<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 January 31, 2000
------------------------------------------------
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 March 10, 2000
- ---------------------------------- ----------------------------------
Common Stock, no par value 13,299,807 Shares
<PAGE>
LOGILITY, INC.
Form 10-Q
Quarter Ended January 31, 2000
Index
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
January 31, 2000 and April 30, 1999 3
Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended January 31, 2000 and 1999 4
Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended January 31, 2000 and 1999 5
Notes to Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16-17
Part II - Other Information 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGILITY, INC.
Condensed Balance Sheets (Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
January 31, April 30,
2000 1999
----------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,550 $ 9,695
Investments 17,328 14,024
Trade accounts receivable, less allowance for doubtful
accounts of $690 and $447 at January 31, 2000 and
April 30, 1999, respectively:
Billed 4,761 5,471
Unbilled 2,565 1,931
Prepaid expenses and other current assets 515 444
-------- --------
Total current assets 33,719 31,565
Furniture and equipment, less accumulated depreciation 1,833 1,889
Intangible assets, less accumulated amortization 6,478 6,202
Other assets, net 1,161 1,022
-------- --------
$ 43,191 $ 40,678
======== ========
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 988 $ 990
Accrued compensation and related costs 1,987 1,827
Deferred revenues 5,149 4,710
Other current liabilities 768 1,224
-------- --------
Total current liabilities 8,892 8,751
Deferred income taxes 2,459 2,459
-------- --------
Total liabilities 11,351 11,210
-------- --------
Shareholders' equity:
Preferred stock: 2,000,000 shares authorized; no shares issued -- --
Common stock, no par value; 20,000,000 shares authorized;
13,861,000 shares issued at January 31, 2000
and 13,830,000 at April 30, 1999, respectively -- --
Additional paid-in capital 43,261 43,187
Treasury stock, at cost - 562,811 shares and 410,800 shares at
January 31, 2000 and April 30, 1999, respectively: (4,279) (3,543)
Accumulated deficit (7,142) (10,176)
-------- --------
Total shareholders' equity 31,840 29,468
-------- --------
$ 43,191 $ 40,678
======== ========
</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 Nine Months Ended
January 31, January 31,
2000 1999 2000 1999
-------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
License fees $3,897 $3,338 $ 12,211 $7,671
Maintenance 2,465 1,987 6,985 5,784
Services 2,151 2,002 6,240 5,726
-------------- -------------- --------------- ----------------
Total revenues 8,513 7,327 25,436 19,181
-------------- -------------- --------------- ----------------
Cost of revenues:
License fees 884 690 2,610 3,670
Maintenance 430 551 1,391 1,561
Services 1,237 773 3,361 2,481
-------------- -------------- --------------- ----------------
Total cost of revenues 2,551 2,014 7,362 7,712
-------------- -------------- --------------- ----------------
Gross margin 5,962 5,313 18,074 11,469
-------------- -------------- --------------- ----------------
Operating expenses:
Research and development 1,842 2,242 6,136 7,962
Less: Capitalized development (873) (1,043) (2,518) (3,084)
Sales and marketing 3,253 3,346 10,113 11,672
General and administrative 796 742 2,231 3,098
Write-off of software development costs - - - 1,300
-------------- -------------- --------------- ----------------
Total operating expenses 5,018 5,287 15,962 20,948
-------------- -------------- --------------- ----------------
Operating income (loss) 944 26 2,112 (9,479)
Other income, net 303 311 922 1,042
-------------- -------------- --------------- ----------------
Income (loss) before income taxes 1,247 337 3,034 (8,437)
Income taxes 0 50 0 50
-------------- -------------- --------------- ----------------
Net income (loss) $ 1,247 $ 287 $ 3,034 $ (8,487)
============== ============== =============== ================
Net income (loss) per share: Basic $ 0.09 $ 0.02 $ 0.23 $ (0.63)
============== ============== =============== ================
Diluted $ 0.09 $ 0.02 $ 0.22 $ (0.63)
============== ============== =============== ================
Shares used in the calculation of net income
(loss) per common share: Basic 13,290 13,468 13,343 13,500
============== ============== =============== ================
Diluted 13,763 13,644 13,639 13,500
============== ============== =============== ================
</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>
Nine Months Ended
January 31,
-----------------------------------
2000 1999
---------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $3,034 $(8,487)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,558 3,198
Provision for doubtful accounts receivable 243 (14)
Charge for asset impairment - 1,230
(Increase) decrease in assets:
Accounts receivable (167) 1,119
Other assets (63) 151
Increase (decrease) in liabilities:
Accounts payable, accrued costs and other liabilities (297) 292
Deferred revenues 439 1,147
---------------- --------------
Net cash provided by (used in) operating activities 5,747 (1,364)
---------------- --------------
Cash flows from investing activities:
Additions to capitalized computer software development costs (2,518) (3,084)
Additions to purchased computer software costs (55) (24)
Net (purchase) sale of investments (3,304) 7,092
Minority investment in business - (763)
Purchases of furniture and equipment (353) (698)
---------------- --------------
Net cash (used in) provided by investing activities (6,230) 2,523
---------------- --------------
Cash flows from financing activities:
Repurchase of common stock (736) (1,502)
Proceeds from exercise of stock options 74 -
---------------- --------------
Net cash used in financing activities (662) (1,502)
---------------- --------------
Net change in cash and cash equivalents (1,145) (343)
Cash and cash equivalents at beginning of period 9,695 1,006
---------------- --------------
Cash and cash equivalents at end of period $8,550 $ 663
================ ==============
</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, which 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 Form 10-K, as filed with the SEC on July 28, 1999. 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 85% owned subsidiary of American Software,
Inc. a publicly held applications software provider of enterprise resource
planning solutions (NASDAQ - AMSWA).
B. Industry Segments
On February 1, 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information. The Company operates and manages its business in one segment,
providing Business-to-Business Collaborative Commerce solutions to
participants along the value chain.
C. Comprehensive Income
On May 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements. No statements of comprehensive income (loss) have been included
in the accompanying condensed financial statements since comprehensive
income (loss) and net income (loss) presented in the accompanying condensed
statements of operations would be the same.
D. Revenue Recognition
In December 1998, the AICPA issued SOP No. 98-9, Modification of SOP
No. 97-2, Software Revenue Recognition, with Respect to Certain
Transactions. This SOP amends SOP No. 97-2 to, among other matters, require
recognition of revenue using the ''residual method'' in circumstances
outlined in the SOP. Under the residual method, revenue is recognized as
follows: (1) the total fair value of undelivered elements, as indicated by
vendor-specific objective evidence, is deferred and subsequently recognized
in accordance with the relevant sections of SOP No. 97-2 and (2) the
difference between the total arrangement fee and the amount deferred for
the undelivered elements is recognized as revenue related to the delivered
elements. SOP No. 98-9 is effective for fiscal years beginning after March
15, 1999. On May 1, 1999, the Company adopted SOP No. 98-9, which did not
have a material effect on revenue recognition.
6
<PAGE>
LOGILITY, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD-LOOKING STATEMENTS
It should be noted that this Report on Form 10-Q contains forward-looking
statements, which are subject to substantial risks and uncertainties. A variety
of factors could cause the Company's actual results to differ materially from
those anticipated by statements made herein. The demand for the Company's
software products and services, as well as the timing of releases of the
Company's software products, can be affected by client 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. 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.
OVERVIEW
Logility, Inc. (the "Company") develops, markets and supports software
applications for Business-to-Business Collaborative Commerce via the Internet to
expand revenue opportunities and 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 Logility Voyager
Solutions consists of an Internet-based integrated application suite that
provides advanced business-to-business collaborative planning and integrated
logistics capabilities designed to increase revenue, reduce inventory costs,
improve forecast accuracy, decrease order cycle times, optimize production
scheduling, streamline logistics operations, reduce transportation costs and
improve customer service.
In addition to the Logility Voyager Solutions application suite, the
i-Community(SM) is a Logility sponsored, web-based collaborative network of
trading partners established to offer a more effective way of connecting an
enterprise with its trading partners and conducting Collaborative Planning,
Forecasting and Replenishment(TM) (CPFR(TM)). The i-Community is powered by the
Logility Voyager Solutions suite, enabling trading partners to collaborate via
the Internet in developing sales forecasts and replenishment plans, as well as
optimizing transportation and distribution center management processes between
retailers, manufacturers and suppliers. The Company's Business-to-Business
Collaborative Commerce products and services are designed to expand the number
of business processes that can be executed via intranets, extranets and the
Internet, enabling optimization of the customer's value chain and improving
collaboration with trading partners. The Company markets its solution worldwide,
primarily to large enterprises that require a comprehensive planning and supply
chain execution solution. Sales are made through a dedicated sales force and
through relationships with third-party vendors (including American Software) and
service providers.
7
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
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 upon delivery of the software, provided collection is
considered probable, the fee is fixed or determinable, there is evidence of an
arrangement, and vendor specific evidence exists to allocate the total fee to
all elements of the arrangement. 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 and Analysis (continued)
COMPARISON OF RESULTS
- ---------------------
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 January 31, 2000 and 1999:
<TABLE>
<CAPTION>
Percentage of Pct. Change
Total Revenues in Dollars
------------ ------------- -------------------
2000 1999 2000 vs 1999
------------ ------------- -------------------
<S> <C> <C> <C>
Revenues:
License fees 46 % 46 % 17 %
Maintenance 29 27 24
Services 25 27 7
------------ ------------- -------------------
Total revenues 100 100 16
------------ ------------- -------------------
Cost of revenues:
License fees 10 9 28
Maintenance 5 7 (22)
Services 15 11 60
------------ ------------- -------------------
Total cost of revenues 30 27 27
------------ ------------- -------------------
Gross margin 70 73 12
------------ ------------- -------------------
Operating expenses:
Research and development, net 12 16 (19)
Sales and marketing 38 46 (3)
General and administrative 9 10 7
------------ ------------- -------------------
Total operating expenses 59 72 (5)
------------ ------------- -------------------
Operating income 11 1 3,531
Other income, net 4 4 (3)
------------ ------------- -------------------
Income before income taxes 15 5 270
Income taxes -- 1 nm
------------ ------------- -------------------
Net income 15 4 334
============ ============= ===================
</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 nine months ended January 31, 2000 and 1999:
<TABLE>
<CAPTION>
Percentage of Pct. Change
Total Revenues in Dollars
----------------------- ------------
2000 1999 2000 vs 1999
----------- --------- ------------
<S> <C> <C> <C>
Revenues:
License fees 48% 40% 59%
Maintenance 27 30 21
Services 25 30 9
----------- --------- -------------
Total revenues 100 100 33
----------- --------- -------------
Cost of revenues:
License fees 11 19 (29)
Maintenance 5 8 (11)
Services 13 13 35
----------- --------- -------------
Total cost of revenues 29 40 (5)
----------- --------- -------------
Gross margin 71 60 58
----------- --------- -------------
Operating expenses:
Research and development, net 14 25 (26)
Sales and marketing 40 61 (13)
General and administrative 9 16 (28)
Write-off of software development costs -- 7 nm
----------- --------- -------------
Total operating expenses 63 109 (24)
----------- --------- -------------
Operating income (loss) 8 (49) nm
Other income, net 4 5 (12)
----------- --------- -------------
Income (loss) before income taxes 12 (44) nm
Income taxes -- -- --
----------- --------- -------------
Net income (loss) 12 (44) nm
=========== ========= ============
</TABLE>
nm - not meaningful
10
<PAGE>
Item 2. Management's Discussion (continued)
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999:
- ---------------------------------------------
REVENUES:
The Company's total revenues increased approximately 16% to $8.5 million from
$7.3 million for the comparable quarter a year ago. The Company realized strong
gains in license and maintenance revenues, the result of continued improved
sales of the Company's products and services. International revenues
represented approximately 11% of total revenues in the quarter ended January 31,
2000, down from 18% a year ago. The decline in international revenues is largely
due to the increase in domestic revenues, decreasing the international
proportion of the overall revenue mix.
LICENSES. License fee revenues increased 17% to $3.9 million for the quarter
ended January 31, 2000 from a year ago. The Company believes that it continues
to realize positive results primarily from the implementation of its Business-
to-Business Collaborative Commerce strategy, which continues the shift of its
applications to Internet-based collaborative value chain management. The direct
sales channel provided approximately 78% of the license fee revenues for the
current quarter compared to approximately 80% in the comparable quarter a year
ago. The Company's indirect sales channel is principally through American
Software.
MAINTENANCE. Maintenance revenues increased 24% to $2.5 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 new software licenses are the source of new maintenance
customers.
SERVICES. Services revenues totaled $2.2 million, a 7% increase from the same
period a year ago, primarily as a result of increased sales of the Company's
products, which generates additional implementation and training revenue.
GROSS MARGIN:
Total gross margin for the quarter ended January 31, 2000 was 70% compared to
73% a year ago. This slight decrease was largely due to a decrease in gross
margin on services revenues, which fell to 42% from 61% for the same period last
year. This decrease in services gross margin was in turn due primarily to
service staff increases in anticipation of implementation work in future
quarters, as well as an unusually high services gross margin a year ago that
resulted from the completion of a large fixed price project. Gross margin on
maintenance revenues increased to 83% from 72% a year ago, primarily due to the
large increase in maintenance revenue. Gross margin on license fees fell
slightly to 77% compared to 79% a year ago, due to an increase in capitalized
software amortization expense from completed projects.
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
------------------------------------------------
January 31, Percent January 31,
2000 Change 1999
-----------------------------------------------
<S> <C> <C> <C>
Gross product development costs $1,842 (18) % $ 2,242
Percentage of total revenues 22 % 31 %
Less: Capitalized development (873) (16) % (1,043)
Percentage of gross prod. dev. costs 47 % 47 %
--------- --------- -----------
Product development expenses $ 969 (19) % $ 1,199
Percentage of total revenues 12 % 16 %
</TABLE>
Gross product development costs decreased 18% in the quarter ended January 31,
2000 compared to a year ago. In the latter part of fiscal 1999, the Company
undertook cost containment efforts in response to the "Y2K" related market
slowdown. Some residual effects of these efforts continued to be felt in the
current quarter. The amount of capitalized development decreased 16% from a year
ago, while the rate of capitalized development as a percentage of gross product
development costs remained unchanged from a year ago at 47%. Product development
expenses, as a percentage of total revenues, decreased to 12% from 16% a year
ago, primarily due to the increase in total revenues. In future quarters the
Company expects product development expenses to increase as it executes its
Internet-based, Business-to-Business Collaborative Commerce product strategy,
and continues to enhance existing product functionality.
SALES AND MARKETING. Sales and marketing expenses declined 3% from a year ago,
again a result of the Company's overall cost containment efforts. As a
percentage of total revenues, sales and marketing expenses were 38% for the
quarter ended January 31, 2000 compared to 46% for the quarter ended January 31,
1999. This was primarily due to the increase in overall revenues, as well as
the decrease in sales and marketing expenditures.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 7%
from a year ago to $796,000. However, due to the large increase in total
revenues, general and administrative expenses as a percentage of total revenues
declined from 10% to 9%. For the three months ended January 31, 2000, the
average number of employees was approximately 183, compared to approximately 189
for the three months ended January 31, 1999.
OTHER INCOME:
Other income is comprised primarily 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 January 31, 2000, these investments
generated an annualized yield of approximately 5.6%.
12
<PAGE>
Item 2. Management's Discussion (continued)
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 January 31, 2000, the Company did
not record any income taxes as a result of the operating losses incurred since
the Company's Initial Public Offering. 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 generated prior to
the IPO.
NINE MONTHS ENDED JANUARY 31, 2000 AND JANUARY 31, 1999:
- --------------------------------------------------------
REVENUES:
The Company's total revenues increased 33% to $25.4 million from $19.2 million
for the comparable period a year ago. International revenues represented
approximately 10% of total revenues in the nine months ended January 31, 2000
compared to approximately 16% a year ago. The decline in international revenues
is largely due to the increase in domestic revenues, decreasing the
international proportion of the overall revenue mix.
LICENSES. For the nine months ended January 31, 2000, license fee revenues
increased 59% from the same period a year ago, to $12.2 million. The Company
believes that it continues to realize positive results primarily from the
implementation of its Business-to-Business Collaborative Commerce strategy,
which continues the shift of its applications to Internet-based collaborative
value chain management. The direct sales channel provided approximately 84% of
the license fee revenues for the nine months ended January 31, 2000 compared to
approximately 81% in the comparable period a year ago. The Company's indirect
sales channel is principally through American Software.
MAINTENANCE. Maintenance revenues increased 21% to $7.0 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 new software licenses are the source of new maintenance
customers.
SERVICES. Services revenues totaled $6.2 million, a 9% increase from the same
period a year ago. Increased utilization of the Company's implementation and
training services was primarily a result of the prior growth in the Company's
customer base.
GROSS MARGIN:
Total gross margin for the nine months ended January 31, 2000 was 71% compared
to 60% a year ago. This was largely due to an increased level of license fees,
which rose to 48% of total revenues, up from 40% a year ago. The gross margin on
license fees rose significantly to 79% from 52% a year ago, while gross margin
on maintenance revenues increased to 80% compared to 73% a year ago. The
increase in gross margin on license fees was due to the combination of higher
license fees and the reduced amount of amortization expense on capitalized
software, which makes up the primary component of cost of license fees. This
expense decreased primarily due to the write-off of capitalized software
development costs taken in the quarter ended October 31, 1998. The gross margin
on services revenues decreased to 46% compared to 57% in the same period a year
ago, due primarily to the timing of increased services staff levels in
anticipation of future projects.
13
<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>
Nine Months Ended
------------------------------------------------
January 31, Percent January 31,
2000 Change 1999
-----------------------------------------------
<S> <C> <C> <C>
Gross product development costs $ 6,136 (23) % $ 7,962
Percentage of total revenues 24 % 42 %
Less: Capitalized development (2,518) (18) % (3,084)
Percentage of gross prod. dev. costs 41 % 39 %
------------ ------------ ------------
Product development expenses $ 3,618 (26) % $ 4,878
Percentage of total revenues 14% 25%
</TABLE>
Gross product development costs decreased 23% in the nine months ended January
31, 2000 compared to a year ago. In the latter part of fiscal 1999, the Company
undertook cost containment efforts in response to the "Y2K" related market
slowdown. Some residual effects of these efforts were felt in the current
period. The amount of capitalized development decreased 18% from a year ago,
while the rate of capitalized development as a percentage of gross product
development costs increased slightly to 41% from 39% a year ago. Product
development expenses, as a percentage of total revenues, decreased to 14% from
25% a year ago, due to the increase in total revenues, as well as a decrease in
overall product development costs.
SALES AND MARKETING. Sales and marketing expenses declined 13% from a year ago,
again a result of the Company's overall cost containment efforts. As a
percentage of total revenues, sales and marketing expenses were 40% for the nine
months ended January 31, 2000 compared to 61% for the nine months ended January
31, 1999. This was primarily due to the increase in overall revenues, as well
as the decrease in sales and marketing expenditures.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 28%
from a year ago to $2.2 million, mainly as a result of the Company's reduction
in employee base and the resulting decrease in administrative costs. For the
nine months ended January 31, 2000, the average number of employees was
approximately 184, compared to approximately 208 for the nine months ended
January 31, 1999.
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.
OTHER INCOME:
Other income is comprised primarily 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 nine months ended January 31, 2000, these investments
generated an annualized yield of approximately 5.5%.
14
<PAGE>
Item 2. Management's Discussion (continued)
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
On 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 provided cash of approximately $5.7 million
in the nine months ended January 31, 2000, and used cash of approximately $1.4
million in the same period of the prior year. The cash provided by operations
during the nine months ended January 31, 2000, was primarily attributable to net
income of $3.0 million, non-cash depreciation and amortization expense of $2.6
million, and deferred revenues of $439,000. This was partially offset by a
decrease in accounts payable and other liabilities of approximately $297,000.
The cash used by operations during the nine months ended January 31, 1999, was
primarily attributable to a net loss of $8.5 million, partially offset by non-
cash depreciation and amortization expense of $3.2 million, the non-cash portion
of the software development cost write-off of $1.2 million, a decrease in
accounts receivable of approximately $1.1 million, and an increase in deferred
revenues of $1.1 million.
Cash used in investing activities was approximately $6.2 million for the nine
months ended January 31, 2000, while cash provided by investing activities was
approximately $2.5 million for the nine months ended January 31, 1999. For the
nine months ended January 31, 2000, $3.3 million was used in the purchase of
short-term investments, $2.5 million in additions to capitalized software
development costs, and $353,000 in purchases of furniture and equipment. For the
same period a year ago, $7.1 million was provided by the net redemptions of
short-term investments. Cash used in investing activities consisted of $3.1
million in addition to capitalized software development costs, $763,000 for the
purchase of a minority interest in a business, and $698,000 in purchases of
property and equipment.
Cash used in financing activities totaled approximately $662,000 and $1.5
million for the nine months ended January 31, 2000 and 1999, respectively. For
the period ended January 31, 2000, $736,000 was used for repurchases of the
Company's common stock, while $74,000 was provided by the exercising of stock
options. For the nine months ended January 31, 1999, $1.5 million was used for
repurchases of the Company's common stock.
Days Sales Outstanding (DSO) in accounts receivable were 79 days as of January
31, 2000, compared to 121 days at January 31, 1999. The reduction from the same
period last year was due primarily to improved collection efforts by the
Company.
The Company's current ratio on January 31, 2000 was 3.8 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.
On December 15, 1997, the Company'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
Company completed this repurchase plan in November 1998. In November 1998 the
Company adopted an additional repurchase plan for up to 800,000 shares. The
timing of any repurchases would
15
<PAGE>
Item 2. Management's Discussion (continued)
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. For both
plans, through March 10, 2000, the Company had purchased a cumulative total of
562,811 shares at a total cost of approximately $4.3 million.
Year 2000 Compliance
The Company believes that its compliance and remediation efforts leading up to
the Year 2000 were effective in preventing any material Year 2000 related
problems, since the Company has not received to date any reports of Year 2000
related erroneous results or system failures in the software products it markets
or in the software and hardware it utilizes internally. There may, however,
still be residual problems related to the Year 2000 issue that could result in a
decrease in the sales of software and services that the Company provides, or an
increase in litigation costs relating to losses suffered by the Company or its
clients due to such problems.
The Company may in the future be subject to claims based on Year 2000 problems
in its own products, 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 be required to defend its products or services in such
proceedings in the future, 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 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 expended 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. Any of the foregoing could have a
material adverse effect on the Company's business, operating results and
financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
Statement will be effective for the Company beginning June 15, 2000. The new
Statement requires all derivatives to be recorded on the balance sheet at fair
value and establishes accounting treatment for three types of hedges: hedges of
changes in the fair value of assets, liabilities, or firm commitments; hedges of
the variable cash flows of forecasted transactions; and hedges of foreign
currency exposures of net investments in foreign operations. The Company has not
invested in derivative instruments nor participated in hedging activities and
therefore does not anticipate there will be a material impact on the results of
operations or financial position from Statement No. 133.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency. For the quarter ended January 31, 2000, the Company
generated 11% of its revenues outside the United States. International sales
usually are made by the Company's foreign subsidiaries and are denominated
typically in U.S. Dollars or British Pounds Sterling. However, the expense
incurred by foreign subsidiaries is denominated in the local currencies. The
effect of foreign exchange rate fluctuations on the Company during the quarter
ended January 31, 2000 was not material.
16
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)
Interest rates. The Company manages its interest rate risk by maintaining an
investment portfolio of held-to-maturity instruments with high credit quality
and relatively short average maturities. These instruments include, but are not
limited to, money-market instruments, bank time deposits, and taxable and tax-
advantaged variable rate and fixed rate obligations of corporations,
municipalities, and national, state, and local government agencies, in
accordance with the Company's investment policy. These instruments are
denominated in U.S. dollars. The fair value of securities held at January 31,
2000 was approximately $17.3 million.
The Company also holds cash balances in accounts with commercial banks in the
United States and foreign countries. These cash balances represent operating
balances only and are invested in short-term time deposits of the local bank.
Such operating cash balances held at banks outside the United States are
denominated in the local currency.
Many of the Company's investments carry a degree of interest rate risk. When
interest rates fall, the Company's income from investments in variable-rate
securities declines. When interest rates rise, the fair market value of the
Company's investments in fixed-rate securities declines. The Company attempts to
mitigate risk by holding fixed-rate securities to maturity, but should its
liquidity needs force it to sell fixed-rate securities prior to maturity, the
Company may experience a loss of principal.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
The registrant is not currently involved in legal proceedings
requiring disclosure under this item.
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
- ------- ---------------------------------------------------
None.
Item 5. Other Information
- ------- -----------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
Exhibit No. Description
----------- -----------
11.1 Statement re: Computation of Per Share Earnings (Loss).
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter ended
January 31, 2000.
17
<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 March 10, 2000 /s/ J. Michael Edenfield
-------------- --------------------------------
J. Michael Edenfield
President, Chief Executive Officer
DATE March 10, 2000 /s/ Vincent C. Klinges
-------------- --------------------------------
Vincent C. Klinges
Chief Financial Officer
18
<PAGE>
Exhibit 11.1
LOGILITY, INC.
Statement re: Computation of Per Share Earnings (Loss)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
--------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Common Stock:
Weighted average common
shares outstanding 13,290 13,468 13,343 13,500
Dilutive effect of outstanding
stock options * 473 176 296 -
---------------- ---------------- --------------- ----------------
Total 13,763 13,644 13,639 13,500
---------------- ---------------- --------------- ----------------
Net income (loss) $ 1,247 $ 287 $ 3,034 $ (8,487)
================= ================= ================ =================
Income (loss) per common share
Basic $ 0.09 $ 0.02 $ 0.23 $ (0.63)
================ ================ =============== ================
Diluted $ 0.09 $ 0.02 $ 0.22 $ (0.63)
================ ================ =============== ================
</TABLE>
* Stock options are not included in the nine months ended January 31, 1999
calculation because they would have an anti-dilutive effect on the loss per
share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> APR-30-2000 APR-30-2000
<PERIOD-START> NOV-01-1999 MAY-01-1999
<PERIOD-END> JAN-01-2000 JAN-01-2000
<CASH> 8,550 8,550
<SECURITIES> 17,328 17,328
<RECEIVABLES> 8,016 8,016
<ALLOWANCES> 690 690
<INVENTORY> 0 0
<CURRENT-ASSETS> 43,191 43,191
<PP&E> 3,538 3,538
<DEPRECIATION> 1,705 1,705
<TOTAL-ASSETS> 43,191 43,191
<CURRENT-LIABILITIES> 8,892 8,892
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 31,840 31,840
<TOTAL-LIABILITY-AND-EQUITY> 43,191 43,191
<SALES> 0 0
<TOTAL-REVENUES> 8,513 25,436
<CGS> 0 0
<TOTAL-COSTS> 2,551 7,362
<OTHER-EXPENSES> 5,018 15,962
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (303) (922)
<INCOME-PRETAX> 1,247 3,034
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 1,247 3,034
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,247 3,034
<EPS-BASIC> .09 .23
<EPS-DILUTED> .09 .22
</TABLE>
