misconduct), and American Software will indemnify the Company against any
damages arising out of American Software's gross negligence or willful
misconduct in connection with its rendering of services under the Services
Agreement.
FACILITIES AGREEMENT
The Company and American Software have entered into a Facilities Agreement
effective August 1, 1997 (the "Facilities Agreement"), which provides that the
Company may occupy space located in certain facilities owned or leased by
American Software (or subsidiaries of American Software) in exchange for
rental fees. The Facilities Agreement obligates American Software, if so
requested by the Company, to continue to provide the Company with the same or
comparable facilities that American Software provided to the Company prior
this offering. With respect to matters covered by the Facilities Agreement,
the relationship between American Software and the Company is intended to
continue in a manner generally consistent with past practices.
The Facilities Agreement has an initial term of two years and is renewed
automatically thereafter for successive one-year terms unless either the
Company or American Software elects not to renew its term. The Facilities
Agreement may be terminated by the Company for any reason with respect to any
particular facility upon 90 days' written notice. The Facilities Agreement
also is subject to early termination by either the Company or American
Software upon 180 days' written notice if American Software ceases to own
shares of Common Stock representing more than 50 percent of the voting power
of the Common Stock of the Company. The Company's lease of space at any
facility under the Facilities Agreement is limited by the term of the
underlying lease between American Software and a landlord with respect to any
facility leased by American Software and by the disposition by American
Software of any facility owned by American Software.
TAX SHARING AGREEMENT
The Company is, and immediately following the consummation of this offering
will continue to be, included in American Software's federal consolidated
income tax group, and the Company's federal income tax liability will be
included in the consolidated federal income tax liability of American Software
and its subsidiaries. In certain circumstances, the Company will also be
included with certain other subsidiaries of American Software in combined,
consolidated, or unitary income tax groups for federal, state and local tax
purposes. The Company and American Software have entered into a Tax Sharing
Agreement effective January 23, 1997 (the "Tax Sharing Agreement"). In
accordance with that agreement, the Company computes a separate, stand-alone
income tax provision and settles balances due to or from American Software on
this basis. All benefits derived from deferred tax assets as defined in the
Tax Sharing Agreement (which include net operating loss and tax credit
carryforwards) that arise prior to this offering will be allocated to American
Software. After this offering, to the extent the tax computation produces a
tax benefit for the Company, American Software will be required to pay such
amounts to the Company only if and when such benefit is realized by American
Software by the reduction in taxes payable with respect to the current tax
period. At April 30, 1997, American Software had net operating loss
carryforwards of approximately $20 million, which must be utilized by American
Software before the Company would receive payment for any currently generated
tax benefits. Accordingly, there can be no assurance that American Software
will have future taxable income sufficient to utilize any tax losses of the
Company in whole or in part.
In determining the amount of tax sharing payments under the Tax Sharing
Agreement, American Software will prepare for the Company pro forma returns
with respect to federal and applicable state and local income taxes that
reflect the same positions and elections used by American Software in
preparing the returns for
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American Software's consolidated group and other applicable groups. American
Software will continue to have all the rights of a parent of a consolidated
group (and similar rights provided by applicable state and local law with
respect to a parent of a combined, consolidated, or unitary group), will be
the sole and exclusive agent for the Company in any and all matters relating
to the income, franchise, and similar tax liabilities of the Company, will
have sole and exclusive responsibility for the preparation and filing of
consolidated federal and consolidated or combined state income tax returns (or
amended returns), and will have the power, in its sole discretion, to contest
or compromise any asserted tax adjustment or deficiency and to file, litigate
or compromise any claim for refund on behalf of the Company. In addition,
American Software has undertaken to provide the aforementioned services with
respect to the Company's separate state and local returns and the Company's
foreign returns. Under the Tax Sharing Agreement, the Company will pay
American Software a fee intended to reimburse American Software for all direct
and indirect costs and expenses incurred with respect to the Company's share
of the overall costs and expense incurred by American Software with respect to
tax-related services.
In general, the Company will be included in American Software's consolidated
group for federal income tax purposes for so long as American Software
beneficially owns at least 80% of the total voting power and value of the
outstanding Common Stock. Each member of a consolidated group is jointly and
severally liable for the federal income tax liability of each other member of
the consolidated group. Accordingly, although the Tax Sharing Agreement
allocates tax liabilities between the Company and American Software during the
period in which the Company is included in American Software's consolidated
group, the Company could be liable in the event that any federal income tax
liability is incurred, but not discharged, by any other member of American
Software's consolidated group. See "Risk Factors--Relationship with American
Software."
STOCK OPTION AGREEMENT
The Company and American Software have entered into a Stock Option Agreement
pursuant to which the Company has granted to American Software a continuing
option (the "Stock Option"), transferable to any of American Software's
affiliates, to purchase, under certain circumstances, additional shares of
Common Stock and/or shares of Preferred Stock of the Company (if any shall be
issued and outstanding). The Stock Option may be exercised by American
Software simultaneously with the issuance of any equity security of the
Company (other than in connection with this offering or upon the exercise of
the Underwriters' over-allotment option), with respect to Common Stock, only
to the extent necessary to maintain its then-existing percentage of the total
voting power and value of the Company and, with respect to shares of Preferred
Stock, to the extent necessary to own eighty percent (80%) of each outstanding
series of such stock. The purchase price of the shares of Common Stock and/or
Preferred Stock purchased upon any exercise of the Stock Option, subject to
certain exceptions, will be based on the market price at which the stock may
be purchased by third parties. The Stock Option expires (i) on the tenth
anniversary date thereof (subject to extensions, at American Software's
option, for one or more successive ten-year terms), or (ii) on the date on
which American Software makes a distribution to its shareholders of all or any
portion of its Common Stock, or (iii) on the date that the Company, with
American Software's express consent, issues, or enters into an agreement to
issue, shares of Common Stock (other than pursuant to the 1997 Stock Plan)
such that, when issued and combined with Common Stock authorized under the
1997 Stock Plan and all issued and outstanding shares of Common Stock not held
by American Software, exceeds twenty percent (20%) of the issued and
outstanding Common Stock.
TECHNOLOGY LICENSE AGREEMENT
The Company and American Software have entered into a Technology License
Agreement pursuant to which the Company has granted American Software a non-
exclusive, worldwide license to use, execute, reproduce, display, modify, and
prepare derivatives of the Logility Value Chain Solutions product line,
provided such license is limited to maintaining and supporting users that have
licensed Logility Value Chain Solutions products from American Software.
Pursuant to the Technology License Agreement, the Company and American
Software are required to disclose to one another any and all enhancements and
improvements which they may
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make or acquire in relation to a Logility Value Chain Solutions product,
subject to confidentiality requirements imposed by third parties. The term of
the Technology License Agreement is indefinite, although the Company may
terminate the Technology License Agreement for cause, and American Software
may terminate the Technology License Agreement at any time upon 60 days'
notice to the Company. Upon termination of the Technology License Agreement,
all rights to Logility Value Chain Solutions products licensed by the Company
to American Software revert to the Company, while all rights to enhancements
and improvements made by American Software to Logility Value Chain Solutions
products revert to American Software.
MARKETING LICENSE AGREEMENT
The Company and American Software USA, Inc. ("USA"), a wholly-owned
subsidiary of American Software, have entered into a Marketing License
Agreement pursuant to which USA has agreed to act as a non-exclusive marketing
representative of the Company for the solicitation of license agreements
relating to the Logility Value Chain Solutions product line. The Marketing
License Agreement provides for the payment to USA of a commission equal to 30%
(or 50% for affiliates of USA located in the United Kingdom and France if they
carry out installation and provide first-line support services) of the net
license revenue collected by the Company under license agreements for Logility
Value Chain Solutions with end-users who are also licensees of software
products of American Software which are secured and forwarded to the Company
by USA and accepted by the Company. Payments to USA are subject to a charge-
back or credit in favor of the Company equal to the amount previously paid to
USA with respect to amounts that are refunded to end-users. The Company has no
obligation to reimburse USA for expenses and costs incurred by it in the
performance of its duties under the Marketing License Agreement. The Marketing
License Agreement has a five-year term, although the Company may terminate the
Marketing License Agreement for cause, and either party may terminate the
Marketing License Agreement at any time upon 12 months' notice to the other
party.
SUBSIDIARY FORMATION AGREEMENT
The Company, American Software, and certain subsidiaries of American
Software have entered into a Subsidiary Formation Agreement which provides for
the transfer to the Company by American Software and such subsidiaries of
American Software of certain assets and the assumption by the Company of
certain liabilities relating to the former Supply Chain Planning division of
American Software. This Agreement subsequently was amended to include the
WarehousePRO software and certain related operations, assets and liabilities.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus, as
adjusted to reflect the sale of the shares by the Company pursuant to this
offering, by (a) each stockholder known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock, (b) each director of
the Company, (c) each of the executive officers, and (d) all directors and
executive officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power
with respect to such shares.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AFTER
COMPLETION OF
OFFERING
---------------------
NAME AND ADDRESS(1) NUMBER PERCENT
- ------------------- ---------- -------
<S> <C> <C>
American Software...................................... 11,300,000 83.7%(2)
470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305
James C. Edenfield..................................... 11,300,000(3) 83.7%(2)
J. Michael Edenfield................................... -0- --
James M. Modak......................................... -0- --
Lawrence R. Olin....................................... -0- --
Donald L. Thomas....................................... -0- --
Andrew G. White........................................ -0- --
All directors and executive officers as a group (6
persons).............................................. 11,300,000 83.7%(2)
</TABLE>
- --------
(1) The address of each of these persons is in care of the Company, 470 East
Paces Ferry Road, N.E., Atlanta, Georgia 30305.
(2) As of the date of this Prospectus, American Software is the owner of 100%
of the outstanding Common Stock of the Company. See "Relationship With
American Software and Certain Transactions."
(3) Consists of shares held by American Software. James C. Edenfield owns 0.4%
of the outstanding Class A Common Shares and 53.6% of the outstanding
Class B Common Shares of American Software. Under the American Software
articles of incorporation, the holders of Class B Common Shares, as a
class, have the right to elect a majority of the board of directors of
American Software. Accordingly, Mr. Edenfield may be deemed to share
beneficial ownership of the Common Stock of the Company held by American
Software.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of (i) twenty million
(20,000,000) shares of Common Stock having no par value, of which 11,300,000
shares are outstanding as of the date hereof, and (ii) two million (2,000,000)
shares of Preferred Stock, of which no shares are outstanding as of the date
hereof. Of the 20,000,000 shares of Common Stock, 2,200,000 shares are being
offered hereby (not including over-allotment shares), and 11,300,000 shares
will be outstanding and held by American Software upon consummation of this
offering. A description of the material terms and provisions of the Articles
affecting the relative rights of holders of the Common Stock and the Preferred
Stock is set forth below. The description is intended as a summary and is
qualified in its entirety by reference to the form of the Articles filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share of
Common Stock held of record on all matters submitted to a vote of the
stockholders. Holders of shares of Common Stock are not entitled to cumulate
their votes in the election of directors. Generally, all matters to be voted
on by stockholders must be approved by a majority (or, in the case of the
election of directors, by a plurality) of the votes entitled to be cast by all
shares of Common Stock, present in person or represented by proxy, subject to
any voting rights granted to holders of any Preferred Stock. Upon completion
of this offering and the addition of independent directors, the Board of
Directors will be divided into three classes serving staggered three-year
terms. Except as otherwise provided by law or expressly permitted in the
Articles, and subject to any voting rights granted to holders of any
outstanding Preferred Stock, amendments to the Articles must be approved by a
majority of the voting power of the Common Stock. Holders of shares of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of holders of Preferred Stock.
In the event of any merger or consolidation of the Company with or into
another company in connection with which shares of Common Stock are converted
into or exchangeable for shares of stock, other securities, or property
(including cash), all holders of Common Stock will be entitled to receive the
same kind and amount of shares of stock and other securities and property
(including cash). In the event of a liquidation, dissolution, or winding up of
the Company, after payment in full of the amounts required to be paid to
holders of Preferred Stock, all holders of Common Stock are entitled to share
ratably in all assets available for distribution to holders of shares of
Common Stock. No shares of Common Stock are subject to redemption, have
preemptive rights to purchase additional shares of Common Stock, or have
rights of conversion to any other securities. The Company and American
Software, however, have entered into a Stock Option Agreement pursuant to
which the Company has granted to American Software a continuing option to
purchase, under certain circumstances, at market price, additional shares of
Common Stock or Preferred Stock to the extent necessary to maintain its then-
existing percentage of the total voting power and value of the Company and,
with respect to shares of Preferred Stock, to the extent necessary to own 80%
of each outstanding class of such stock. See "Relationship with American
Software and Certain Transactions--Stock Option Agreement."
There are no redemption or sinking fund provisions applicable to the Common
Stock. All of the outstanding shares of Common Stock are, and the shares of
Common Stock to be sold in this offering will be, when issued and paid for,
fully paid and non-assessable.
PREFERRED STOCK
Subject to certain limitations prescribed by law, the Board of Directors is
authorized, without stockholder approval, to issue from time to time up to an
aggregate of 2,000,000 shares of Preferred Stock in one or more series and to
fix the relative preferences, rights, voting powers, restrictions, limitations
and qualifications of the
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shares within each series, including the dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights, preemptive rights and number of shares constituting any series. An
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting and other rights of holders of Common Stock and,
under certain circumstances, could have the effect of delaying, deferring or
preventing the removal of existing management, or could make it more difficult
or costly for a third party to acquire, or otherwise could discourage a third
party from attempting to acquire, control of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF ARTICLES AND BYLAWS
The Articles provide that any person purchasing or acquiring an interest in
shares of capital stock of the Company, whether Common Stock or Preferred
Stock, is deemed to have consented to the provisions summarized below relating
to intercompany agreements, transactions with interested parties, and
corporate opportunities. The Articles of Incorporation of American Software do
not include comparable provisions relating to intercompany agreements,
transactions with interested parties, or corporate opportunities. For a
general discussion of anti-takeover provisions, see "Risks Factors--Anti-
Takeover Provisions. "
TRANSACTIONS WITH INTERESTED PARTIES
The Articles provide that no contract, agreement, arrangement, or
transaction (or any amendment, modification, or termination thereof) between
the Company (which, for purposes of this paragraph, includes any corporation
or other entity in which the Company owns 50% or more of the outstanding
voting stock) and American Software (which, for purposes of this paragraph,
includes any corporation or other entity in which American Software owns 50%
or more of the outstanding voting stock) or any Related Entity (which, for
purposes of this paragraph, means a corporation or other entity in which one
or more of the directors of the Company have a direct or indirect financial
interest), or between the Company and any director or officer of the Company,
American Software or any Related Entity, will be void or voidable solely for
the reason that American Software, a Related Entity or any one or more of the
officers or directors of the Company, American Software or any Related Entity
are a party thereto, or solely because any such officers or directors are
present at, participate in or vote with respect to the authorization of such
contract, agreement, arrangement or transaction (or any amendment,
modification, or termination thereof). Further, the Articles provide that
neither American Software nor any officer or director thereof or of any
Related Entity shall be liable to the Company or its stockholders for breach
of any fiduciary duty or duty of loyalty or failure to act in (or not opposed
to) the best interests of the Company or the derivation of any improper
personal benefit by reason of the fact that American Software or an officer or
director thereof or of such Related Entity in good faith takes any action or
exercises any rights or gives or withholds any consent in connection with any
agreement or contract between the Company and American Software or such
Related Entity. A vote cast or other action taken by any person who is an
officer, director or other representative of American Software or such Related
Entity, which vote is cast or action is taken by such person in his or her
capacity as a director of the Company, shall constitute an action of, or
exercise of a right by, or a consent of, American Software or such Related
Entity for the purpose of any such contract, agreement, arrangement or
transaction.
COMPETITION BY AMERICAN SOFTWARE WITH THE COMPANY
Corporate Opportunities. The Articles provide that except as American
Software may otherwise agree in writing, and except as expressly provided in
the Georgia Code, the Articles or the Bylaws, neither American Software nor
any subsidiary of American Software (other than the Company) shall have a duty
to refrain from (i) engaging in the same or similar business activities or
lines of business as the Company; (ii) doing business with any potential or
actual customer or supplier of the Company; or (iii) employing or otherwise
engaging any officer or employee of the Company. Subject to the foregoing,
neither American Software nor any subsidiary (other than the Company), officer
or director of American Software will be liable to the Company or its
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<PAGE>
stockholders for breach of any fiduciary duty by reason of any of the
activities described in the preceding sentence by American Software or any
subsidiary (other than the Company), officer or director of American Software.
The Articles also provide that if American Software or any subsidiary of
American Software (other than the Company) acquires knowledge of a potential
transaction or a matter that may be a corporate opportunity both for American
Software or such subsidiary and for the Company, neither American Software nor
such subsidiary (nor the officers and directors of American Software or such
subsidiary) shall have a duty to communicate or offer such corporate
opportunity to the Company and shall not be liable to the Company or its
stockholders for breach of fiduciary duty as a stockholder of the Company or
controlling person of a stockholder by reason of the fact that American
Software or such subsidiary pursues or acquires such opportunity for itself,
directs such corporate opportunity to another person, or does not communicate
information regarding such corporate opportunity to the Company. The Articles
also contain provisions allocating corporate opportunities between American
Software (and its affiliates) and the Company based primarily on the
relationship to the Company and American Software (or its affiliate) of the
individual to whom such opportunity is presented. In general, corporate
opportunities are allocated to the entity of which such individual is an
officer or for which the officer is acting when the opportunity is presented.
If the individual is an officer acting for both the Company and American
Software or if it is unclear for which entity such individual is acting, the
opportunity is allocated to American Software. See "Relationship with American
Software and Certain Transactions."
The enforceability under the Georgia Code of the above-described provisions
of the Articles has not been established, and due to the absence of relevant
judicial authority, counsel to the Company is not able to deliver an opinion
as to the enforceability of such provisions. These provisions of the Articles,
assuming they are enforceable, eliminate certain rights that might have been
available to stockholders under Georgia law had such provisions not been
included in the Articles.
At the time of the consummation of this offering, certain of the directors
and/or officers of the Company also will be officers and employees of American
Software. See "Management."
Actions Under Intercompany Agreements. The Articles also will limit the
liability of American Software and its subsidiaries (other than the Company)
for certain breaches of their fiduciary duties in connection with actions that
may be taken or not taken in good faith under the intercompany agreements. See
"Relationship with American Software and Certain Transactions."
ADVANCE NOTICE AND CONSENT PROVISIONS
The Bylaws provide for an advance notice procedure to be utilized for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as other stockholder proposals to
be considered at annual meetings of stockholders. In general, notice of intent
to nominate a director or raise matters at such meetings will have to be
received by the Company not less than 115 days nor more than 150 days prior to
the first anniversary of the preceding year's annual meeting, and must contain
certain information concerning the person to be nominated or the matters to be
brought before the meeting and concerning the stockholder submitting the
proposal. The Articles permit stockholders to act by written consent in lieu
of a stockholders meeting. Any action taken by consent is required to be
reported to the non-consenting stockholders within ten days after the action
is taken. See "Risk Factors--Relationship with American Software."
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Bylaws and Georgia Code provide that, subject to certain exceptions
specified therein, the Company shall not engage in any "business combination"
with any "interested stockholder" for a period of five years following the
time that such stockholder has become an interested stockholder, unless: (i)
prior to such date, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder
55
<PAGE>
becoming an interested stockholder; (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 90% of the Common Stock of the Company
outstanding at the time the transaction commenced (excluding certain shares);
or (iii) subsequent to becoming an interested stockholder, such stockholder
acquired additional shares resulting in the interested stockholder owning at
least 90% of the outstanding voting stock of the Company (excluding certain
shares), and the business combination was approved at an annual or special
meeting of the stockholders by the holders of a majority of the voting stock
entitled to vote thereon (excluding certain shares). An "interested
stockholder" means any person, other than the Company or its subsidiaries,
that is (x) the beneficial owner of ten percent or more of the voting power of
the outstanding voting shares of the Company; or (y) an affiliate of the
Company which, at any time within the two-year period immediately prior to the
date in question, was the beneficial owner of ten percent or more of the
voting power of the then outstanding voting shares of the Company. A "business
combination" is broadly defined to include business combinations of every type
(including share exchanges); sales or transfers of assets to an interested
stockholder; the issuance to an interested stockholder of shares which have an
aggregate market value of five percent of the total market value of all
shares; plans of liquidation or dissolution; and any recapitalization which
directly or indirectly increases the ownership of shares by the interested
stockholder by at least five percent. This provision of the By-Laws may be
repealed only by vote of holders of a majority of outstanding shares,
excluding those shares held by an interested stockholder. Any such repeal
would become effective 18 months after such vote, and would not apply to a
person who became an interested stockholder prior to such vote.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Wachovia
Bank of North Carolina, N.A.
LISTING
The Company's Common Stock has been approved for quotation on the Nasdaq
National Market, upon completion of this offering, under the trading symbol
"LGTY." See "Risk Factors--No Prior Public Market; Possible Volatility of
Stock Price."
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
Upon completion of this offering, the Company will have 13,500,000 shares of
Common Stock outstanding. Of these shares, the 2,200,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144 under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations
of Rule 144 described below. The remaining 11,300,000 shares of outstanding
Common Stock held by American Software are deemed "Restricted Shares" under
Rule 144 of the Securities Act and will be eligible for sale without
restriction or further registration pursuant to Rule 144 upon the expiration
of American Software's one-year holding period, expiring in January 1998,
subject to the volume, manner of sale and other limitations of Rule 144.
American Software may, in the future, elect to distribute to its
stockholders all of the shares of Common Stock that it holds, provided that
such a distribution would be treated as a tax-free distribution for federal
income tax purposes. American Software has no present plans or intention to
make such a distribution, however. Accordingly, there can be no assurance as
to when, if ever, such a distribution may occur. Any shares of Common Stock
that would be distributed in such a distribution are expected to be freely
tradeable, without restriction under the Securities Act, other than shares
distributed to "affiliates" of the Company. See "Risk Factors--Shares Eligible
for Sale After this Offering."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least one year is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock, or the average weekly
trading volume in the Common Stock in the Nasdaq National Market during the
four calendar weeks preceding the date on which notice of such sale is filed
under Rule 144. In addition, under Rule 144(k), a person who is not an
Affiliate and has not been an Affiliate for at least three months prior to the
sale, and who has beneficially owned Restricted Shares for at least two years
may resell such shares without compliance with the foregoing requirements. In
calculating the one- and two-year holding periods described above, a holder of
Restricted Shares can include the holding periods of a prior owner who was not
an Affiliate.
The Company intends to register pursuant to a registration statement on Form
S-8 the 295,000 shares of Common Stock reserved for future issuance under the
Company's 1997 Stock Plan. Such shares of Common Stock (to the extent issued)
will be eligible for sale, subject to vesting and exercisability restrictions.
The Company expects to file such registration statement as soon as practicable
after the closing of this offering, and such registration statement is
expected to become effective upon filing. Shares covered by such registration
statement will thereupon be eligible for sale in the public markets. No
options have yet been granted under this Plan.
The Company and American Software have agreed not to offer, sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Montgomery
Securities, on behalf of the Underwriters, except that the Company may issue,
and may grant options to purchase shares of Common Stock under its 1997 Stock
Plan, and except for shares issued in connection with acquisitions. Any shares
sold pursuant to the exercise of stock options or pursuant to acquisitions
during such 180-day period would be subject to a lock-up through the end of
that period. Alternatively, the Company may elect to provide that any options
to purchase shares of Common Stock will not vest during such 180-day period.
Montgomery Securities, on behalf of the Underwriters may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to lock-up agreements. See "Risk Factors--Shares Eligible for
Sale After this Offering."
57
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Cowen & Company Interstate/Johnson Lane Corporation and Hamphire
Securities Corporation (the "Representatives"), have severally agreed, subject
to the terms and conditions set forth in the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent, and that the Underwriters are
committed to purchase all of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Montgomery Securities.................................................
Cowen & Company.......................................................
Interstate/Johnson Lane Corporation...................................
Hampshire Securities Corporation......................................
---------
Total................................................................ 2,200,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may re-allow, a concession of not
more than $ per share to certain other dealers. After the offering,
the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 330,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 2,200,000 shares to be
purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Company and American Software have agreed, subject to certain limited
exceptions, that they will not, without the prior written consent of
Montgomery Securities (which consent may be withheld in its sole discretion),
directly or indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose or
transfer of any shares of Common Stock, options or warrants to acquire shares
of Common Stock, or securities exchangeable or exercisable for or convertible
into shares of Common Stock or publicly announce such party's intention to do
any of the foregoing, for a period of 180 days after the date of this
Prospectus. The Company may issue shares of Common Stock or options to
purchase Common Stock pursuant to the 1997 Plan or in connection with an
acquisition if the holders of such shares or options agree not to sell, offer,
dispose of or otherwise transfer any such shares or options during that
period. Alternatively, the Company may elect to provide that any options to
purchase shares of Common Stock will not vest during such 180-day period.
Montgomery Securities, on behalf of the Underwriters may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to lock-up agreements. See "Shares Eligible for Future Sale."
58
<PAGE>
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotment, stabilization, syndicate covering
transactions and imposition of penalty bids. In an over-allotment, the
Underwriters would allot more shares of Common Stock to their customers in the
aggregate than are available for purchase by the Underwriters under the
Underwriting Agreement. Stabilizing means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of a security. In a syndicate covering transaction, the Underwriters
would place a bid or effect a purchase to reduce a short position created in
connection with this offering. Pursuant to a penalty bid, Montgomery
Securities, on behalf of the Underwriters, would be able to reclaim a selling
concession from an Underwriter if shares of Common Stock originally sold by
such Underwriter are purchased in syndicate covering transactions. These
transactions may result in the price of the Common Stock being higher than the
price that might otherwise prevail in the open market. These transactions may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise and, if commenced, may be discontinued at any time.
The Representatives have advised the Company that the Underwriters will not
confirm sales to any accounts over which they exercise discretionary authority
in excess of 5% of the number of shares of Common Stock offered hereby.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiations between the Company and the Representatives. Among the
factors to be considered in such negotiations are the history of, and
prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, its past and present operations and
financial performance, its past and present earnings and the trend of such
earnings, the prospects for future earnings of the Company, the present state
of the Company's development, the prevailing market conditions at the time of
the offering, market valuations of publicly traded companies that the Company
and the Representatives believe to be comparable to the Company, and other
factors deemed relevant.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Gambrell & Stolz, L.L.P., Atlanta,
Georgia. Certain legal matters in connection with this offering will be passed
upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The combined financial statements of Logility, Inc. as of April 30, 1996 and
1997 and for each of the years in the three-year period ended April 30, 1997,
have been included herein and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits, schedules and supplements thereto) on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
59
<PAGE>
certain portions of which have been omitted in accordance with the rules and
regulations of the Commission, to which Registration Statement reference is
hereby made. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete and, in each instance, reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and the exhibits and schedules thereto
may be inspected without charge at the public reference facilities of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Midwest Regional Office of the Commissioner located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of all or any
part thereof may be obtained from the Commission at prescribed rates. In
addition, the Company is required to file electronic versions of these
documents with the Commission through the Commissioner's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a
Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission.
The Company intends to distribute to its stockholders annual reports
containing audited financial statements. The Company also intends to make
available to its stockholders, within 45 days after the end of each fiscal
quarter, reports for the first three quarters of each fiscal year containing
interim unaudited financial information.
60
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Combined Financial Statements:
Combined Balance Sheets as of April 30, 1996 and 1997 and as of July 31,
1997 (Unaudited)........................................................ F-3
Combined Statements of Operations for the Years ended April 30, 1995,
1996 and 1997 and for the Three Months ended July 31, 1996 and 1997 (Un-
audited)................................................................ F-4
Combined Statements of Stockholder's Equity for the Years ended April 30,
1995, 1996 and 1997 and for the Three Months ended July 31, 1997 (Unau-
dited).................................................................. F-5
Combined Statements of Cash Flows for the Years ended April 30, 1995,
1996 and 1997 and for the Three Months ended July 31, 1996 and 1997 (Un-
audited)................................................................ F-6
Notes to Combined Financial Statements................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Logility, Inc.:
We have audited the accompanying combined balance sheets of Logility, Inc.
(a wholly-owned subsidiary of American Software, Inc.) as of April 30, 1996
and 1997, and the related combined statements of operations, stockholder's
equity, and cash flows for each of the years in the three-year period ended
April 30, 1997. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Logility, Inc. as
of April 30, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended April 30, 1997, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
August 1, 1997, except as to note 10,
which is as of August 12, 1997
F-2
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
--------------- -----------------------
1996 1997 1997 1997
------- ------ ----------- -----------
PRO FORMA
ACTUAL (NOTE 1)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 13 732 400
Trade accounts receivable, less al-
lowance for doubtful accounts of
$330, $421 and $421 at April 30,
1996 and 1997 and July 31, 1997, re-
spectively:
Billed............................. 3,756 3,843 4,894
Unbilled........................... 1,576 2,737 2,409
Prepaid expenses and other current
assets.............................. 35 147 245
------- ------ ------
Total current assets.............. 5,380 7,459 7,948
Furniture and equipment, less accumu-
lated depreciation................... 529 876 1,013
Intangible assets, less accumulated
amortization......................... 7,961 7,732 7,390
Other assets, net..................... 300 300 300
------- ------ ------
$14,170 16,367 16,651
======= ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................... $ 101 1,266 1,093
Accrued compensation and related
costs............................... 920 1,305 1,126
Deferred revenues.................... 2,953 3,886 4,841
Other current liabilities............ 183 445 244
------- ------ ------
Total current liabilities......... 4,157 6,902 7,304
Deferred income taxes................. 2,789 2,797 2,686
------- ------ ------
Total liabilities................. 6,946 9,699 9,990
------- ------ ------
Stockholder's equity:
Preferred stock; 2,000,000 shares au-
thorized; no shares issued.......... -- -- -- --
Common stock, no par value;
20,000,000 shares authorized;
11,300,000 shares issued and out-
standing as of April 30, 1997 and
July 31, 1997....................... -- -- -- --
Additional paid-in capital........... -- 4,337 4,106 10,035
Divisional equity.................... 10,362 5,453 5,929 --
Accumulated deficit.................. (3,138) (3,122) (3,374) (3,374)
------- ------ ------ ------
Total stockholder's equity........ 7,224 6,668 6,661 6,661
Commitments and contingencies.........
------- ------ ------
$14,170 16,367 16,651
======= ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
YEARS ENDED MONTHS ENDED
APRIL 30, JULY 31,
----------------------- --------------
1995 1996 1997 1996 1997
------- ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License............................... $ 5,767 10,700 12,359 2,686 4,347
Maintenance........................... 2,628 3,797 5,051 1,145 1,895
Services.............................. 1,815 2,136 4,414 961 1,506
------- ------ ------ ------ ------
Total revenues..................... 10,210 16,633 21,824 4,792 7,748
------- ------ ------ ------ ------
Cost of revenues:
License............................... 2,184 4,016 3,970 853 1,231
Maintenance........................... 624 876 1,219 249 353
Services.............................. 1,030 1,131 1,969 462 695
------- ------ ------ ------ ------
Total cost of revenues............. 3,838 6,023 7,158 1,564 2,279
------- ------ ------ ------ ------
Gross margin....................... 6,372 10,610 14,666 3,228 5,469
------- ------ ------ ------ ------
Operating expenses:
Research and development.............. 1,168 1,452 3,484 694 1,205
Sales and marketing................... 6,295 9,892 10,628 2,503 3,430
General and administrative including
provisions for doubtful accounts of
$710, $431, $302, $108 and none in
years ended April 30, 1995, 1996 and
1997 and the three months ended July
31, 1996 and 1997, respectively...... 2,155 2,140 2,508 528 610
------- ------ ------ ------ ------
Total operating expenses........... 9,618 13,484 16,620 3,725 5,245
------- ------ ------ ------ ------
Operating income (loss)............ (3,246) (2,874) (1,954) (497) 224
Income taxes........................... -- -- -- -- --
------- ------ ------ ------ ------
Net income (loss).................. $(3,246) (2,874) (1,954) (497) 224
======= ====== ====== ====== ======
Net income (loss) per common share..... $ (0.29) (0.25) (0.17) (0.04) 0.02
======= ====== ====== ====== ======
Weighted-average common shares out-
standing.............................. 11,300 11,300 11,300 11,300 11,300
======= ====== ====== ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED APRIL 30, 1995, 1996 AND 1997
AND THE THREE MONTHS ENDED JULY 31, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN DIVISIONAL ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EQUITY DEFICIT EQUITY
------ ------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30,
1994................... -- $ -- -- 8,285 (966) 7,319
Contribution from
American Software,
Inc.................... -- -- -- 2,229 -- 2,229
Net loss................ -- -- -- (2,742) (504) (3,246)
------ ----- ------ ------ ------ ------
Balance at April 30,
1995................... -- -- -- 7,772 (1,470) 6,302
Contribution from
American Software,
Inc.................... -- -- -- 3,796 -- 3,796
Net loss................ -- -- -- (1,206) (1,668) (2,874)
------ ----- ------ ------ ------ ------
Balance at April 30,
1996................... -- -- -- 10,362 (3,138) 7,224
Contribution from
American Software,
Inc.................... -- -- -- 2,114 -- 2,114
Issuance of common stock
in connection with
formation.............. 11,300 -- 5,053 (5,053) -- --
Dividend paid to
American Software,
Inc.................... -- -- (716) -- -- (716)
Net loss................ -- -- -- (1,970) 16 (1,954)
------ ----- ------ ------ ------ ------
Balance at April 30,
1997................... 11,300 -- 4,337 5,453 (3,122) 6,668
Dividend paid to
American Software, Inc.
(Unaudited)............ -- -- (231) -- -- (231)
Net income (loss)
(Unaudited)............ -- -- -- 476 (252) 224
------ ----- ------ ------ ------ ------
Balance at July 31, 1997
(Actual) (Unaudited)... 11,300 $ -- 4,106 5,929 (3,374) 6,661
====== ===== ====== ====== ====== ======
Balance at July 31, 1997
(Pro Forma) (Unaudited)
(Note 1)............... 11,300 $ -- 10,035 -- (3,374) 6,661
====== ===== ====== ====== ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED APRIL 30, JULY 31,
----------------------- ------------------
1995 1996 1997 1996 1997
------- ------ ------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............... $(3,246) (2,874) (1,954) (497) 224
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization. 1,592 2,394 3,258 693 1,059
Write-off of purchased com-
puter software costs......... -- 1,154 -- -- --
(Increase) decrease in assets:
Accounts receivable.......... 1,403 (2,794) (1,248) 541 (723)
Other assets................. (26) (289) (111) 4 (98)
Increase (decrease) in liabil-
ities:
Accounts payable, accrued
costs and other............. (93) 491 1,812 (116) (553)
Deferred revenues............ 61 1,721 933 (579) 955
------- ------ ------ --------- --------
Net cash provided by (used
in) operating activities... (309) (197) 2,690 46 864
------- ------ ------ --------- --------
Cash flows from investing activi-
ties:
Additions to capitalized com-
puter software development
costs.......................... (2,223) (3,611) (2,795) (898) (616)
Additions to purchased computer
software costs................. (255) (574) (36) (6) (34)
Purchases of furniture and
equipment...................... (88) (422) (545) (128) (204)
------- ------ ------ --------- --------
Net cash used in investing
activities................. (2,566) (4,607) (3,376) (1,032) (854)
------- ------ ------ --------- --------
Cash flows from financing activi-
ties:
Deferred income taxes resulting
from Tax Sharing Agreement..... 674 955 7 109 (111)
Contributions from American
Software, Inc.................. 2,229 3,796 2,114 946 --
Dividend paid to American Soft-
ware, Inc...................... -- -- (716) -- (231)
------- ------ ------ --------- --------
Net cash provided by (used
in) financing activities... 2,903 4,751 1,405 1,055 (342)
------- ------ ------ --------- --------
Net change in cash.......... 28 (53) 719 69 (332)
Cash and cash equivalents at be-
ginning of year................. 38 66 13 13 732
------- ------ ------ --------- --------
Cash and cash equivalents at end
of year......................... $ 66 13 732 82 400
======= ====== ====== ========= ========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Presentation
Logility, Inc. (the "Company") develops, markets, and supports an integrated
suite of client-server value chain management software products. This suite of
products is designed to manage the flow of information and products along the
entire value chain of an enterprise, from raw materials, manufacturing and
warehousing to final consumption. The Company's products and services are used
by customers within the United States and certain international markets.
The Company is headquartered in Atlanta, Georgia, and is a wholly owned
subsidiary of American Software, Inc. ("ASI"). The Company's operations
consist of the following divisions and subsidiary of ASI which have been
derived from ASI's consolidated financial statements: Supply Chain Planning
and WarehousePRO divisions of ASI; and Distribution Sciences Inc., a wholly
owned subsidiary of ASI. Effective January 23, 1997, in connection with the
purchase of 11,300,000 shares of the common stock of the Company, ASI formally
contributed its Supply Chain Planning division to the Company. Accordingly,
divisional equity was reduced by $5,053,000 and that same amount was
transferred to additional paid-in capital to reflect the contribution of the
Supply Chain Planning division to the Company.
The accompanying combined financial statements include the historical cost
of the assets and liabilities and the results of operations of the Company's
constituent businesses as reflected in ASI's consolidated financial
statements. The Supply Chain Planning and WarehousePRO divisions required
certain estimates and allocations which ASI believes approximates costs that
relate to the Company's operations. Balance sheet amounts were generally
derived based upon specific identification of assets and liabilities and
certain allocations relating to the Supply Chain Planning division and
WarehousePRO division. Since Distribution Sciences, Inc. was a separate
business, no allocations were necessary, other than income taxes.
Revenue Recognition
License. License revenues in connection with license agreements for standard
proprietary and tailored software are recognized upon delivery of the
software, providing collection is considered probable and no significant
obligations remain outstanding. Maintenance included in initial license
revenues is deferred and recognized ratably over the term of the agreement.
Maintenance. Maintenance fees are generally billed annually in advance and
the resulting revenues are recognized ratably over the term of the maintenance
agreement.
Services. Revenues derived from services primarily include consulting,
implementation, and training. Fees are billed under both time and materials
and fixed fee arrangements and are recognized as services are performed.
Deferred Revenues. Deferred revenues represent advance payments or billings
for software licenses, services, and maintenance billed in advance of the time
revenues are recognized.
F-7
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Cost of Revenues
Cost of revenues for licenses include amortization of capitalized computer
software development costs and purchased computer software costs, salaries and
benefits, and royalties paid to third-party software vendors. Costs for
maintenance and services include the cost of personnel to conduct
implementations and customer support, consulting and other personnel-related
expenses.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
Furniture and Equipment
Furniture and equipment are recorded at cost, less accumulated depreciation.
Depreciation of computer equipment and office furniture and equipment is
calculated using the straight-line method based upon an estimated useful life
of five years.
Intangible Assets
Capitalized Computer Software Development Costs. The Company capitalizes
certain computer software development costs in accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed. Costs incurred internally
to create a computer software product or to develop an enhancement to an
existing product are charged to expense when incurred as research and
development expense until technological feasibility for the respective product
is established. Thereafter, all software development costs are capitalized and
reported at the lower of unamortized cost or net realizable value.
Capitalization ceases when the product or enhancement is available for general
release to customers. The Company makes ongoing evaluations of the
recoverability of its capitalized software projects by comparing the amount
capitalized for each product to the estimated net realizable value of the
product. If such evaluations indicate that the unamortized software
development costs exceed the net realizable value, the Company writes off the
amount by which the unamortized software development costs exceed net
realizable value. Capitalized computer software development costs are being
amortized ratably based on the projected revenue associated with the related
software or on a straight-line basis over three years, whichever method
results in a higher level of amortization.
Purchased Computer Software Costs. Purchased computer software costs
represent the cost of acquiring computer software. Amortization of purchased
computer software costs is calculated using the straight-line method over
periods of three to five years.
F-8
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Total Expenditures, Amortization and Write-offs. Total expenditures for
capitalized computer software development costs, total research and
development expense, total amortization of capitalized computer software
development costs, total amortization of purchased computer software costs and
write-off of purchased computer software costs are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED APRIL
30,
------------------
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Total capitalized computer software development costs....... $2,223 3,611 2,795
Total research and development expense...................... 1,168 1,452 3,484
------ ----- -----
Total research and development expense and capitalized
computer software development costs........................ $3,391 5,063 6,279
====== ===== =====
Total amortization of capitalized computer software
development costs.......................................... $ 456 1,129 2,828
====== ===== =====
Total amortization of purchased computer software costs..... $1,090 1,159 233
====== ===== =====
Write-off of purchased computer software costs as a result
of net realizable value test............................... $ -- 1,154 --
====== ===== =====
</TABLE>
Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109").
SFAS No. 109 requires an asset and liability method of accounting for income
taxes. Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. The Company's results of operations are
included in the consolidated Federal income tax return filed by ASI.
Loss Per Share
Net loss per common share has been computed based upon net loss applicable
to the common shareholder.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these combined financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
Fair Value of Financial Instruments
The Company uses financial instruments in the normal course of its business.
The carrying values of cash equivalents, trade accounts receivable, accounts
payable, accrued compensation costs, and deferred revenues approximate fair
value due to the short-term maturities of these assets and liabilities.
Stock Compensation Plans
The Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), which encourages
entities to recognize as compensation expense over the
F-9
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and provide pro forma disclosures for employee stock
option grants made in fiscal year ended April 30, 1996 and future years as if
the fair-value-based method as defined in SFAS No. 123 had been applied. Under
APB Opinion No. 25, compensation expense is recorded on the date of grant if
the current market price of the underlying stock granted exceeds the exercise
price. The Company has elected to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosures under the provisions of SFAS No. 123.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of ("SFAS No. 121"). SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles held and used by a company be reviewed for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. SFAS No. 121 also
requires that long-lived assets and certain identifiable intangibles held for
sale, other than those related to discontinued operations, be reported at the
lower of carrying amount or fair value less costs to sell. The Company's
adoption of SFAS No. 121 did not have an impact on its combined financial
statements.
Pro Forma Balance Sheet (Unaudited)
As a result of the merger of Distribution Sciences, Inc. into the Company
and ASI's contribution of the WarehousePRO division to the Company in August
1997, the pro forma unaudited balance sheet reflects the effect of the
reclassification of divisional equity to additional paid-in capital as though
the above described transactions occurred on July 31, 1997.
Interim Financial Statements (Unaudited)
In the Company's opinion, all adjustments (consisting only of normal,
recurring adjustments) which the Company considers necessary for a fair
presentation of the unaudited balance sheet as of July 31, 1997 and results of
operations for the three months ended July 31, 1996 and 1997 are included. The
results of operations for the three months ended July 31, 1997 are not
necessarily indicative of the results of operations to be expected for the
full year.
(2) RELATED PARTY TRANSACTIONS
ASI provides marketing services, employees, and office space to the Company,
allows the Company to participate in insurance coverage and benefit plans, and
provides certain other administrative services to the Company. The combined
statements of operations include the allocation of these expenses incurred by
ASI to the Company based on percentage of license fees, specific
identification, direct labor hours, head count, product license fees to total
license fees, and square footage of leased properties.
(3) FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at April 30, 1996 and 1997:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
1996 1997
---- -----
<S> <C> <C>
Computer and communications equipment.............................. $704 1,172
Furniture and fixtures............................................. 44 121
---- -----
748 1,293
Less accumulated depreciation...................................... (219) (417)
---- -----
$529 876
==== =====
</TABLE>
F-10
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(4) INTANGIBLE ASSETS
Intangible assets consist of the following at April 30, 1996 and 1997:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
1996 1997
------ ------
<S> <C> <C>
Capitalized computer software development costs................. $8,948 11,743
Purchased computer software costs............................... 859 895
------ ------
9,807 12,638
Less accumulated amortization................................... (1,846) (4,906)
------ ------
$7,961 7,732
====== ======
</TABLE>
(5) INCOME TAXES
The Company is included in the consolidated Federal income tax return filed
by ASI; however, the Company has provided for income taxes as if it were
filing a separate income tax return.
The Company has not recorded any income tax expense (benefit) for the years
ended April 30, 1995, 1996 and 1997 because of cumulative operating losses
incurred since inception. The Company's effective tax rate differs from the
"expected" income tax benefit for those years calculated by applying the
Federal statutory rate of 34% to operating loss as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED APRIL
30,
--------------------
1995 1996 1997
------- ----- ----
<S> <C> <C> <C>
Computed "expected" income tax benefit................... $(1,104) (977) (664)
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax effect.... (129) (114) (78)
Change in the beginning-of-year balance of the valuation
allowance for deferred tax assets...................... 1,135 1,069 719
Other, net.............................................. 98 22 23
------- ----- ----
$ -- -- --
======= ===== ====
</TABLE>
The significant components of deferred income tax benefit attributable to
operating loss for the years ended April 30, 1995, 1996 and 1997, are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED APRIL
30,
---------------------
1995 1996 1997
------- ------ ----
<S> <C> <C> <C>
Deferred income tax benefit............................. $(1,135) (1,069) (719)
Increase in beginning-of-the-year balance of the valua-
tion allowance for deferred tax assets................. 1,135 1,069 719
------- ------ ----
$ -- -- --
======= ====== ====
</TABLE>
F-11
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
computed on a separate return basis and before consideration of the Company's
Tax Sharing Agreement with ASI at April 30, 1996 and 1997 are presented as
follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
APRIL 30,
--------------
1996 1997
------ ------
<S> <C> <C>
Deferred income tax assets:
Compensated absences and other expenses, due to accrual for
financial reporting purposes................................. $ 281 405
Accounts receivable, due to allowance for doubtful accounts... 125 160
Net operating loss carryforwards.............................. 4,635 5,203
------ ------
Total gross deferred income tax assets...................... 5,041 5,768
Less valuation allowance...................................... (2,252) (2,971)
------ ------
Net deferred income tax assets.............................. 2,789 2,797
------ ------
Deferred income tax liabilities:
Capitalized computer software development costs............... 2,774 2,782
Property and equipment, primarily due to differences in
depreciation................................................. 15 15
------ ------
Total gross deferred income tax liabilities................. 2,789 2,797
------ ------
Net deferred income tax asset (liability)................... $ -- --
====== ======
</TABLE>
In accordance with the Company's Tax Sharing Agreement with ASI, the Company
computes a separate, stand-alone income tax provision and settles balances due
to or from ASI on this basis. All benefits derived from deferred tax assets as
defined in the Tax Sharing Agreement (which include net operating loss and tax
credit carryforwards) that arise prior to the proposed initial public offering
will be allocated to ASI. Accordingly, the Company will not receive any
benefit from the $5,768,000 of gross deferred tax assets calculated on a
separate return basis at April 30, 1997. However, deferred tax liabilities
will be allocated to the Company (which gave rise to the Company's net
deferred tax liability of $2,789,000 at April 30, 1996 and $2,797,000 at April
30, 1997). After this offering, to the extent the tax computation produces a
tax benefit for the Company, ASI will be required to pay such amounts to the
Company only if and when realized by ASI by the reduction in income taxes
payable with respect to the current tax period. At April 30, 1997, ASI had net
operating loss carryforwards of approximately $20,000,000 which must be
utilized by ASI before the Company would receive payment for any currently
generated tax benefits.
(6) STOCKHOLDER'S EQUITY
Amendments to the Articles of Incorporation
On July 25, 1996, the Company was incorporated as Supply Chain Management,
Inc. with 1,000,000 authorized shares of common stock at no par value,
although no operations were conducted in the Company until January 23, 1997.
Effective November 25, 1996, the Company changed its name to Logility, Inc. On
January 21, 1997, the Company increased its authorized shares of common stock
to 20,000,000. All amounts included in these combined financial statements
have been restated to reflect these changes.
Stock Compensation
The Company has not issued any stock options; however, certain employees of
the Company received stock options of ASI. Under SFAS No. 123 ASI applies the
provisions of APB Opinion No. 25 and related
F-12
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
interpretations in accounting for its stock option plans. Accordingly, no
compensations cost has been recognized for ASI's stock option plans. Had
compensation cost for the Company's share of stock-based compensation plans
been determined consistent with SFAS No. 123, the Company's net loss and net
loss per common share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED APRIL 30,
-----------------------
1996 1997
----------- ----------
<S> <C> <C>
Net loss:
as reported.......................................... $ (2,874) ( 1,954)
pro forma............................................ (3,207) (2,759)
Net loss per common share:
as reported.......................................... $ (0.25) (0.17)
pro forma............................................ (0.28) (0.24)
</TABLE>
The fair value of each option grant was determined using the same
assumptions as those used by ASI and is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997: dividend yield of 0%; expected
volatility of 211.9%; risk-free interest rates of 6.1%; and expected lives of
8 years.
(7) INTERNATIONAL REVENUES
International revenues were $1,210,000 or 12%, $3,366,000 or 20%, and
$2,574,000 or 12% of combined revenues for the years ended April 30, 1995,
1996 and 1997, respectively, and were derived primarily from customers in
Canada, Europe, Australia, and Asia. Included in international revenues for
1996 were revenues from the United Kingdom of $2,148,000 or 13% of combined
revenues.
(8) COMMITMENTS AND CONTINGENCIES
401(k) Profit Sharing Plan
The employees of the Company are offered the opportunity to participate in
the ASI 401(k) Profit Sharing Plan (the "401(k) Plan"), which is intended to
be a tax-qualified defined contribution plan under Section 401(k) of the
Internal Revenue Code. Under the 401(k) Plan, employees who have completed one
year of service are eligible to participate. Eligible employees may contribute
up to 15% of pretax income to the 401(k) Plan. Subject to certain limitations,
the Company may make a discretionary matching contribution at an amount
determined by the Board of Directors of the Company. The Company did not make
contributions for 1995, 1996 or 1997.
Lease Commitments
The Company occupies its principal office facilities under a facilities
agreement with ASI dated August 1, 1997, that is cancelable upon 90-day notice
by either party (see note 9). Amounts allocated to the Company for rent
expense for these facilities were $524,000 for each of the years ended
April 30, 1995, 1996 and 1997. In addition, the Company has a operating lease
for office space that expires in June 2000. Rent expense under this lease was
$112,000, $122,000 and $126,000 for the years ended April 30, 1995, 1996 and
1997, respectively.
F-13
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancelable operating leases (excludes
cancelable leases with ASI) are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 130
1999 134
2000 138
2001 22
</TABLE>
Contingencies
The Company is involved in various claims arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
(9)AGREEMENTS WITH ASI
Effective August 1, 1997 (except for the Tax Sharing Agreement, which was
effective January 23, 1997), the Company entered into certain contractual
arrangements with ASI related to the following:
TAX SHARING AGREEMENT--The terms of the Tax Sharing Agreement are described
in note 5.
SERVICES AGREEMENT--Commencing August 1, 1997, the Company began purchasing
(or selling) various services from (to) ASI based upon various cost
methodologies as described below:
<TABLE>
<CAPTION>
SERVICE COST METHODOLOGY
------- ----------------
<S> <C>
. General corporate services Apportioned based on apportionment
formula to all ASI subsidiaries
. Computing and communications Actual usage
. Professional services to customers Cost plus billing with the percentage
on behalf of the Company (services of costs and expenses to be negotiated
are available unless ASI
determines it is not economic or
otherwise feasible)
. Employee benefits services Apportioned based on apportionment
formula to all ASI subsidiaries
</TABLE>
FACILITIES AGREEMENT--The Company leases various properties from ASI for
specified square foot rates. The stated term of the agreement is for two
years; however, the lease may be terminated by either party after a 90-day
notice.
STOCK OPTION AGREEMENT--The Company has granted ASI an option to purchase
Company common stock to enable ASI to maintain the necessary ownership
percentage required to consolidate the Company in ASI's consolidated Federal
income tax return. The purchase price of the option is the average of the
closing price on each of the five business days immediately preceding the date
of payment.
TECHNOLOGY LICENSE AGREEMENT--The Company granted ASI a nonexclusive,
nontransferable, worldwide perpetual right and license to use, execute,
reproduce, display, etc., its Value Chain Planning and Execution Solutions
(which ASI had transferred to the Company) so that ASI may maintain and
support end-users of the software products. The license is fully paid and
royalty-free.
MARKETING LICENSE AGREEMENT--The Company utilizes ASI as a nonexclusive
marketing representative for licensing of its products and pays ASI 30% (50%
for certain international licenses) of net license fees for its
F-14
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
services. The stated term of the agreement is for five years, but may be
terminated at either party's discretion upon 12 months notice.
(10) SUBSEQUENT EVENTS
Effective August 5, 1997, Distribution Sciences, Inc. was merged into the
Company. The merger was accounted for in a manner similar to a pooling of
interests. Effective August 1, 1997, ASI contributed its Warehouse PRO
division to the Company. In conjunction with these actions, divisional equity
will be eliminated and transferred to additional paid-in capital on the
effective date.
On August 7, 1997, the Company's Board of Directors has approved an 11,300-
for-one stock split effected in the form of a stock dividend. All references
to common stock and stock options in these combined financial statements have
been adjusted to reflect this stock split as if it had occurred prior to May
1, 1994.
Effective August 7, 1997, the Company adopted the Logility, Inc. 1997 Stock
Plan ("Stock Plan"). The Stock Plan provides for grants of incentive stock
options and nonqualified stock options to certain key employees and directors
of the Company. The Stock Plan also allows for stock appreciation rights in
lieu of or in addition to stock options. Options to purchase a maximum of
295,000 shares of common stock and a maximum of 300,000 units of Stock
Appreciation Rights ("SARs"), as defined, may be granted under the Stock Plan.
The options and SARs generally vest over a four-year period The terms of the
options generally will be for ten years, and the terms of the SARs generally
will be for five years.
On August 8, 1997, the Company amended its articles of incorporation to
authorize 2,000,000 shares of preferred stock. The terms, rights, and
preferences of the preferred stock will be determined by the Board of
Directors.
On August 12, 1997, the Company filed with the Securities and Exchange
Commission to register and sell certain common stock.
F-15
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any securi-
ties other than the shares of Common Stock to which it relates or an offer to,
or a solicitation of, any person in any jurisdiction where such offer or so-
licitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company or that the information
contained herein is current as of any time subsequent to the date hereof.
---------------
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Combined Financial Data.......................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 30
Management................................................................ 42
Relationship with American Software and Certain Transactions.............. 48
Principal Stockholders.................................................... 52
Description of Capital Stock.............................................. 53
Shares Eligible for Future Sale........................................... 57
Underwriting.............................................................. 58
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Combined Financial Statements.................................... F-1
</TABLE>
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,200,000 SHARES
LOGO
[Logo of Logility Appears Here]
COMMON STOCK
---------------
PROSPECTUS
---------------
Montgomery Securities
Cowen & Company
Interstate/Johnson Lane
Corporation
Hampshire Securities Corporation
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses (other than underwriting discounts and commissions) payable
in connection with the sale of Common Stock offered hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 9,967
NASD filing fees.................................................. 3,789
NASDAQ National market listing.................................... 50,000
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky fees and expenses (including legal fees)................. 10,000
Transfer agent and registrar fees and expenses.................... *
Miscellaneous..................................................... *
---------
Total......................................................... $ 850,000
=========
</TABLE>
- --------
* To be completed by amendment.
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted under the Georgia Business Corporation Code, the Company's
Amended and Restated Articles of Incorporation (the "Articles"), and the
Company's Amended and Restated Bylaws (the "Bylaws"), as well as certain
indemnification agreements between the Company and its directors and officers,
provide for mandatory indemnification of a director or officer of the Company
to the extent that such individual has been successful in the defense of a
proceeding to which such individual was a party because he or she was a
director or officer of the Company for expenses incurred by such individual in
connection with such proceeding. Additionally, a director or officer may be
indemnified for liabilities and expenses which the indemnified person incurred
in a proceeding if such individual acted in good faith (i) in his or her
capacity as a director or officer, in a manner reasonably believed to be in
the best interests of the Company, (ii) in all other cases, in a manner
reasonably believed to be not opposed to the best interests of the Company,
and (iii) with respect to a criminal proceeding, that the indemnified person
had no reasonable cause to believe his or her conduct was unlawful. Reference
is made to the Company's Articles and Bylaws filed as Exhibits 3.1 and 3.2,
respectively, and the form of Indemnification Agreement between the Company
and the Company's directors and executive officers filed as Exhibit 10.2.
The Articles also provide that any person purchasing or otherwise acquiring
an interest in a share of capital stock of the Company is deemed to have
consented to certain provisions in the Articles that (i) permit the officers
and directors of the Company and American Software, Inc. (together with
successors and certain affiliates of American Software, Inc., "American
Software") to allocate corporate opportunities to either the Company or
American Software as such officers and directors deem appropriate in
accordance with certain policies contained in the Articles, and that none of
the Company, American Software, and their respective officers and directors
shall be liable for any breach of fiduciary duty in connection therewith, and
(ii) eliminate the liability of American Software and its officer and
directors for engaging in business activities similar to those of the Company
and for actions taken in connection with agreements entered into between the
Company and American Software, in accordance with certain guidelines contained
in the Articles.
II-1
<PAGE>
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers, and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Act"). Reference is made to
the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
American Software maintains directors and officers liability insurance for
the benefit of its and the Company's directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company has not issued any unregistered securities except for the sale
of 1,000 shares of common stock (subsequently increased to 11,300,000 shares
as a result of a stock split) to its parent, American Software, Inc., in
connection with the organization of the Company on January 23, 1997. The
common stock issued to American Software, Inc. was issued in reliance upon the
exemption provided by Section 4(2) under the Act.
As consideration for the common stock issued on January 23, 1997, American
Software, Inc. contributed to the Company the software and other assets that
constitute the principal business of the Company, valued, for purposes of the
Company's combined financial statements, at approximately $5,000,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1+ Amended and Restated Articles of Incorporation of the Company.
3.2+ Amended and Restated By-Laws of the Company.
4.1* Specimen certificate representing the Common Stock.
5.1 Opinion of Gambrell & Stolz, L.L.P.
10.1+ 1997 Stock Plan and forms of agreement thereunder.
Form of Indemnification Agreement between the Company and the Company's
10.2+ Directors and Officers.
10.3+ Subsidiary Formation Agreement among the Company, American Software,
and certain subsidiaries of American Software, as amended.
10.4+ Merger Agreement between the Company and Distribution Sciences, Inc.
10.5+ Services Agreement between the Company and American Software.
10.6+ Facilities Agreement between the Company and American Software.
10.7+ Tax Sharing Agreement between the Company and American Software.
10.8+ Stock Option Agreement between the Company and American Software.
Technology License Agreement between the Company and American Software,
10.9+ as amended.
Marketing License Agreement between the Company and American Software,
10.10+ as amended.
Employment Agreement and Offer Letter from the Company to James M.
10.11+ Modak.
23.1 Consent of Gambrell & Stolz, L.L.P. (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in item 14 above, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit
II-2
<PAGE>
or proceeding), is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The Company hereby undertakes (i) to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser; (ii) that for purposes of
determining any liability under the Act, treat the information omitted from
the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4), or Rule 497(h) under the Act as
part of this registration statement as of the time it was declared effective;
and (iii) that for purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Atlanta, Georgia, on September 8,
1997.
LOGILITY, INC.
By: *
----------------------
J. Michael Edenfield, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* Director and President September 8, 1997
_________________________________ (Principal Executive Officer)
J. Michael Edenfield
* Director September 8, 1997
_________________________________
James C. Edenfield
* Chief Financial Officer and September 8, 1997
_________________________________ Senior Vice President
James M. Modak (Principal Financial Officer)
* Controller September 8, 1997
_________________________________ (Principal Accounting Officer)
David E. Weigand
</TABLE>
*By: /s/ James M. Modak
-------------------------------
James M. Modak, as attorney-in-fact September 8, 1997
II-4
<PAGE>
EXHIBIT 5.1
[Letterhead of Gambrell & Stolz, L.L.P.]
____________, 1997
Logility, Inc.
470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305
Re: Registration Statement on Form S-1
(Registration No. 333-33385)
Ladies and Gentlemen:
We have acted as counsel to Logility, Inc., a Georgia corporation (the
"Company"), in connection with the preparation and filing with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "1933 Act)", of a Registration Statement on Form S-1 (Registration
No. 333-33385) (the "Registration Statement"), relating to 2,200,000 shares of
the Company's Common Stock, no par value (the "Common Stock"), being offered by
the Company, and an additional 330,000 shares solely to cover over-allotments
(collectively, the "Shares").
In so acting, we have examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below.
Based upon the foregoing, we are of the opinion that, upon issuance and
delivery of the Shares and payment therefor in the manner described in the
Registration Statement and in accordance with the terms of the underwriting
agreement (the form of which is filed as Exhibit 1.1 to the Registration
Statement), the Shares will be duly authorized, validly issued and outstanding,
and fully paid and non-assessable.
Our opinion expressed above is limited to the laws of the State of Georgia
and the Federal laws of the United States of America.
<PAGE>
Logility, Inc.
Page 2.
- -------------
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby concede
that we are within the category of persons whose consent is required under
Section 7 of the 1933 Act or the Rules and Regulations of the Commission
thereunder.
Very truly yours,
GAMBRELL & STOLZ, L.L.P.
HBL:hc
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Logility, Inc.:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Combined Financial Data" and "Experts" in
the prospectus.
KPMG Peat Marwick LLP
Atlanta, Georgia
September 5, 1997
