<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________________ to ____________
Commission File Number: 0-23057
-----------------------------------
LOGILITY, INC.
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2281338
- --------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
470 East Paces Ferry Road, N.E., Atlanta, Georgia 30305
- ------------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(404) 261-9777
-----------------------------------------------------------
(Registrant's telephone number, including area code)
None
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
--------
Indicate the number of shares outstanding of the issuer's common stock, as of
the latest practicable date.
Class Outstanding at December 8, 1998
- ------------------------- --------------------------------
Common Stock, no par value 13,465,700 Shares
<PAGE>
LOGILITY, INC.
Form 10-Q
Quarter Ended October 31, 1998
Index
Page
Number
--------------
Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
October 31, 1998 and April 30, 1998 3
Condensed Statements of Operations (Unaudited)
Three and Six Months Ended October 31, 1998 and 1997 4
Condensed Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 1998 and 1997 5
Notes to Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
Part II - Other Information 18-21
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGILITY, INC.
Condensed Balance Sheets (Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
October 31, April 30,
1998 1998
---------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 960 $ 1,006
Short-term investments 23,347 29,559
Trade accounts receivable, less allowance for doubtful accounts of $898
and $421 at October 31, 1998 and April 30, 1998:
Billed 6,452 7,754
Unbilled 1,515 3,040
Prepaid expenses and other current assets 731 731
---------------- ---------------
Total current assets 33,005 42,090
Furniture and equipment, less accumulated depreciation 1,815 1,583
Intangible assets, less accumulated amortization 5,468 6,865
Other assets, net 1,322 292
---------------- ---------------
$ 41,610 $ 50,830
================ ===============
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable 1,145 1,144
Accrued compensation and related costs 1,589 1,436
Deferred revenues 5,074 4,157
Other current liabilities 2,234 2,347
---------------- ---------------
Total current liabilities 10,042 9,084
Deferred income taxes 2,509 2,509
---------------- ---------------
Total liabilities 12,551 11,593
---------------- ---------------
Shareholders' equity:
Preferred stock: 2,000,000 shares authorized; no shares issued - -
Common stock, no par value; 20,000,000 shares authorized;
13,830,000 shares issued at October 31, 1998
and April 30, 1998 - -
Additional paid-in capital 43,187 43,187
Treasury stock, at cost - 348,300 shares and 205,300 shares at
October 31, 1998 and April 30, 1998 (3,286) (1,882)
Accumulated deficit (10,842) (2,068)
---------------- ---------------
Total shareholders' equity 29,059 39,237
Commitments and contingencies - -
---------------- ---------------
$ 41,610 $ 50,830
================ ===============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
LOGILITY, INC.
Condensed Statements of Operations (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
1998 1997 1998 1997
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Revenues:
License fees $ 1,788 $ 5,360 $ 4,333 $ 9,707
Maintenance 1,820 1,745 3,797 3,557
Services 1,724 1,896 3,724 3,485
---------- ---------- ---------- -----------
Total revenues 5,332 9,001 11,854 16,749
---------- ---------- ---------- -----------
Cost of revenues:
License fees 1,547 1,344 2,980 2,575
Maintenance 501 390 1,010 743
Services 855 881 1,708 1,576
---------- ---------- ---------- -----------
Total cost of revenues 2,903 2,615 5,698 4,894
---------- ---------- ---------- -----------
Gross margin 2,429 6,386 6,156 11,855
---------- ---------- ---------- -----------
Operating expenses:
Research and development 2,481 2,230 5,720 4,051
Less: Capitalized development (851) (812) (2,042) (1,428)
Sales and marketing 4,124 3,242 8,326 6,672
General and administrative 1,056 828 2,356 1,438
Write-off of software development costs 1,300 0 1,300 0
---------- ---------- ---------- -----------
Total operating expenses 8,110 5,488 15,660 10,733
---------- ---------- ---------- -----------
Operating income (loss) (5,681) 898 (9,504) 1,122
Other income, net 327 63 731 63
---------- ---------- ---------- -----------
Income (loss) before income taxes (5,354) 961 (8,773) 1,185
Income taxes 0 0 0 0
---------- ----------- ---------- -----------
Net income (loss) $ (5,354) $ 961 $ (8,773) $ 1,185
========== =========== ========== ===========
Net income (loss) per common share $ (0.40) $ 0.08 $ (0.65) $ 0.10
========== =========== ========== ===========
Weighted average number of common and
common equivalent shares outstanding 13,490 11,902 13,520 11,601
========== =========== ========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
Item 1. Financial Statements (continued)
LOGILITY, INC.
Condensed Statements of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
October 31,
--------------------------
1998 1997
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (8,773) $ 1,185
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,537 2,190
Provision for accounts receivable 588 -
Charge for asset impairment 1,230 -
(Increase) decrease in assets:
Accounts receivable 2,238 (2,799)
Other assets (304) (12)
Increase (decrease) in liabilities:
Accounts payable, accrued costs and other 351 2,585
Deferred revenues 916 658
------------ -----------
Net cash provided by (used in) operating activities (1,217) 3,807
------------ -----------
Cash flows from investing activities:
Additions to capitalized computer software development costs (2,233) (1,428)
Additions to purchased computer software costs (23) (57)
Sales of short-term investments, net 6,212 -
Minority investment in business (763) -
Purchases of furniture and equipment (618) (450)
------------ -----------
Net cash provided by (used in) investing activities 2,575 (1,935)
------------ -----------
Cash flows from financing activities:
Deferred income taxes resulting from Tax Sharing Agreement - (110)
Distributions to American Software, Inc. - (231)
Net proceeds from issuance of common stock - 28,775
Net proceeds from repurchase of common stock (1,404) -
------------ -----------
Net cash provided by (used in) financing activities (1,404) 28,434
------------ -----------
Net change in cash (46) 30,306
Cash and cash equivalents at beginning of period 1,006 732
------------ -----------
Cash and cash equivalents at end of period $ 960 $ 31,038
============ ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying condensed financial statements of Logility, Inc. (the
"Company"), are unaudited. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). The financial information presented in the condensed
financial statements reflects all normal recurring adjustments that are, in
the opinion of management, necessary for a fair presentation of the periods
indicated. These financial statements should be read in conjunction with
the Company's Annual Report on Form 10-K, as filed with the SEC on July 28,
1998. The interim results reflected in the condensed financial statements
are not necessarily indicative of the results to be expected for the full
year.
The Company is an approximately 84% owned subsidiary of American Software,
Inc. (American Software), a publicly held applications software provider of
enterprise resource planning solutions (NASDAQ - AMSWA).
B. COMPLETION OF INITIAL PUBLIC OFFERING
On October 10, 1997, the Company successfully completed its initial public
offering of common stock. The Company sold 2.2 million shares of Common
Stock in the initial public offering for approximately $31.9 million less
issuance related costs of $3.1 million.
On November 6, 1997, the Company sold 330,000 shares of Common Stock as
part of the underwriters' over-allotment from the initial public offering
for $4.8 million less issuance costs of approximately $400,000.
C. PURCHASE OF MINORITY INTEREST
Effective July 31, 1998, the Company finalized the purchase of a 10%
minority interest in INSIGHT, a leading provider of optimization technology
for supply chain modeling and logistics systems. This investment will be
accounted for on the cost basis.
D. NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK
On January 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS No. 128"), which prescribes
the calculation methodology and financial reporting requirements for basic
and diluted earnings per share. Basic earnings (loss) per common share
available to common shareholders are based on the weighted average number
of common shares outstanding. Diluted earnings per common share available
to common shareholders are based on the weighted average number of common
shares outstanding and dilutive potential common shares, such as dilutive
stock options. All prior period net earnings (loss) data presented in these
condensed financial statements have been restated to conform to the
provisions of SFAS No. 128.
6
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
E. RECENT ACCOUNTING PRONOUNCEMENTS
On May 1, 1998, the Company adopted Statement of Position 97-2, Software
Revenue Recognition, issued by the Accounting Standards Executive Committee
in October 1997, effective for financial statements for fiscal years
beginning after December 15, 1997. The implementation of this statement has
not had a material impact on the Company's unaudited condensed financial
statements.
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 with the first disclosure
required in the annual financial statement thereafter. The Company will
evaluate the need for such disclosures at that time.
F. SUBSEQUENT EVENT
On November 19, 1998, the Company's Board of Directors approved a
resolution authorizing the Company to repurchase up to 800,000 shares of
the Company's common stock through open market purchases at prevailing
market prices. The timing of any repurchases will depend on market
conditions, the market price of the Company's common stock and management's
assessment of the Company's liquidity and cash flow needs. This repurchase
plan is in addition to a previous plan to repurchase 350,000 shares which
was completed in July 1998.
G. WRITE-OFF OF SOFTWARE DEVELOPMENT COSTS
During the three months ended October 31, 1998, the Company incurred a
charge against earnings of $1.3 million. This charge resulted from the
write-off of certain capitalized software development costs, which mainly
relate to legacy technology within the Company's warehouse management
product line. These older products have been rendered obsolete by the
market's acceptance of the Company's Windows NT version of
WarehousePRO(TM).
7
<PAGE>
LOGILITY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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 client-server 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 world-wide, primarily to large enterprises that require a
comprehensive planning and execution solution. Sales are made through a
dedicated sales force and through relationships with third-party vendors
(including American Software) and service providers.
The Company previously 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. Also 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 condensed 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 fee
revenues are recognized at the time of product delivery and fulfillment of
acceptance terms, provided 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.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
The following table sets forth certain revenue and expense items as a percentage
of total revenues and the percentage increases or decreases in those items for
the three months ended October 31, 1998 and 1997:
<TABLE>
<CAPTION>
Percentage of Pct. Change
Total Revenues in Dollars
------------------------- ------------
1998 1997 1998 vs 1997
----------- ---------- ------------
<S> <C> <C> <C>
Revenues:
License fees 34 % 60 % (67) %
Maintenance 34 19 4
Services 32 21 (9)
----------- ---------- ------------
Total revenues 100 100 (41)
----------- ---------- ------------
Cost of revenues:
License fees 29 15 15
Maintenance 9 4 28
Services 16 10 (3)
----------- ---------- ------------
Total cost of revenues 54 29 11
----------- ---------- ------------
Gross margin 46 71 (62)
----------- ---------- ------------
Operating expenses:
Research and development, net 31 16 15
Sales and marketing 77 36 27
General and administrative 20 9 28
Write-off of software development costs 24 0 nm
----------- ---------- ------------
Total operating expenses 152 61 48
----------- ---------- ------------
Operating income (loss) (106) 10 nm
Other income, net 6 1 nm
----------- ---------- ------------
Income (loss) before income taxes (100) 11 nm
Income taxes - - -
----------- ---------- ------------
Net income (loss) (100) 11 nm
=========== ========== ============
</TABLE>
nm - not meaningful
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
The following table sets forth certain revenue and expense items as a percentage
of total revenues and the percentage increases or decreases in those items for
the six months ended October 31, 1998 and 1997:
<TABLE>
<CAPTION>
Percentage of Pct. Change
Total Revenues in Dollars
--------------------------- -------------
1998 1997 1998 vs 1997
------------ ----------- -------------
<S> <C> <C> <C>
Revenues:
License fees 37 % 58 % (55) %
Maintenance 32 21 7
Services 31 21 7
------------ ----------- -------------
Total revenues 100 100 (29)
------------ ----------- -------------
Cost of revenues:
License fees 25 15 16
Maintenance 9 5 36
Services 14 9 8
------------ ----------- -------------
Total cost of revenues 48 29 16
------------ ----------- -------------
Gross margin 52 71 (48)
------------ ----------- -------------
Operating expenses:
Research and development, net 31 16 40
Sales and marketing 70 40 25
General and administrative 20 8 64
Write-off of software development costs 11 0 nm
------------ ----------- -------------
Total operating expenses 132 64 46
------------ ----------- -------------
Operating income (loss) (80) 7 nm
Other income, net 6 0 nm
------------ ----------- -------------
Income (loss) before income taxes (74) 7 nm
Income taxes - - -
------------ ----------- -------------
Net income (loss) (74) 7 nm
============ =========== =============
</TABLE>
nm - not meaningful
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997:
- ---------------------------------------------
REVENUES:
The Company's total revenues decreased 41% to $5.3 million from $9.0 million for
the comparable quarter a year ago. This decrease was largely due to a reduction
in the Company's product sales, partially offset by a 4% increase in software
maintenance revenues. International revenues represented approximately 11% of
total revenues in the quarter ended October 31, 1998 compared to approximately
4% a year ago. This increase was due to increased effectiveness of the Company's
international sales channels, combined with a decrease in domestic revenues.
LICENSES. License fee revenues decreased significantly in the quarter ended
October 31, 1998 from a year ago, primarily as a result of lower than expected
sales by the Company's direct sales force, coupled with an increasingly
competitive market for the Company's products. The Company believes that several
of its potential customers delayed purchase decisions due to a variety of
factors, including concern over global economic conditions and limited resources
due to the allocation of resources to Year 2000 system projects. The direct
sales channel provided approximately 97% of the license fee revenues for this
quarter compared to approximately 70% in the comparable quarter a year ago. This
increase is mainly due to low sales contribution from American Software coupled
with the overall low level of sales activity in the quarter ended October 31,
1998. The Company's indirect sales channel is principally through American
Software.
MAINTENANCE. Maintenance revenues increased 4% to $1.8 million from a year ago,
due to an increase in the installed base of customers. Maintenance revenues have
a direct relationship to current and historic license fee revenues, since
license fees are the source of new maintenance customers.
SERVICES. Services revenues totaled $1.7 million, a 9% decrease from the same
period a year ago, as a result of reduced sales of the Company's products over
the last two quarters which adversely affects the Company's professional
services business.
GROSS MARGIN:
Total gross margin for the quarter ended October 31, 1998 was 46% compared to
71% a year ago. This decrease was largely due to a decreased level of license
fees, which fell to 34% of total revenues, down from 60% a year ago. The gross
margin on license fees fell to 13% from 75% a year ago, while gross margin on
maintenance revenues decreased to 72% compared to 78% a year ago. The gross
margin on services revenues also decreased slightly to 50% compared to 54% in
the same period a year ago. The decrease in gross margin on license fees is
primarily due to the decreased level of license fees, coupled with the large
amount of amortization expense on capitalized software contained within cost of
license fees. This expense is substantially fixed and accordingly had a negative
impact on gross margin as the level of license fees decreased.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------
October 31, Percent October 31,
1998 Change 1997
------------ --------- ------------
<S> <C> <C> <C>
Gross product development costs $ 2,481 11% $ 2,230
Percentage of total revenues 47% 25%
Less: Capitalized development (851) 5% (812)
Percentage of gross prod. dev. costs 34% 36%
------------ --------- ------------
Product development expenses $ 1,630 15% $ 1,418
Percentage of total revenues 31% 16%
</TABLE>
Gross product development costs increased 11% in the quarter ended October 31,
1998 compared to a year ago as a result of the Company's continued investment in
new product development. Capitalized development increased as well, growing 5%
from a year ago, while the rate of capitalized development as a percentage of
gross product development costs decreased slightly to 34% from 36% a year ago.
Product development expenses, as a percentage of total revenues, increased to
31% from 16% a year ago, due to the decrease in total revenues as well as
increased investment in new product development.
SALES AND MARKETING. Sales and marketing expenses rose 27% from a year ago. As a
percentage of total revenues, sales and marketing expenses were 77% for the
quarter ended October 31, 1998 compared to 36% for the quarter ended October 31,
1997. This increase was primarily due to a decrease in overall revenues, as well
as increased sales and marketing expenditures. Increased sales and marketing
expenditures were mainly due to increased staffing over the same period a year
ago, particularly in the areas of international sales and increased trade show
marketing commitments.
During the quarter ended October 31, 1998, the Company reduced its workforce by
approximately 40 people through staff reductions and attrition. The majority of
these reductions were within sales and marketing positions. These reductions
were considered necessary to enable the Company to focus on utilizing its most
effective sales resources towards the limited sales opportunities that exist in
the currently stalled buying market. The Company believes that taking this
action will increase its sales effectiveness. In addition to these staff
reductions the Company has reduced certain nonessential expenditures in order to
focus on returning the Company to profitability.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 28% to
approximately $1.1 million from a year ago, mainly as a result of the Company's
growth in employees and the resulting growth in administrative costs. For the
three months ended October 31, 1998, the average number of employees was
approximately 220, compared to approximately 190 for the three months ended
October 31, 1997.
For the three months ended October 31, 1998, the Company incurred a charge
against earnings of $1.3 million. This charge resulted from the write-off of
certain capitalized software development costs, which mainly relate to legacy
technology within the Company's warehouse management product line. These older
products have been rendered obsolete by the market's acceptance of the Company's
Windows NT version of WarehousePRO(TM).
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
OTHER INCOME:
Other income is comprised of investment earnings from the net proceeds of the
Company's initial public offering. The Company's investments are short term in
nature. For the quarter ended October 31, 1998, these investments generated a
yield of approximately 5.3%.
INCOME TAXES:
In accordance with FASB Statement No. 109, "Accounting for Income Taxes", the
Company is required to apply a separate company approach in calculating its
income tax provision. For the quarter ended October 31, 1998, the Company did
not record any income taxes as a result of the operating losses incurred since
the Company's inception. The Company entered into a Tax Sharing Agreement with
American Software, Inc. on January 23, 1997 that does not allow the Company to
utilize its Net Operating Loss Carryforwards at this time. As a result of this
agreement, the Company did not record an income tax benefit from the losses
generated for the quarter ended October 31, 1998.
SIX MONTHS ENDED OCTOBER 31, 1998 AND 1997:
- -------------------------------------------
REVENUES:
The Company's total revenues decreased 29% to $11.9 million from $16.7 million
for the comparable period a year ago. This decrease was largely due to a
reduction in the Company's product sales, partially offset by 7% increases in
both software maintenance and services revenues. International revenues
represented approximately 14% of total revenues in the six months ended October
31, 1998 compared to approximately 5% a year ago. This increase was due to
increased effectiveness of the Company's international sales channels, combined
with a decrease in domestic revenues.
LICENSES. License fee revenues decreased significantly for the six months ended
October 31, 1998 from a year ago, primarily as a result of lower than expected
sales by the Company's direct sales force, coupled with an increasingly
competitive market for the Company's products. The Company believes that several
of its potential customers delayed purchase decisions due to a variety of
factors, including concern over global economic conditions and limited resources
due to the allocation of resources to Year 2000 system projects. The direct
sales channel provided approximately 83% of the license fee revenues for the six
months ended October 31, 1998 compared to approximately 56% in the comparable
period a year ago. This increase is mainly due to low sales contribution from
American Software coupled with the overall low level of sales activity in the
six months ended October 31, 1998. The Company's indirect sales channel is
principally through American Software.
MAINTENANCE. Maintenance revenues increased 7% to $3.8 million from a year ago,
due to an increase in the installed base of customers. Maintenance revenues have
a direct relationship to current and historic license fee revenues, since
license fees are the source of new maintenance customers.
SERVICES. Services revenues totaled $3.7 million, a 7% increase from the same
period a year ago. Increased utilization of the Company's implementation and
training services was a result of the prior growth in the Company's customer
base.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
GROSS MARGIN:
Total gross margin for the six months ended October 31, 1998 was 52% compared to
71% a year ago. This decrease was largely due to a decreased level of license
fees, which fell to 37% of total revenues, down from 58% a year ago. The gross
margin on license fees fell to 31% from 73% a year ago, while gross margin on
maintenance revenues decreased to 73% compared to 79% a year ago. The gross
margin on services revenues also decreased slightly to 54% compared to 55% in
the same period a year ago. The decrease in gross margin on license fees is
primarily due to the decreased level of license fees, coupled with the large
amount of amortization expense on capitalized software contained within cost of
license fees. This expense is substantially fixed and accordingly had a negative
impact on gross margin as the level of license fees decreased.
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------------
October 31, Percent October 31,
1998 Change 1997
------------ --------- ------------
<S> <C> <C> <C>
Gross product development costs $ 5,720 41% $ 4,051
Percentage of total revenues 48% 24%
Less: Capitalized development (2,042) 43% (1,428)
Percentage of gross prod. dev. costs 36% 35%
------------- --------- ------------
Product development expenses $ 3,678 40% $ 2,623
Percentage of total revenues 31% 16%
</TABLE>
Gross product development costs increased 41% for the six months ended October
31, 1998 compared to the same period a year ago as a result of the Company's
increased investment in new product development. Capitalized development
increased as well, growing 43% from a year ago, while the rate of capitalized
development as a percentage of gross product development costs increased
slightly to 36% from 35% a year ago. Product development expenses, as a
percentage of total revenues, increased to 31% from 16% a year ago, due to the
decrease in total revenues as well as increased investment in new product
development.
SALES AND MARKETING. Sales and marketing expenses rose 25% from a year ago. As a
percentage of total revenues, sales and marketing expenses were 70% for the six
months ended October 31, 1998 compared to 40% for the six months ended October
31, 1997. This increase was due to a decrease in overall revenues, as well as
increased sales and marketing expenditures. Increased sales and marketing
expenditures were mainly due to increased staffing over the same period a year
ago, particularly in the areas of international sales and increased trade show
marketing commitments.
GENERAL AND ADMINISTRATIVE. For the six months ended October 31, 1998, general
and administrative expenses increased 64% to approximately $2.4 million from a
year ago, mainly as a result of the Company's growth in employees and the
resulting growth in administrative costs. For the six months ended October 31,
1998, the average number of employees was approximately 218, compared to
approximately 185 for the six months ended October 31, 1997.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
OTHER INCOME:
Other income is comprised of investment earnings from the net proceeds of the
Company's initial public offering. The Company's investments are short term in
nature. For the six months ended October 31, 1998, these investments generated a
yield of approximately 5.5%.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
By November 6, 1997, the Company completed its initial public offering, in which
the Company received aggregate net proceeds of approximately $33.2 million after
deducting underwriting discounts and offering expenses.
The Company's operating activities used cash of approximately $1.2 million in
the six months ended October 31, 1998, and provided cash of approximately $3.8
million in the same period of the prior year. The cash used by operations during
the six months ended October 31, 1998, was primarily attributable a net loss of
$8.8 million, partially offset by non-cash depreciation and amortization expense
of $2.5 million, non-cash provision for accounts receivable of $588,000, a
decrease in accounts receivable of approximately $2.2 million, the non-cash
portion of the software development cost write-off of $1.2 million, and an
increase in deferred revenues of $916,000. The cash provided by operations
during the same period of the prior year was attributed to net income of $1.2
million, non-cash depreciation and amortization expense of $2.2 million, an
increase in accounts payable, accrued costs and other liabilities of $2.6
million, and an increase in deferred revenues of $658,000. This was partially
offset by an increase in accounts receivable of $2.8 million.
Cash provided by (used in) investing activities was approximately $2.6 million
and ($1.9 million) for the six months ended October 31, 1998 and 1997,
respectively. The majority of cash for the six months ended October 31, 1998 was
provided by the sale of short-term investments. Cash used in investing
activities consisted primarily of $2.2 million in additions to capitalized
software development costs, and $763,000 for the purchase of a minority interest
in a business. For the six months ended October 31, 1997, cash used in investing
activities consisted primarily of $1.4 million in additions to capitalized
software development costs, and $450,000 in purchases of furniture and
equipment.
Cash provided by (used in) financing activities totaled approximately ($1.4
million) and $28.4 million for the six months ended October 31, 1998 and 1997,
respectively. Approximately $1.4 million was used for the repurchase of the
Company's common stock for the six month period ended October 31, 1998. For the
six months ended October 31, 1997, approximately $28.8 million was provided by
the proceeds of the Initial Public Offering of the Company's stock.
Days Sales Outstanding in accounts receivable were 123 days as of October 31,
1998, compared to 102 days as of October 31,1997. This increase was due
primarily to decreased overall revenue levels.
The Company's current ratio on October 31, 1998 was 3.3 to 1 and the Company has
no long-term debt. The Company believes that its sources of liquidity and
capital resources will be sufficient to satisfy its cash requirements for at
least 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. The Company does not
currently have a bank line of credit. No assurance can be given that bank lines
of credit or other financing will be available on terms acceptable to the
Company. If available, such financing may result in further dilution to the
Company's shareholders and higher interest expense.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
On December 15, 1997, Logility, Inc.'s Board of Directors approved a resolution
authorizing the Company to repurchase up to 350,000 shares of the Company's
common stock through open market purchases at prevailing market prices. The
timing of any repurchases would depend on market conditions, the market price of
Logility's common stock and management's assessment of the Company's liquidity
and cash flow needs. During the six months ended October 31, 1998, pursuant to
this resolution, the Company repurchased 143,000 shares of common stock at a
cost of approximately $1.4 million and completed this repurchase plan in July
1998. In November 1998 the Company adopted an additional repurchase plan for up
to 800,000 shares.
YEAR 2000 READINESS DISCLOSURE
Based on management's assessment, the Company believes that the current versions
of its software products are Year 2000 ready. However, the Company believes some
of its customers may be running earlier versions of the Company's products that
are not Year 2000 ready, and the Company has been encouraging such customers to
migrate to current product versions. Moreover, the Company's products are
generally integrated into other systems involving complex software products
developed by other vendors. Year 2000 problems inherent in a customer's other
software programs might significantly limit that customer's ability to utilize
the Company's products.
In addition, the Company is working closely with American Software, the
Company's parent, which serves as its largest supplier, to identify all internal
systems of American Software which may impact the operations of the Company. The
cost of converting American Software's internal systems utilized by the Company
is not expected to be material as American Software is providing internal
resources to meet their Year 2000 readiness needs.
Software products as complex as those offered by the Company might contain
undetected errors or failures when first introduced or when new versions are
released, including products believed to be Year 2000 ready. While the Company
believes that it has assessed, corrected and tested its products to address the
Year 2000 issue, there can be no assurances that the Company's software products
contain or will contain all necessary date code changes or that errors will not
be found in new products or product enhancements after commercial release,
resulting in loss of or delay in market acceptance. In addition, the Company
might experience difficulties that could delay or prevent the continued
successful development and release of products that are Year 2000 compliant or
that meet the Year 2000 requirements of customers. If the Company is unable or
is delayed in its efforts to make the necessary date code changes, there could
be a material adverse effect upon the Company's business, operating results,
financial condition and cash flows.
The Company may in the future be subject to claims based on Year 2000 problems
in its own, as well as in others' products, and issues arising from the
integration of multiple products within an overall system. Although the Company
has not been a party to any litigation involving its products or services
related to Year 2000 compliance issues, there can be no assurance that the
Company will not in the future be required to defend its products or services in
such proceedings, or otherwise address claims based on Year 2000 issues. The
costs of defending and resolving Year 2000-related disputes, and any liability
of the Company for Year 2000-related damages, including consequential damages,
could have a material adverse effect on the Company's business, operating
results, and financial condition.
The Company utilizes third-party vendor equipment, telecommunication products
and software products that may or may not be Year 2000 ready. Although the
Company is currently taking steps to address the impact, if any, of the Year
2000 compliance issue surrounding such third-party products, failure of any
critical technology components to be Year 2000 ready may have an adverse impact
on business operations or require the Company to incur unanticipated expenses to
remedy any problems.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
The Company believes that Year 2000 issues have affected and may continue to
affect the purchasing decisions of customers and potential customers of the
Company's products. Many businesses are expending significant resources on
projects to make their current hardware and software systems Year 2000 ready.
Such expenditures may result in reduced funding for projects to purchase
software products such as those offered by the Company. Potential customers may
also choose to defer purchasing Year 2000 ready products until they believe it
is absolutely necessary, thus resulting in potentially stalled market sales
within the industry. Any of the foregoing could have a material adverse effect
on the Company's business, operating results and financial condition.
The Company's evaluation of its Year 2000 readiness includes the development of
contingency plans for business functions that are susceptible to a substantive
risk of disruption resulting from a Year 2000 related event. Because the Company
has not yet identified any business function that is materially at risk of Year
2000 related disruption, it has not yet developed detailed contingency plans
specific to Year 2000 events for any business function. The Company is prepared
for the possibility, however, that certain business functions may be hereafter
identified as at risk and will develop contingency plans for such business
functions when and if such determinations are made.
Forward-looking statements contained in this Year 2000 Readiness Discussion
should be read in conjunction with the Company's disclosure under the heading of
Forward Looking Statements for the purposes of the Safe Harbor provisions of the
Private Securities Litigation Act of 1995.
FORWARD-LOOKING STATEMENTS
It should be noted that this discussion contains forward-looking statements,
which are subject to substantial risks and uncertainties. There are a number of
factors which could cause actual results to differ materially from those
anticipated by statements made herein. The timing of releases of the Company's
software products can be affected by customer needs, marketplace demands and
technological advances. Development plans frequently change, and it is difficult
to predict with accuracy the release dates for products in development. In
addition, other factors include changes in general economic conditions, the
growth rate of the market for the Company's products and services, the timely
availability and market acceptance of these products and services, the effect of
competitive products and pricing, and the irregular pattern of revenues, as well
as a number of other risk factors which could affect the future performance of
the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------ -----------------
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
- ------ -----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
- ------ -------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
The Registrant's Annual Meeting was held on August 26, 1998. At that
meeting, in addition to re-election of directors, the shareholders
voted upon a proposed amendment to the 1997 Stock Plan to increase the
number of option shares authorized under that Plan from 295,000 to
1,200,000. 11,713,365 shares were voted in favor of the amendment,
213,142 shares were voted against the amendment and 10,700 shares
abstained from voting on the amendment.
Item 5. Other Information
- ------ -----------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits:
Exhibit No. Description
----------- -----------
10.1 Logility, Inc. 1997 Stock Plan, Amended and
Restated as of August 26, 1998, included as
Exhibit 4.1 to the Company's Form S-8
Registration Statement No. 333-62531 and
incorporated herein by this reference.
11 Statement re: Computation of Per Share Earnings (Loss).
27 Financial Data Schedule (for SEC use only).
(b) No report on Form 8-K was filed during the quarter ended October
31, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOGILITY, INC.
DATE December 11, 1998 /s/J. Michael Edenfield
----------------- ----------------------------------
J. Michael Edenfield
President, Chief Executive Officer
DATE December 11, 1998 /s/James M. Modak
----------------- ----------------------------------
James M. Modak
Chief Financial Officer and Sr. VP
19
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
10.1 Logility, Inc. 1997 Stock Plan, Amended and
Restated as of August 26, 1998, included as
Exhibit 4.1 to the Company's Form S-8
Registration Statement No. 333-62531 and
incorporated herein by this reference.
11 Statement re: Computation of Per Share Earnings (Loss). 21
27 Financial Data Schedule (for SEC use only).
20
<PAGE>
Exhibit 11
LOGILITY, INC.
Statement re: Computation of Per Share Earnings (Loss)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
--------------------------- ------------------------
1998 1997 1998 1997
---------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Common Stock:
Weighted average common 13,490 11,902 13,520 11,601
shares outstanding
Dilutive effect of outstanding - 11 - 5
stock options *
---------- ------------ --------- ----------
Total 13,490 11,913 13,520 11,606
---------- ------------ --------- ----------
Net income (loss) $ (5,354) $ 961 $ (8,773) $ 1,185
========== ============ ========= ==========
Income (loss) per common
and common equivalent share* $ (0.40) $ 0.08 $ (0.65) $ 0.10
========== ============ ========= ==========
</TABLE>
* Stock options are not included in the three and six months ended October 31,
1998 calculation due to the anti-dilution to the net loss.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1998
<PERIOD-START> AUG-01-1998 MAY-01-1998
<PERIOD-END> OCT-31-1998 OCT-31-1998
<CASH> 960 960
<SECURITIES> 23,347 23,347
<RECEIVABLES> 8,865 8,865
<ALLOWANCES> 898 898
<INVENTORY> 0 0
<CURRENT-ASSETS> 33,005 33,005
<PP&E> 3,048 3,048
<DEPRECIATION> 1,233 1,233
<TOTAL-ASSETS> 41,610 41,610
<CURRENT-LIABILITIES> 10,042 10,042
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 29,059 29,059
<TOTAL-LIABILITY-AND-EQUITY> 41,610 41,610
<SALES> 0 0
<TOTAL-REVENUES> 5,332 11,854
<CGS> 0 0
<TOTAL-COSTS> 2,903 5,698
<OTHER-EXPENSES> 8,110 15,660
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (327) (731)
<INCOME-PRETAX> (5,354) (8,773)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,354) (8,773)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,354) (8,773)
<EPS-PRIMARY> (.40) (.65)
<EPS-DILUTED> (.40) (.65)
</TABLE>
