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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED APRIL 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-12456
AMERICAN SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1098795
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
470 EAST PACES FERRY ROAD, N.E. 30305
ATLANTA, GEORGIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (404) 261-4381
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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None None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON SHARES, $.10 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
At July 22, 1996, 17,490,320 Class A Common Shares and 4,819,289 Class B
Common Shares of the registrant were outstanding. The aggregate market value
(based upon the closing price of Class A Common Shares as quoted on the NASDAQ
National Market System at July 22, 1996) of the Class A shares held by
nonaffiliates was approximately $74 million.
DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-K
1. 1996 Proxy Statement, to be filed within 120 days after the end of the
registrant's fiscal year, into Part III.
2. Form S-1 Registration Statement No. 2-81444 into Part IV.
3. Form S-8 Registration Statement No. 33-55214 into Part IV.
4. Form 10-K's for fiscal years ended April 30, 1984, 1985 , 1990 and 1995
into Part IV.
5. Form 10-Q's for the quarters ended January 31, 1990, October 31, 1990 and
July 31, 1995 into Part IV.
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PART I
ITEM 1. BUSINESS
A. GENERAL
American Software, through its subsidiaries, develops, markets and supports
enterprise wide Supply Chain Management (TM)application software systems to be
used in a variety of IBM and IBM plug-compatible mainframe, IBM midrange and
Unix and Windows client/server computers. The Company's software enables the
customer to perform various business tasks principally in the areas of: (i)
Supply Chain Planning (TM), (ii) Warehouse Management, (iii) Manufacturing,
(iv) Purchasing and Customer Order Processing, and (v) Financial Control. The
Company also provides support for its software products, such as software
enhancements, documentation updates, customer education, consulting, systems
integration services and maintenance.
The Company markets and supports its Supply Chain Management application
software products to a wide range of end users, including manufacturers of
building materials, chemicals, consumer goods, electronics, food products,
pharmaceuticals, pulp and paper, steel, and textiles, as well as retail,
wholesale distributors and financial institutions, the health care industry,
petroleum producers, public utilities and the transportation industry. The
Company broadly classifies its products as addressing the supply chain
management requirements of the world's enterprises.
Computer software consists of coded instructions that control the computer's
internal operations. There are two general classes of computer software:
system software and application software. System software controls the basic
hardware operations. Application software, which is the type developed and
licensed by the Company, directs the computer to perform specific tasks or
functions and produces reports for use in many diverse applications.
Application software for mainframe, midrange and client server computers is
generally available in forms ranging from standard packages to custom-designed
programs. The Company primarily offers standard software packages.
B. PRODUCTS
The Company's strategy has been to create an integrated line of standard
application software operating on four strategic computer platforms: (1) IBM
Mainframe or compatible, (2) IBM Midrange--AS/400, (3) UNIX--HP 9000, IBM
RS/6000 and other Unix platforms and (4) Windows including Windows 3.1,
Windows NT and OS/2. These products are designed to be used either
individually or in combination to assist customers in forecasting and
inventory management, in purchasing and materials control and in order
processing and receivables control. The products are written in various
standard programming languages utilized for business application software,
including ANS COBOL, COBOL II, Micro Focus COBOL, C and other programming
languages, and many have both on-line and batch capabilities. An integral part
of this strategy has been to integrate unique characteristics of personal
computers as workstations or clients in the products provided by the Company.
ES/9000, RS/6000 and AS/400 are registered trademarks of the International
Business Machine Corporation. HP 9000 is a registered trademark of Hewlett
Packard Corporation. The following is a summary of the Company's main software
product groups.
SUPPLY CHAIN PLANNING SOFTWARE
The Company's Supply Chain Planning (TM) software consists of an integrated
system of software modules designed to provide the user with accurate sales
forecasts in order to minimize investment in inventory and to distribute
inventory more effectively. These modules perform primarily the following
functions:
1. Demand Forecasting--Analyzes historical demand for products sold or
goods and materials used, and projects future demand. The Demand
Forecasting module can optionally utilize the new SCP Internet Voyager (TM)
browser.
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2. Distribution Requirements Planning--Recommends a time-phased
replenishment plan for all levels in a distribution network, utilizing
sales forecasts, existing inventory information, and inventory control
parameters.
3. Inventory Planning--Computes inventory safety stock and ordering
quantities on the basis of management-specified customer service levels and
inventory turnover objectives.
4. Manufacturing Planning--Integrates the proposed replenishment plan and
compares it to available inventory and capacity within the supply chain.
Utilizes constrained capacity planning techniques to determine the optimal
plan.
5. Continuous Replenishment--Provides support for various continuous
replenishment strategies including Vendor Managed Inventory and Quick
Response which allow suppliers to effectively replenish merchandise for
their customers.
6. Vehicle Scheduling and Loading--Specifies the actual replenishment
quantities that should be shipped from a source location to a receiving
location, taking into consideration the capacity and number of available
vehicles.
WAREHOUSE MANAGEMENT SOFTWARE
The Company's WarehouseP&RO(TM) software consists of an integrated system
which automates all aspects of a system managed warehouse. It contains support
for automated bar coding and RF technologies. The object oriented architecture
combined with WarehouseP&RO(TM) workflows provide for easier configuration and
customization of the system. The system performs primarily the following
functions:
1. Receiving--Manages many different types of receiving including
purchase orders, customer returns, cross docking and advanced ship notices.
2. Setup and Administration--Defines properties of locations and items
used in the system. Measures employee activities and productivity. Delivers
customized putaway rules.
3. Product Storage--Optimizes space by tracking available storage,
generates real-time updates of inventory and lot records, creates pallets
for system directed or user-directed putaways.
4. Picking and Shipping--Provides for order selection and consolidation,
stock rotation and replenishment, packing list generation, and rules based
pick lists.
MANUFACTURING SOFTWARE
The Company's manufacturing software is a comprehensive state-of-the-art
business application for planning, controlling and executing manufacturing
activities. The Company's multi-plant design ensures enterprisewide visibility
and consistency. It also accomodates inter-plant dependencies while providing
plant by plant flexibility in operations. The modules that make up this
application set are:
1. Master Scheduling--Prepares a production plan consistent with existing
and anticipated customer orders, available inventory, production capacity,
and available resources.
2. Material Requirements Planning--Calculates manufacturing and
purchasing requirements at appropriate manufacturing stages.
3. Bill of Material--Maintains information on all component parts for
each product.
4. Capacity Planning--Projects work loads at various work centers based
upon the master schedule and/or material requirements plan.
5. Production Order Status--Provides inventory quantities and current
manufacturing order status and inventory information.
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6. Route and Work Center Maintenance--Acts as a storehouse of information
that is accessed by other manufacturing systems and establishes production
work center routings.
7. Shop Floor Control--Provides current order status for each individual
shop operation.
8. CMAT--Provides for standard cost development and comparison of
standard versus actual costs.
9. Flow Manufacturing--Also most commonly referred to as just-in-time,
represents a revolutionary approach to the design, manufacture, and
delivery of products by businesses to their markets.
PURCHASING & CUSTOMER ORDER PROCESSING SOFTWARE
The Company's purchasing and customer order processing software consists of
an integrated system of six modules which provides information concerning the
status of purchasing activities, customer orders, inventory position and
internal inventory requisition requirements. Several modules support the
general operational functions of most types of businesses and are frequently
referred to as cross-industry modules. These modules perform primarily the
following functions:
1. Inventory Control and Accounting--Processes inventory activities,
provides accurate status updates, and maintains price and cost details.
2. Purchasing--Produces updates, and continuously monitors the status of
requisitions and purchase orders for goods and services.
3. Material Request--Communicates material requirements to purchasing
functions, resulting in cohesive, centralized procurement activities.
4. Item Information Management System--Converts manufacturer's part
numbers into the user's inventory item identification system and provides
real time inquiry and reports on the status of user's inventory.
5. Bid (Request for Quotation)--Produces bids from existing data, updates
bids with vendors' responses, selects the desired bid and produces the
resulting purchase order in an on-line real-time environment.
6. Customer Order Processing--Performs customer order entry, status
inquiry, order processing, and shipping and invoicing functions.
FINANCIAL CONTROL SOFTWARE
The Company's financial control software provides comprehensive financial
solutions such as financial reporting, budgeting, asset management, cash
management, credit management and receivables management. These systems assist
in resolving customers' specific financial control issues faster and more
effectively. The specific applications available are:
1. General Ledger and Budgeting--This system is comprised of five basic
sub-systems which provide financial data base, general ledger, transaction
processing, management reporting and budget planning functions.
2. Accounts Receivable--Provides the functions and features needed to
support cash application for trade receivables and maintains real-time
customer account information.
3. Accounts Payable--Processes invoices, creates separate accounts for
multiple companies, maintains vendor history, activity and standard terms,
prints checks and projects cash flow while processing all types of employee
expenses such as travel, entertainment, relocation, tuition refund, etc.;
identifies reimbursable and non-reimbursable expenses and processes central
billing.
4. Capital Project Accounting--Tracks and accumulates project commitments
and expenditures and then compares to budgets.
5. Fixed Asset Accounting--Maintains property and tax records, and
prepares depreciation schedules for accounting and tax purposes.
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6. Continuing Property Records--Accounts for public utilities property,
including both specific and mass property, maintains property and tax
records, and prepares depreciation schedules for accounting and tax
purposes.
TRANSPORTATION MANAGEMENT SOFTWARE
In June 1992, the Company acquired Distribution Sciences, Inc. (DSI) based
in Chicago, Illinois. DSI is a leading provider of software solutions
addressing the transportation cost component of a customer's product
acquisition and distribution costs. The DSI solutions are integrated with the
Company's enterprise solutions.
DSI is operated as a wholly-owned subsidiary with its own sales and support
organization. DSI and the Company share leads and customer lists to achieve
market synergies. The specific modules consist of:
1. Preshipment Planning (R)--Preshipment Planning automates consolidation
while insuring that customer delivery times are met. The module considers
all orders and determines the best set of consolidations.
2. Carrier Select (TM)--This system provides automated routing and
carrier selection based on transit time, carrier preference, cost and
carrier service factors that relate to performance.
3. Match Pay (TM)--Match Pay controls the handling and payment of freight
bills so that every bill is paid in an accurate and timely manner. Match
Pay builds a comprehensive historical database of all shipments and costs
and includes a report writer/graphics utility for decision support.
4. Base Rate (R)--Base Rate provides freight rating, rate anlysis and
rate maintenance.
C. INTEGRATED SYSTEM DESIGN
While the Company's software applications can be used individually, they are
designed to be combined as integrated systems to meet unique customer
requirements. The user may select virtually any combination of modules to form
an integrated solution to a particular business problem. The license fee for
such a solution could range from $7,000 for a single module to in excess of
$4,000,000 for a multi-module, multiple-user solution incorporating the full
range of Company products.
The Company markets its products under the Supply Chain Management suite of
applications. Supply Chain Management is a business concept which addresses
new techniques and processes that are critical to reengineering today's
businesses. Within this enterprise application suite several unique
combinations of modules are marketed as industry-specific business solutions.
The Company offers customer-unique solutions. In addition to combining
modules to form a solution, the user may also include selected applied
technology modules or templates to be included with each application. Through
an internally-developed computer automated software factory approach, the
Company automatically assembles and delivers the combination of modules and
options for each user's specific requirements without the need for costly
manual programming and customization.
Customers frequently require services beyond those provided by the Company's
standard arrangements. To meet those customers' needs, the Company established
a separate professional services division which provides specialized business
and software implementation consulting, custom programming, on-site
installation, system-to-system interfacing and extensive training. These
services, frequently referred to as systems integration services, are provided
for an additional fee normally under a separate contract, based upon time and
materials utilized.
D. MARKETING AND SALES
Typically, the Company's customers are medium-sized companies or divisions
of larger companies with substantial data processing budgets. The Company has
licensed its application software to approximately 1,700 customers. No single
customer accounted for more than ten percent of the Company's revenues in
fiscal 1996.
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First-time customers may license a single module or a system composed of
several modules. These customers often license other modules to expand the
range of software available to them, and may also license additional modules
or systems similar to those already licensed for use at additional locations.
The Company sells its products directly to the end-user through its sales
and presales staff of approximately 108 persons located in seven (7) areas
worldwide: Mid U.S. (24), Northeast U.S.(17), Southern U.S. (21), Western U.S.
(8), Europe (25), Canada (4), and Asia Pacific (9). The presales staff
provides consultation, advice and assistance to the sales executives and the
customer in selecting an appropriate configuration of application software
modules to address the user's needs. The Company obtains sales leads from its
advertising in trade publications, its participation in computer industry
trade shows and exhibitions, Company-conducted seminars and telemarketing
activities, and referrals from existing customers.
In 1996, the Company continued its program, begun in fiscal 1988, to develop
a network of sales agents to support its sales internationally. These agents
along with a designated American Software employed Country Manager are
establishing a national presence for the Company in targeted countries
throughout Asia-Pacific, Europe and the Middle East.
E. LICENSES
American Software, like many business application software firms, typically
enters into license agreements which grant non-exclusive rights to use its
products. The Company's standard license agreements contain provisions
designed to prevent disclosure and unauthorized use of the Company's software.
These agreements warrant that the Company's products will function in
accordance with the specifications set forth in its product documentation.
These licenses are generally granted for a term of ninety-nine years and
provide that, for a one-time fee, the customer may use the software to process
its data at a single facility for a specified division or divisions. A
significant portion of the license fee is generally payable upon the delivery
of product documentation, with the balance due upon installation.
F. INSTALLATION, MAINTENANCE AND SUPPORT
As additional services to its customers, the Company provides implementation
services and customized support. Implementation services and customized
support include installation of the Company's software, project planning and
management, and training of the customer's user and systems personnel on the
use of the software system. The customer receives documentation manuals which
describe the system's features and its method of operation. The user is
normally entitled to software product enhancements and maintenance for a
period of six months at no additional charge. The Company's software products
are continually enhanced and improved to accommodate technological changes and
other factors which may affect the customer's information requirements. To
receive maintenance, which includes enhancements, from the Company after the
initial period, customers pay fees which are based on the then-current price
of the product.
As a part of its support service, the Company provides experienced
application and data processing personnel to answer telephone inquiries on a
24-hours-a-day, seven days-a-week basis, and furnishes consulting support in
implementing and maintaining the systems. In addition, training courses and
documentation materials are available to train customers' personnel and to
update them on new system features.
In fiscal 1992, the Company began to market its professional and data
processing resources on an outsourcing basis. Outsourcing is the provision of
data processing services, normally under long-term contract, by outside
providers. The Company has entered into 30 outsourcing contracts as of July
12, 1996 to provide data processing and support services on terms of up to
five years. The Company believes outsourcing represents a growth opportunity
by providing a basis for predictable long-term recurring revenues.
To complement customer support, the Company and its product users actively
participate in its User Group Association. Established in 1980, the User Group
exchanges ideas and techniques for use of the Company's
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products and provides a forum for customers' suggestions for product
development and enhancement. User Group meetings include guest speakers who
are recognized authorities in their areas of expertise.
G. RESEARCH AND DEVELOPMENT
American Software is committed to the development and acquisition of new
products and to the continued enhancement of its existing products. During
fiscal 1996, 1995, and 1994, the Company expensed approximately $3,350,000,
$5,200,000, and $4,350,000, respectively, for research and development. In
addition, the Company capitalized $12,750,536, $7,352,301, and $7,315,470 in
software development costs during fiscal years 1996, 1995, and 1994,
respectively, in accordance with the Statement of Financial Accounting
Standards No. 86. The Company's new internal product development and
enhancements of existing products include two categories: research and
development expenditures and additions to capitalized computer software
development costs. These combined categories totaled $16,094,000, $12,552,000,
and $11,665,000 in fiscal years 1996, 1995 and 1994, respectively, and
represented 67%, 60%, and 38%, respectively, of total license fee revenues in
those years.
The Company believes that a Model Driven Development Architecture will be
important for its long-term growth and that this will be a multi-year
development effort. The Company employs approximately 200 persons in research,
development and enhancement activities.
H. COMPETITION
The computer application software industry is highly competitive. In the
application software market, the Company competes directly with a number of
firms, including computer manufacturers, large diversified computer service
companies and independent suppliers of software products. Approximately six
firms that market mainframe application software products and thirty firms
that market midrange and client/server application software products are
significant competitors for one or more of the Company's products. A number of
these competitors have financial, marketing, management and technical
resources substantially greater than those of the Company.
The Company's primary market for its software is finished goods distributors
and manufacturers, industrial manufacturers, utilities, public transportation
and health care providers on IBM mainframe, AS/400, RS/6000, HP 9000, and
other UNIX platforms. The Company is transitioning from a primarily IBM
mainframe and AS/400 product set to include a more diversified offering of
Client/Server applications to its product portfolio. As it makes this
transition plans are being implemented to facilitate the current client base
transition to this new environment while still supporting their current
platforms.
The Company believes that purchasers of software products are principally
concerned with the range of product modules available, ease of integration,
variety of features, performance, simplicity of use, documentation, technical
support and training. The Company further believes that its software products
and services are competitive in these areas. Price considerations are a key
factor and the Company believes its pricing is competitive in its market. The
Company believes the market trend to open systems, allowing software to
operate across hardware platforms, will increase the number of competitors and
intensity of competition. Management believes that it is necessary for the
Company to expend significant development monies annually to remain
competitive in the marketplace.
I. TRADEMARKS AND COPYRIGHTS
The Company seeks to protect its proprietary interest in software products
and trade secrets. It maintains non-disclosure and confidentiality agreements
and other contractual arrangements with customers, consultants, employees, and
others. While the strict enforceability of such agreements cannot be assured,
the Company believes that they provide a deterrent to the use of information
which may be proprietary to the Company, and in the event of any breach of
such agreements, the Company intends to take appropriate legal action. It also
copyrights its programs and software documentation related to these programs.
In addition, certain trademarks of
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the Company have been registered, and others have registration applications
pending. Management believes that the competitive position of the Company
depends primarily on the technical competence and creative ability of its
personnel and that its business is not materially dependent on copyright
protection or trademarks.
J. EMPLOYEES
At April 30, 1996, the Company had 610 full-time employees, including 264 in
product development and technical support, 180 in customer support and
professional services, 126 in marketing, sales and sales support, and 40
persons in accounting and administration. The Company believes that its
continued success will depend in part on its ability to continue to attract
and retain highly skilled technical, marketing and management personnel, who
are in great demand.
The Company has never had a work stoppage and no employees are represented
under collective bargaining arrangements. The Company considers its employee
relations to be good.
K. INTERNATIONAL SALES
See note 6 of Notes to Consolidated Financial Statements included as a part
of the Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1996 for a discussion of international revenues.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in an approximately 100,000
square foot office building owned by the Company at 470 East Paces Ferry Road,
N.E., Atlanta, Georgia.
The Company also leases a two-story 17,500 square foot building at 443 East
Paces Ferry Road, N.E. Atlanta, Georgia, which is used primarily for financial
administration. This building is owned by a limited partnership of which
Thomas L. Newberry and James C. Edenfield, the principal shareholders, are the
sole partners. The lease is for a term of fifteen (15) years, expiring
December 31, 1996, at a current base rental of approximately $17.06 per square
foot, subject to increases based upon changes in the Consumer Price Index and
periodic adjustments based upon appraised market rates.
In January, 1989, the Company acquired a four-story 42,000 square foot
building used for additional office space at 3110 Maple Drive, N.E., Atlanta,
Georgia, along with a one-story 1,400 square foot building at 3116 Maple Drive
used for recruiting, and a one-story 14,000 square foot building at 3120 Maple
Drive which is used for office space.
In January, 1990, the Company entered into a seven-year operating lease for
26,000 square feet of space at 3423 Piedmont Road, Atlanta, Georgia. This is
currently being used for sales conferencing, client education and additional
office space.
In May, 1990, the Company acquired a two-story 10,000 square foot building
used for additional office space at 480 East Paces Ferry Road, N.E. Atlanta,
Georgia, along with a one-story 4,000 square foot building at 490 East Paces
Ferry Road which is under lease to a restaurant.
The Company has entered into leases for sales offices located in various
cities in the U. S. and overseas. Normally, these leases are for terms of less
than five years and average 3,000 square feet of leasable space.
The Company owns a variety of electronic and computer equipment, including
seven mid-sized computers, consisting of one IBM 9370, five IBM AS/400s, and
one IBM 4381 and leases two IBM AS/400s, two IBM 3090 600Es, one IBM 3090-
400J, one IBM 962 R31 and one IBM 9121 210, all of which are used for program
development and testing, outsourcing and product demonstrations.
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ITEM 3. LEGAL PROCEEDINGS
On March 3, 1995, the Company and one of its subsidiaries filed an action
against a firm which provides services to licensees of the Company's software
products alleging copyright infringement, misappropriation of trade secrets,
unfair competition and related claims stemming from the defendant's activities
as they relate to some of the Company's intellectual property. American
Software, Inc. and American Software USA, Inc. v. The McKinley Group, Inc., et
al., United States District Court for the Northern District of Georgia,
Atlanta Division. The complaint seeks injunctive relief as well as monetary
damages. The defendant has filed an answer to the Company's complaint and
asserted defenses to the Company's claims which among other things denies the
validity of the copyrights and trade secrets which are the subject of the main
action by the Company. The defendant also asserted counterclaims against the
Company including antitrust, defamation and other violations on the part of
the Company. The counterclaims do not contain a request for specific monetary
damages. Management believes that the defendant's defenses and counterclaims
are without merit and intends to vigorously pursue both the main action as
well as the defense of these counterclaims.
The Company is involved in various other claims and other legal actions
arising in the ordinary course of business. In the opinion of management,
based upon consultation with legal counsel, any liability likely to arise from
such actions will not have a material adverse effect on the consolidated
financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the fourth
quarter of the Company's recently completed fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Shares are listed on the NASDAQ-National
Market. There were 1,113 shareholders of record of the Company's Class A
Common Shares and 2 shareholders of the Company's Class B Common Shares as of
July 22, 1996. The payment of future cash dividends will be at the sole
discretion of the Board of Directors and will depend upon the Company's
profitability, financial condition, cash requirements, future prospects and
other factors deemed relevant by the Board of Directors.
The table below presents the high and low sales prices for American
Software, Inc. common stock as reported by NASDAQ-National Market, for the
Company's last two fiscal years (1996 and 1995).
<TABLE>
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HIGH LOW
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FISCAL YEAR 1996
First Quarter.............................................. $5 7/8 $3 1/2
Second Quarter............................................. 8 3/8 5 1/4
Third Quarter.............................................. 8 3/4 3
Fourth Quarter............................................. 5 1/2 3 5/8
FISCAL YEAR 1995
First Quarter.............................................. $5 7/8 $4 3/8
Second Quarter............................................. 5 1/2 4 3/8
Third Quarter.............................................. 3 1/8 2 1/2
Fourth Quarter............................................. 4 1/4 2 3/4
</TABLE>
The closing price on July 22, 1996, was 4 1/4.
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<TABLE>
<S> <C>
CASH DIVIDENDS
FISCAL 1996
First Quarter....................................................... $--
Second Quarter...................................................... --
Third Quarter....................................................... --
Fourth Quarter...................................................... --
FISCAL 1995
First Quarter....................................................... $.08
Second Quarter...................................................... .08
Third Quarter....................................................... --
Fourth Quarter...................................................... --
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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For year ended April 30:
Revenues...................... $ 77,557 $ 79,462 $ 94,222 $106,844 $113,125
Total costs and expenses...... 92,886 93,050 108,328 103,558 89,932
-------- -------- -------- -------- --------
Operating earnings (loss)... (15,329) (13,588) (14,106) 3,286 23,193
Other income.................. 2,569 2,246 2,428 3,459 4,686
-------- -------- -------- -------- --------
Earnings (loss) before
income taxes............... (12,760) (11,342) (11,678) 6,745 27,879
Income tax expense (benefit).. (3,011) (4,653) (5,090) 1,635 9,316
-------- -------- -------- -------- --------
Net earnings (loss)......... $ (9,749) $ (6,689) $ (6,588) $ 5,110 $ 18,563
======== ======== ======== ======== ========
Net earnings (loss) per common
and common equivalent share.. $ (.44) $ ( .30) $ (.30) $ .23 $ .80
Cash dividends per share...... $ -- $ .16 $ .32 $ .31 $ .27
As of April 30:
Working capital............... $ 21,512 $ 36,407 $ 46,328 $ 61,839 $ 73,171
Total assets.................. $ 90,782 $107,792 $117,641 $131,540 $135,655
Long-term debt................ $ -- $ -- $ -- $ -- $ 290
Shareholders' equity.......... $ 64,255 $ 74,037 $ 84,268 $ 98,031 $105,861
</TABLE>
In 1996, the Company recorded a write down to NRV for certain capitalized
computer software development costs and purchased computer software costs (See
note 1(e) and (f) to the Notes to Consolidated Financial Statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Fiscal 1996 represented a transition period for American Software
emphasizing its new Supply Chain Planning (SCP) client/server products while
revenues of its older technology products declined. Supply Chain Planning grew
significantly during fiscal 1996. License fee revenues from mainframe software
and to a lesser extent midrange software, dropped significantly during the
last six months of fiscal 1996. Total operating expenses, with the exception
of certain fourth quarter write-offs, as discussed below, were reduced 10%
from the prior year. The Company reported net earnings in the first two
quarters of fiscal 1996. However, the Company experienced losses over the last
half of the year due to the sharp decrease in license fees for the
aforementioned older technology products and to writeoffs taken in the fourth
quarter of fiscal 1996, which resulted in a net loss for the year ended April
30, 1996.
10
<PAGE>
Fiscal 1996 was also a year of considerable investments and expenditures. To
build for the future, the Company spent approximately $16.1 million on new
products and on enhancements to existing products. It also spent approximately
$2 million on its committment to quality and was awarded ISO 9001
certification in April 1996. American Software purchased 60% of Intellimedia
Commerce, Inc., a company engaged in building and maintaining systems for
commerce on the internet, in January 1996. Working together with Intellimedia,
American Software sold its first internet enabled SCP system.
In March 1996, the Company purchased a manufacturing planning product
(Production Scheduling Advisor) from Stone and Webster Advanced Systems
Development Services Inc., a subsidiary of Stone and Webster, Incorporated.
This complementary product further enhances the marketability of American
Software's existing SCP product offering. Production Scheduling Advisor also
has a market as a stand-alone product.
Overall, fiscal 1996 was a year of transition toward new technology products
and one where significant investments were made for the future. Both should
serve American Software well as it continues this transition into fiscal 1997
as well as for the years beyond.
RESULTS OF OPERATIONS
Overall, software license fee revenues increased 16% to $24.1 million in
fiscal 1996 from $20.8 million in fiscal 1995. SCP license fee revenues grew
151% from fiscal 1995 to fiscal 1996. While SCP was growing during the first
six months, the Company continued to license older technology products at a
level which resulted in net earnings for those quarters. License fees for SCP
continued to grow in the second six months of fiscal 1996 while license fees
for the older technology products declined sharply. Software license fee
revenues decreased to $20.8 million in fiscal 1995 from $31.1 million in
fiscal 1994. This decline from fiscal 1994 to fiscal 1995 was primarily due to
significant decreases in license fee revenues from older technology products.
Services revenues, which are composed primarily of consulting, custom
programming, and outsourcing, decreased to $30.7 million in fiscal 1996 from
$36.0 million in fiscal 1995 and $41.5 million in fiscal 1994. Outsourcing
revenues increased 12% to $10.3 million in fiscal 1996 from $9.2 million in
fiscal 1995. Outsourcing revenues increased 53% in fiscal 1995 versus $6.0
million in fiscal 1994. Outsourcing consists generally of assisting customers
with their data processing functions by processing their software on the
Company's equipment. Services revenues, excluding outsourcing revenues,
declined 24% to $20.4 million in fiscal 1996 from $26.8 million in fiscal
1995. Unlike outsourcing, the consulting and custom programming business
generally tends to be affected by software license fees generated in the
previous six to nine months as well as other competitive factors.
Additionally, the Company has been less effective in selling large services
contracts with its SCP product than it experienced with its mainframe and
midrange products because SCP is less likely to require customization by
individual customers. The Company is attempting to change its services focus
for SCP by offering customers assistance in fully utilizing the standard
product. The Company is also attempting to improve its services revenues in
the future by offering its existing customers assistance in preparing their
total enterprise solutions to operate into the next millennium.
Maintenance revenues increased 1% to $22.8 million in fiscal 1996 versus
$22.6 million in fiscal 1995 and increased 5% from fiscal 1994 to fiscal 1995.
The growth in maintenance has slowed over the last three years primarily due
to the decrease in software license fees which serves as the source of new
maintenance customers.
Total operating expenses, excluding certain write-offs in the fourth fiscal
quarter of fiscal 1996, were 10% lower than fiscal 1995. Operating expenses
for fiscal 1995 were 14% below those for fiscal 1994. Including the fiscal
1996 fourth quarter write-offs, expenses were comparable at $92.9 million in
fiscal 1996 to $93.0 million in fiscal 1995. Absent the fourth quarter write-
offs, expenses decreased from fiscal 1995 to fiscal 1996 due primarily to a
decrease in salary expense and an increase in expenses deferred for
capitalized computer software development costs. Salary expense decreased $3.3
million from fiscal 1995 due to a 16% decrease in the average number of
salaried employees. Expenses deferred for capitalized computer software
development costs increased $5.4 million from fiscal 1995 to fiscal 1996.
11
<PAGE>
American Software wrote off approximately $8.8 million from operations in
the fourth quarter of fiscal 1996. Additionally, the Company created a $2.0
million valuation allowance against certain deferred income tax assets,
principally for foreign tax credits, which affected the tax benefit for both
the fourth quarter and fiscal year 1996. Approximately $6.1 million of
computer software costs relating to older technology products were written
off. Of that, $3.6 million related to internally developed software and $2.5
million to purchased software. The software write-offs were due to
insufficient projected revenues as compared to the carrying values of those
products. Additionally during the fourth quarter of fiscal 1996, the Company
wrote off $2.7 million ($3.2 million for fiscal 1996) of accounts receivable
directly to the provision for doubtful accounts. Over 50% of the write-offs,
comprised of three accounts, related to international accounts in Eastern
Europe and the Pacific Rim. Essentially all of the writeoffs were directly or
indirectly related to revenues of the Company's older technology software
products. While American Software intends to continue pursuing several of the
accounts for collection, it was considered prudent to eliminate those
receivables from the Company's consolidated balance sheet.
Total operating expenses were $108.3 million in fiscal 1994. Expenses for
salaries and commissions decreased $5.6 million in fiscal 1995 from fiscal
1994. This was due to a personnel decrease from 905 at the end of the fiscal
1994 to 670 at the end of fiscal 1995. Other significant reductions from
fiscal 1994 to fiscal 1995 included employee travel of $2.8 million and
marketing expenses of $.4 million. Additionally, factors that contributed to
higher fiscal 1994 expenses were a $6.8 million increased provision for
doubtful accounts and a $1.2 million decrease from the write-off of
principally mainframe capitalized computer software development costs.
The cost of revenues for license fees consists primarily of salaries and
related employee benefits, royalties and amortization of computer software
costs. These costs were $29.0 million in fiscal 1996 versus $24.3 million in
fiscal 1995, due to the aforementioned write-off of $6.1 million in software
costs. These costs decreased to $24.3 million in fiscal 1995 from $32.8
million in fiscal 1994 primarily due to a decrease in salaries and employee
benefits related to the decrease in personnel during fiscal 1995.
Services cost of revenues consist of salaries and related employee benefits,
contract programming and related travel and living expenses. Services costs
increased 1% to $22.1 million in fiscal 1996 from $21.9 million in fiscal
1995, due to an increase in outsourcing costs of $1.9 million, partially
offset by decreases in services salaries of $.8 million. Services costs of
revenues increased 2% to $21.9 million in fiscal 1995 from $21.3 million in
fiscal 1994, due to an increase in outsourcing costs of $2.6 million,
partially offset by decreases in services salaries of $2.1 million.
Maintenance cost of revenues consists of salaries and related employee
benefits and are accounted for on an activity basis. These costs increased 15%
to $4.8 million in fiscal 1996 from $4.2 million in fiscal 1995. The same
costs decreased to $4.2 million in fiscal 1995 from $5.9 million in fiscal
1994, due to reductions in headcount.
The Company's internal new product development and enhancement of existing
products includes two categories: research and development expenditures and
additions to capitalized computer software development costs. These totalled
$16.1 million, $12.6 million, and $11.7 million in fiscal years 1996, 1995,
and 1994, respectively, and represented 67%, 60%, and 38% of license fees for
those fiscal years.
Selling, general and administrative (SG&A) expenses decreased 21% to $33.8
million in fiscal 1996 from $42.9 million in fiscal 1995. The decrease in SG&A
expenses was primarily due to an increase in the costs deferred to capitalized
computer software development costs. SG&A costs increased 3% in fiscal 1995
from $41.8 million in fiscal 1994. This increase was primarily due to an
expansion of the Company's selling presence worldwide. The Company also
decentralized its sales support functions to form cohesive sales units in its
field offices.
Provision for doubtful accounts for fiscal 1996 increased to $3.2 million
from $(.2) million in fiscal 1995 due to the aforementioned write-offs.
Provision for doubtful accounts for fiscal 1994 was $6.6 million primarily due
to the write-off of two international accounts during fiscal 1994.
12
<PAGE>
Other income is comprised predominantly of interest income and of gains and
losses relating to the market value of the underlying investments and was $2.6
million, $2.2 million, and $2.4 million in fiscal years 1996, 1995, and 1994,
respectively. Cash and investments totaled approximately $26,154,000,
$32,505,000, and $40,674,000 and comprised 29%, 30%, and 35% of total assets
at April 30, 1996, 1995, and 1994, respectively.
The income tax benefit in fiscal 1996 was 24% of the pretax loss compared to
41% in fiscal 1995, and 44% in fiscal 1994. The decrease in the tax benefit
rate from fiscal 1995 to fiscal 1996 was due to the establishment of a $2.0
million valuation allowance against deferred income tax assets, principally
for foreign tax credits (see footnote 3 to Notes to Consolidated Financial
Statements).
The Company believes that inflation has not materially affected the results
of its operations for the past three years.
OPERATING PATTERN
The Company experienced an irregular pattern of quarterly operating results,
caused primarily by fluctuations in both the number and size of software
license contracts received and delivered from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
Over the past three years, working capital has been provided by operations;
by the sale of portions of the Company's investment portfolio; by the receipt
of income tax refunds in fiscal 1995 and fiscal 1996 due to operating loss
carrybacks; and by the collection of accounts receivable, which have declined
each year. The Company is actively seeking other sources of capital, as well
as enacting expense control programs in an effort to minimize the need for
additional sales of its investment "trading" portfolio to provide for working
capital requirements. The Company had no material commitments for capital
expenditures as of April 30, 1996.
The Company's operating activities provided cash of $16.5 million in fiscal
1996, $14.0 million in fiscal 1995 and $11.8 million in fiscal 1994. With the
Company's adoption of SFAS 115 on May 1, 1994, its investments including money
market funds are accounted for as a "trading" portfolio. The activities of
that portfolio are included in operating activities in the consolidated
statements of cash flows for fiscal 1996 and fiscal 1995. Income tax refunds
due to net operating loss carrybacks generated $4.6 million in fiscal 1996 and
$4.1 million in fiscal 1995. The decline in accounts receivable for fiscal
1996 compared to fiscal 1995 had a lesser effect than the decline in fiscal
1995 compared to fiscal 1994.
Cash used for investing activities was $15.7 million in fiscal 1996, $11.2
million in fiscal 1995 and $3.1 million in fiscal 1994. The Company acquired a
60% interest in Intellimedia Commerce, Inc. for $850,000 in fiscal 1996. The
Company acquired a 30% interest in TXbase Systems, Inc. for $827,000 in fiscal
1995; and acquired certain licensing rights from CODA for $3.3 million in
fiscal 1994.
Cash used for financing activities was $57,000 in fiscal 1996, $3.7 million
in fiscal 1995 and $7.7 million in fiscal 1994. The reduction in cash used for
financing activities in fiscal 1996 as compared to fiscal 1995 and fiscal 1994
was due to the suspension of the Company's quarterly dividends after payment
of two quarterly dividends in fiscal 1995 and payment of four quarterly
dividends in fiscal 1994.
The Company's current ratio was 1.9 to 1 and cash and investments totaled
29% of total assets at April 30, 1996. The Company expects existing cash and
investments, combined with cash generated from operations, to be sufficient to
meet its operational needs in fiscal 1997. The Company may seek additional
sources of capital to meet its software development goals for fiscal 1997.
The Company has determined that the adoption of Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" in fiscal 1997, will not have a
material impact on the Company's financial condition or results of operations.
13
<PAGE>
The Company has determined that the adoption of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" in
fiscal 1997, will not have a material impact on the Company's financial
condition or results of operations.
IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS
It should be noted that this discussion contains forward-looking statements
which are subject to substantial risks and uncertainties. There are a number
of factors which could cause actual results to differ materially from those
anticipated by statements made herein. Such factors include, but are not
limited to, changes in general economic conditions, the growth rate of the
market for the Company's products and services, the timely availability and
market acceptance of 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 effect the future performance of the
Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets as of April 30, 1996 and 1995................. 15
Consolidated Statements of Operations for the Years ended April 30, 1996,
1995 and 1994............................................................ 16
Consolidated Statements of Shareholders' Equity for the Years ended April
30, 1996, 1995
and 1994................................................................. 17
Consolidated Statements of Cash Flows for the Years ended April 30, 1996,
1995 and 1994............................................................ 18
Notes to Consolidated Financial Statements................................ 19
Independent Auditors' Report.............................................. 26
</TABLE>
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 1,947,249 $ 1,228,461
Investments (note 2)................................... 24,207,169 31,276,773
Trade accounts receivable, less allowance for doubtful
accounts of $1,200,000 in 1996 and $1,906,284 in
1995.................................................. 14,106,363 11,008,273
Unbilled accounts receivable........................... 953,089 5,409,390
Current deferred income taxes (note 3)................. 1,938,059 2,269,548
Refundable income taxes................................ 1,021,915 8,304,601
Prepaid expenses and other current assets.............. 1,880,485 2,474,950
----------- ------------
Total current assets................................. 46,054,329 61,971,996
----------- ------------
Property and equipment, at cost:
Buildings and leasehold improvements................... 19,241,116 19,021,450
Computer equipment..................................... 15,785,753 14,167,275
Office furniture and equipment......................... 4,396,152 4,186,816
----------- ------------
39,423,021 37,375,541
Less accumulated depreciation and amortization......... 21,804,448 19,283,211
----------- ------------
Net property and equipment........................... 17,618,573 18,092,330
----------- ------------
Capitalized computer software development costs, less
accumulated amortization of $27,167,374 in 1996 and
$28,248,564 in 1995..................................... 22,943,859 20,372,465
Purchased computer software costs, less accumulated
amortization of $4,100,729 in 1996 and $7,522,237 in
1995.................................................... 1,231,076 5,414,553
----------- ------------
Total computer software costs........................ 24,174,935 25,787,018
----------- ------------
Other assets, net........................................ 2,934,117 1,940,209
----------- ------------
$90,781,954 $107,791,553
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 4,940,084 $ 5,132,774
Accrued compensation and related costs................. 3,656,371 2,797,422
Accrued royalties...................................... 946,548 1,161,836
Other current liabilities.............................. 3,493,964 3,722,891
Deferred revenue....................................... 11,505,860 12,750,156
----------- ------------
Total current liabilities............................ 24,542,827 25,565,079
Deferred income taxes (note 3)........................... 1,983,729 8,189,662
----------- ------------
Total liabilities.................................... 26,526,556 33,754,741
----------- ------------
Shareholders' equity (note 5):
Common stock:
Class A, $.10 par value. Authorized 50,000,000 shares;
issued 18,769,083 shares in 1996 and 18,729,871
shares in 1995....................................... 1,876,910 1,872,988
Class B, $.10 par value. Authorized 10,000,000 shares;
issued and outstanding 4,836,889 shares in 1996 and
4,840,489 shares in 1995; convertible into Class A
shares on a one-for-one basis........................ 483,689 484,049
Additional paid-in capital............................. 30,776,204 30,656,333
Retained earnings...................................... 43,097,649 52,846,986
----------- ------------
76,234,452 85,860,356
Less Class A treasury stock, 1,331,119 shares in 1996
and 1,306,943 shares in 1995, at cost................. 11,979,054 11,823,544
----------- ------------
Total shareholders' equity........................... 64,255,398 74,036,812
----------- ------------
Commitments and contingencies (notes 4, 7 and 8)
$90,781,954 $107,791,553
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues (note 6):
License fees...................... $ 24,067,358 $ 20,780,444 $ 31,107,052
Services.......................... 30,682,172 36,049,657 41,492,285
Maintenance....................... 22,807,555 22,631,551 21,622,555
------------ ------------ ------------
Total revenues.................. 77,557,085 79,461,652 94,221,892
------------ ------------ ------------
Cost of revenues:
License fees...................... 29,006,128 24,274,510 32,760,937
Services.......................... 22,097,912 21,864,138 21,331,001
Maintenance....................... 4,800,138 4,167,879 5,859,773
------------ ------------ ------------
Total cost of revenues.......... 55,904,178 50,306,527 59,951,711
------------ ------------ ------------
Selling, general, and administrative
expenses........................... 33,799,513 42,901,873 41,750,390
Provision for (recovery of) doubtful
accounts........................... 3,182,590 (158,944) 6,626,099
------------ ------------ ------------
Operating loss................... (15,329,196) (13,587,804) (14,106,308)
Other income (expense):
Interest income................... 1,672,049 2,044,864 2,492,378
Other, net........................ 897,255 200,464 (64,092)
------------ ------------ ------------
Loss before income taxes......... (12,759,892) (11,342,476) (11,678,022)
Income tax benefit (note 3)......... (3,010,555) (4,653,314) (5,090,000)
------------ ------------ ------------
Net loss......................... $ (9,749,337) $ (6,689,162) $ (6,588,022)
------------ ------------ ------------
Net loss per common and common
equivalent share................... $ (.44) $ (.30) $ (.30)
============ ============ ============
Weighted average number of common
and common equivalent shares out-
standing........................... 22,261,782 22,317,899 22,324,258
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
--------------------- ------------------- PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
---------- ---------- --------- -------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30,
1993................... 18,598,601 $1,859,860 4,859,289 $485,929 $29,653,835 $76,841,914 $(10,810,813) $98,030,725
Cash dividends
declared--$.32 per
share.................. -- -- -- -- -- (7,148,013) -- (7,148,013)
Proceeds from stock
options exercised at
$2.22 to $6.67 per
share.................. 71,327 7,133 -- -- 234,353 -- -- 241,486
Conversion of Class B
shares into Class A
shares................. 18,800 1,880 (18,800) (1,880) -- -- -- --
Grants of compensatory
stock options.......... -- -- -- -- 526,930 -- -- 526,930
Repurchase of 127,000
Class A shares......... -- -- -- -- -- -- (794,625) (794,625)
Net loss................ -- -- -- -- -- (6,588,022) -- (6,588,022)
---------- ---------- --------- -------- ----------- ----------- ------------ -----------
Balance at April 30,
1994................... 18,688,728 1,868,873 4,840,489 484,049 30,415,118 63,105,879 (11,605,438) 84,268,481
Cash dividends
declared--$.16 per
share.................. -- -- -- -- -- (3,569,731) -- (3,569,731)
Proceeds from stock
options exercised at
$2.22 to $4.11 per
share.................. 41,143 4,115 -- -- 46,791 -- -- 50,906
Grants of compensatory
stock options.......... -- -- -- -- 194,424 -- -- 194,424
Repurchase of 85,000
Class A shares......... -- -- -- -- -- -- (296,250) (296,250)
Issuance of 17,057 Class
A shares under the
Dividend Reinvestment
and Stock Purchase
Plan................... -- -- -- -- -- -- 78,144 78,144
Net loss................ -- -- -- -- -- (6,689,162) -- (6,689,162)
---------- ---------- --------- -------- ----------- ----------- ------------ -----------
Balance at April 30,
1995................... 18,729,871 1,872,988 4,840,489 484,049 30,656,333 52,846,986 (11,823,544) 74,036,812
Proceeds from stock
options exercised at
$2.75 to $4.56 per
share and other stock
option transactions.... 35,612 3,562 -- -- 95,308 -- -- 98,870
Conversion of Class B
shares into Class A
shares................. 3,600 360 (3,600) (360) -- -- -- --
Grants of compensatory
stock options.......... -- -- -- -- 24,563 -- -- 24,563
Repurchase of 25,000
Class A shares......... -- -- -- -- -- -- (160,000) (160,000)
Issuance of 824 Class A
shares under the
Dividend Reinvestment
and Stock Purchase
Plan................... -- -- -- -- -- -- 4,490 4,490
Net loss................ -- -- -- -- -- (9,749,337) -- (9,749,337)
---------- ---------- --------- -------- ----------- ----------- ------------ -----------
Balance at April 30,
1996................... 18,769,083 $1,876,910 4,836,889 $483,689 $30,776,204 $43,097,649 $(11,979,054) $64,255,398
========== ========== ========= ======== =========== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $ (9,749,337) $ (6,689,162) $(6,588,022)
Adjustments to reconcile net loss to
net cash provided by operating ac-
tivities:
Depreciation and amortization....... 12,151,135 11,748,244 12,159,628
Net loss (gain) on investments...... (872,889) (609,099) 326,019
Loss on disposal of property........ 18,807 38,376 --
Equity in loss of investee.......... 178,313 -- --
Capitalized software impairment
charge............................. 6,158,359 -- 1,167,496
Grants of compensatory stock op-
tions.............................. 24,563 194,424 526,930
Deferred income taxes............... (6,074,444) 1,026,352 (577,072)
Changes in operating assets and lia-
bilities:
Net (increase) decrease in money
market funds...................... 4,725,831 (3,324,796) --
Purchases of trading securities.... (10,152,627) (4,055,226) --
Proceeds from sale of trading secu-
rities............................ 1,833,268 8,947,802 --
Proceeds from maturities of trading
securities........................ 11,536,021 6,265,487 --
Accounts receivable................ 1,358,211 3,489,632 9,207,942
Prepaid expenses and other current
assets............................ (1,141,786) (375,114) (1,675,610)
Accounts payable and other liabili-
ties.............................. 222,044 73,690 (515,433)
Income taxes....................... 7,482,686 (2,186,753) (3,274,939)
Deferred revenue................... (1,244,296) (522,096) 996,838
------------ ------------ -----------
Net cash provided by operating ac-
tivities......................... 16,453,859 14,021,761 11,753,777
------------ ------------ -----------
Cash flows from investing activities:
Capitalized software development
costs............................... (12,750,536) (7,352,301) (7,315,470)
Net decrease in money market funds... -- -- 9,659,922
Purchases of investments............. -- -- (7,624,256)
Proceeds from maturities of invest-
ments............................... -- -- 3,276,226
Proceeds from sales of investments... -- -- 4,681,535
Purchase of assets (note 4).......... -- -- (3,300,000)
Purchase of TXbase Systems, Inc.
stock (note 4)...................... -- (827,164) --
Purchase of Intellimedia Commerce,
Inc. stock (note 4)................. (850,000) -- --
Purchases of property and equipment.. (2,077,895) (3,049,649) (2,517,387)
------------ ------------ -----------
Net cash used in investing activi-
ties............................. (15,678,431) (11,229,114) (3,139,430)
------------ ------------ -----------
Cash flows from financing activities:
Repurchases of common stock.......... (160,000) (296,250) (794,625)
Proceeds from Dividend Reinvestment
Plan (note 5)....................... 4,490 78,144 --
Proceeds from exercise of stock op-
tions............................... 98,870 50,906 241,486
Dividends paid....................... -- (3,569,731) (7,148,013)
------------ ------------ -----------
Net cash used in financing activi-
ties............................. (56,640) (3,736,931) (7,701,152)
------------ ------------ -----------
Net change in cash.................... 718,788 (944,284) 913,195
Cash at beginning of year............. 1,228,461 2,172,745 1,259,550
------------ ------------ -----------
Cash at end of year................... $ 1,947,249 $ 1,228,461 $ 2,172,745
============ ============ ===========
Supplemental disclosure of cash re-
ceived during the year for income
taxes................................ $ (4,368,727) $ (3,492,913) $(1,237,989)
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995, AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of American
Software, Inc. and its wholly owned subsidiaries and its majority owned
subsidiary (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company is engaged in the development, marketing, and support activities
of a broad range of computer business applications software. The Company's
operations are principally in the computer software industry with a computer
operations outsourcing business.
(b) Revenue Recognition
License fees in connection with license agreements for standard proprietary
and tailored software are recognized upon delivery of the software providing
collection is considered probable and no significant obligations remain
outstanding. The percentage-of-completion method of accounting is utilized to
recognize revenue on products under development for fixed amounts. Progress
under the percentage-of-completion method is measured based on management's
best estimate of the cost of work completed in relation to the total cost of
work to be performed under the contract. Any estimated losses on products
under development for fixed amounts are immediately recognized in the
consolidated financial statements. All significant costs associated with
maintenance included in the initial license fee are recognized.
Revenue related to custom programming and education is recognized as the
related services are performed.
Maintenance revenue is recognized ratably over the term of the maintenance
agreements.
Deferred revenue represents advance payments to the Company by customers for
services and products.
(c) Investments
Investments at April 30, 1996 and April 30, 1995, consist of money market
funds, debt securities, and marketable equity securities. The Company adopted
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115)
as of May 1, 1994. Pursuant to the provisions of SFAS 115, the Company has
classified its investment portfolio as "trading." "Trading" securities are
bought and held principally for the purpose of selling them in the near term
and are recorded at fair value. Unrealized gains and losses on trading
securities are included in the determination of net loss. The effect of
adopting SFAS 115 was not significant and has been included in other income,
net in the accompanying 1995 consolidated statement of operations.
(d) Property and Equipment
Property and equipment are recorded at cost. Depreciation of buildings,
computer equipment, and office furniture and equipment is calculated using the
straight-line method based upon estimated useful lives of 30 years, five
years, and five years, respectively. Leasehold improvements are amortized
using the straight-line method over the estimated useful lives of the assets
or the lease term, whichever is shorter.
(e) Capitalized Computer Software Development Costs
The Company capitalizes computer software development costs by project,
commencing when technological feasibility for the respective product is
established and concluding when the product is ready for general release
19
<PAGE>
to customers. The Company makes an ongoing assessment of the recoverability of
its capitalized software projects by comparing the amount capitalized for each
product group to the estimated net realizable value ("NRV") of the product
group. If the NRV is less than the amount capitalized, a write-down to NRV is
recorded. The Company capitalized computer software development costs totaling
$12,750,536, $7,352,301, and $7,315,470 in 1996, 1995, and 1994, respectively.
The Company expensed $3,574,467 in 1996 and $1,167,496 in 1994 as these
amounts were deemed unrealizable based on future revenue projections.
Capitalized computer software development costs are being amortized using the
straight-line method over an estimated useful life of three years.
Amortization expense was $7,122,175, $7,029,442, and $7,491,124 in 1996, 1995,
and 1994, respectively.
The total of research and development costs and additions to capitalized
computer software development costs are $16,094,191, $12,552,301, and
$11,665,470 in years 1996, 1995, and 1994, respectively. The Company incurred
research and development costs totaling approximately $3,350,000, $5,200,000,
and $4,350,000, which were expensed in 1996, 1995, and 1994, respectively.
(f) Purchased Computer Software Costs
Purchased computer software costs represent the cost of acquiring computer
software. Amortization of purchased computer software costs is calculated
using the straight-line method over a period of five years. Amortization
expense was $2,423,552, $2,322,267, and $2,189,516 in 1996, 1995, and 1994,
respectively. The Company expensed $2,583,892 in 1996 as this amount was
deemed unrealizable based on future revenue projections.
(g) Income Taxes
The Company accounts for income taxes using the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS
109 requires an asset and liability method of accounting for income taxes.
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and
tax credit carry forward. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under SFAS 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment
date.
(h) Loss Per Common and Common Equivalent Share
The loss per common and common equivalent share are based on the weighted
average number of Class A and B shares outstanding, since the Company
considers the two classes of common stock as one class for the purposes of the
loss per share computation, and share equivalents from dilutive stock options
outstanding during each year. Share equivalents are excluded from the
aforementioned computation during loss periods.
(i) Reclassifications
Certain reclassifications were made to the 1994 consolidated financial
statements to conform to the 1995 presentation.
(j) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.
20
<PAGE>
(2) INVESTMENTS
As discussed in note 1, the Company adopted SFAS 115 as of May 1, 1994. The
change in method of accounting for investments did not have a significant
effect on the 1995 consolidated statement of operations. Prior years'
financial statements have not been restated to apply the provisions of SFAS
115.
Investments consist of the following:
<TABLE>
<CAPTION>
APRIL 30
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Money market funds.................................. $ 1,326,292 $ 6,052,123
Debt securities:
U.S. Treasury securities.......................... 1,490,885 1,460,892
Tax-exempt state and municipal bonds.............. 14,652,113 19,868,293
----------- -----------
Total debt securities........................... 16,142,998 21,329,185
----------- -----------
Equity securities................................... 6,737,879 3,895,465
----------- -----------
$24,207,169 $31,276,773
=========== ===========
</TABLE>
In 1996 and 1995, the Company's investment portfolio experienced net
unrealized holding gains of $872,889 and $609,099, respectively, which have
been included in other income, net in the 1996 and 1995 consolidated
statements of operations.
At April 30, 1996, 99% of the tax-exempt state and municipal bonds related
to state and municipal governments and authorities in Georgia.
Proceeds from sale of debt securities were $2,321,676 in 1994 and proceeds
from maturities of debt securities were $3,276,226 in 1994. Gross gains from
sale of debt securities were $85,725 in 1994 and gross losses from sales of
debt securities were $7,031 in 1994.
(3) INCOME TAXES
Income tax benefit consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................. $(5,428,631) $(5,372,185) $(3,699,670)
State............................... (768,492) (696,280) (433,456)
----------- ----------- -----------
(6,197,123) (6,068,465) (4,133,126)
----------- ----------- -----------
Deferred:
Federal............................. 2,992,958 1,191,589 (805,708)
State............................... 193,610 223,562 (151,166)
----------- ----------- -----------
3,186,568 1,415,151 (956,874)
----------- ----------- -----------
$(3,010,555) $(4,653,314) $(5,090,000)
=========== =========== ===========
</TABLE>
21
<PAGE>
The Company's effective income tax rate of 24%, 41%, and 44% for the years
ended April 30, 1996, 1995, and 1994, respectively, differs from the
"expected" income tax benefit for those years calculated by applying the
Federal statutory rate of 34% to loss before income taxes as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" income tax bene-
fit................................. $(4,338,363) $(3,856,442) $(3,970,527)
Increase (decrease) in income taxes
resulting from:
State income taxes, net of Federal
income tax effect................. (379,422) (311,994) (369,221)
Foreign taxes paid................. 50,808 571,812 661,651
Foreign tax credits................ -- (571,812) (661,651)
Tax-exempt interest income......... (202,888) (639,752) (751,444)
Cancellation of compensatory stock
options........................... -- 226,530 --
Change in the beginning-of-the year
balance of the valuation allowance
for deferred tax assets allocated
to income tax benefit............. 1,980,209 -- --
Other, net......................... (120,899) (71,656) 1,192
----------- ----------- -----------
$(3,010,555) $(4,653,314) $(5,090,000)
=========== =========== ===========
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to loss before income taxes for the years ended April 30, 1996,
1995, and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Deferred tax expense (benefit)............. $1,206,359 $1,188,621 $(956,874)
Cancellation of compensatory stock
options................................... -- 226,530 --
Increase in beginning-of-the year balance
of the valuation allowance for deferred
tax assets................................ 1,980,209 -- --
---------- ---------- ---------
$3,186,568 $1,415,151 $(956,874)
========== ========== =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 30,
1996 and 1995, are presented as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Compensated absences and other expenses, due to
accrual for financial reporting purposes...... $ 1,604,963 $ 1,107,994
Accounts receivable, due to allowance for
doubtful accounts............................. 455,760 724,007
Compensation expense related to grants of
nonqualified stock options.................... 189,063 189,063
Deferred gain on sale of real estate option.... 72,520 169,214
Net operating loss carryforwards............... 7,309,001 --
Foreign tax credit carryforwards............... 1,780,209 --
Other.......................................... -- 79,270
----------- -----------
Total gross deferred tax assets.............. 11,411,516 2,269,548
Less valuation allowance....................... (1,980,209) --
----------- -----------
Net deferred tax assets...................... 9,431,307 2,269,548
----------- -----------
Deferred tax liabilities:
Capitalized computer software development
costs......................................... (8,714,078) (7,730,382)
Property and equipment, primarily due to
differences in depreciation................... (369,652) (459,280)
Other.......................................... (393,247) --
----------- -----------
Total gross deferred tax liabilities......... (9,476,977) (8,189,662)
----------- -----------
Net deferred tax liability................... $ (45,670) $(5,920,114)
=========== ===========
</TABLE>
22
<PAGE>
Refundable income taxes arose primarily from the 1995 and 1994 taxable
losses that were carried back to earlier profitable years to recover income
taxes previously paid.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon reversal of deferred tax liabilities, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences, net of the existing valuation allowances at April 30, 1996.
At April 30, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $18.0 million which are available
to offset future federal taxable income, if any, through 2011. In addition,
the Company has foreign tax credit carryforwards for federal income tax
purposes of approximately $1.8 million which are available to offset future
federal income taxes pursuant to the income tax laws. Such credits expire in
varying amounts through 2001.
(4) ACQUISITIONS
In January 1996, the Company acquired a 60% interest in Intellimedia
Commerce, Inc., a company which builds and maintains systems for commerce on
the internet, for $850,000. The acquisition has been accounted for as a
purchase and, accordingly, the results of operations have been included since
the date of acquisition. The related minority interest is not significant. The
goodwill and capitalized computer software development cost are each being
amortized over five year periods.
In March 1995, the Company acquired a 30% interest in TXbase Systems, Inc.,
a client/server-based software company, for $827,164. This investment is being
accounted for under the equity method. The excess investment over the
underlying equity in net assets is being amortized using the straight-line
method over a period of five years. In conjunction with the purchase, the
Company extended TXbase Systems, Inc. a line of credit in the amount of
$800,000 providing certain financial and other requirements are met. Any
outstanding advance balance is convertible into additional equity ownership at
the discretion of the Company. No advances on this line of credit were
outstanding as of April 30, 1996.
In July 1993, the Company purchased from Coda Corporation the proprietary
rights to certain computer software for $3,300,000. In 1996, the Company wrote
off the remaining unamortized balance.
(5) SHAREHOLDERS' EQUITY
In fiscal 1992, the Company discontinued issuing options under its Incentive
Stock Option Plan and its Nonqualified Stock Option Plan. There were 52,576
options outstanding under these plans at April 30, 1996. These plans were
replaced with the 1991 Employee Stock Option Plan ("1991 Plan") and the
Director and Officer Stock Option Plan ("D and O Plan"). Under the 1991 Plan,
the Board of Directors is authorized to grant key employees options to
purchase up to 1,650,000 shares of Class A common stock, plus any shares
granted under the terminated plans that terminate or expire without being
wholly exercised. These options are exercisable in four equal annual
installments commencing one year from the effective date of grant. All options
must be exercised within ten years of the effective date of grant, but will
expire sooner if the optionee's employment terminates. Under the D and O Plan,
the Board of Directors is authorized to grant directors and officers options
to purchase up to 900,000 shares of Class A common stock. These options
typically are exercisable based upon the terms of such options up to 10 years
after the date of grant, but will expire sooner if the optionee's employment
terminates. Additionally, both the 1991 Plan and D and O Plan can issue either
incentive stock options or nonqualified stock options. Both the 1991 Plan and
D and O Plan will terminate on May 13, 2001.
23
<PAGE>
Summarized option data for the incentive options and the nonqualified
options as of April 30, 1996, is as follows:
<TABLE>
<CAPTION>
SHARES RANGE OF
UNDER PRICE
OPTION PER SHARE
--------- ------------
<S> <C> <C>
Options outstanding at April 30, 1995............... 2,213,050 $2.22 -15.00
Options granted..................................... 776,330 3.625- 5.50
Options exercised................................... (35,612) 2.75 - 4.56
Options canceled.................................... (341,950) 2.75 -15.00
---------
Options outstanding at April 30, 1996............... 2,611,818 $2.22 -15.00
========= ============
</TABLE>
Incentive and nonqualified options exercisable at April 30, 1996, are
447,827 and 124,363 shares, respectively. Options available for grant at April
30, 1996, for the 1991 Plan and D and O Plan are 507,072 and 430,063 shares,
respectively.
Except for the election or removal of Directors and class votes as required
by law or the Articles of Incorporation, holders of both classes of common
stock vote as a single class on all matters with each share of Class A common
stock entitled to cast one-tenth vote per share and each share of Class B
common stock entitled to cast one vote per share. Neither has cumulative
voting rights. Holders of Class A common stock, as a class, are entitled to
elect 25% of the Board of Directors (rounded up to the nearest whole number of
Directors) if the number of outstanding shares of Class A common stock is at
least 10% of the number of outstanding shares of both classes of common stock.
No cash or property dividend may be paid to holders of shares of Class B
common stock during any fiscal year of the Company unless a dividend of $.05
per share has been paid in such year on each outstanding share of Class A
common stock. This $.05 per share annual dividend preference is noncumulative.
Dividends per share of Class B common stock during any fiscal year may not
exceed dividends paid per share of Class A common stock during each year. Each
share of Class B common stock is convertible at any time into one share of
Class A common stock at the option of the shareholder. Class A and B shares
are considered as one class for purposes of the loss per share computation.
In 1995, the Company adopted a Dividend Reinvestment and Stock Purchase Plan
retroactive to February 25, 1994. Under the Plan, 500,000 shares of the
Company's Class A common stock were reserved for the use of the Dividend
Reinvestment Plan. The shares are to be utilized from treasury stock to the
extent available, with any additional shares to be utilized from authorized
but unissued shares of Class A common stock. In 1996 and 1995, 824 shares and
17,057 shares, respectively, were issued pursuant to this plan.
(6) INTERNATIONAL REVENUES
International revenues approximated $10,634,000 or 14%, $10,321,000 or 13%,
and $16,442,000 or 17%, of consolidated revenues for the years ended April 30,
1996, 1995, and 1994, respectively, and were primarily from customers in
Canada, Europe, Australia, and Asia.
(7) COMMITMENTS
The Company leases an office facility from a partnership controlled by the
two Class B shareholders, under an operating lease expiring in December 1996,
with annual adjustments for inflation. Amounts expensed under this lease for
the years ended April 30, 1996, 1995, and 1994 approximated $301,000,
$291,000, and $285,000, respectively.
The Company leases other office facilities, certain office equipment, and
computer equipment under various operating leases expiring through 2001.
Rental expense for these operating leases approximated $5,509,000, $5,866,000,
and $3,586,000 for the years ended April 30, 1996, 1995, and 1994,
respectively.
24
<PAGE>
Approximate aggregate minimum annual rentals under all long-term,
noncancellable, operating leases are as follows:
<TABLE>
<S> <C>
Years ending April 30,
1997........................................................ $2,732,794
1998........................................................ 1,752,659
1999........................................................ 1,575,159
2000........................................................ 375,885
2001........................................................ 23,036
----------
$6,459,533
==========
</TABLE>
The Company has a profit sharing plan covering all employees with at least
12 months of service. The Company's contribution to the plan is determined by
the Board of Directors, and is limited to a maximum of fifteen percent (15%)
of the compensation (as defined) of the participating employees during the
Company's fiscal year, and is payable only out of the annual net earnings or
accumulated earnings of the Company. Participants in the plan are entitled,
but not required, to contribute a maximum of 15% of their annual compensation
to the plan. The Company did not make contributions for 1996, 1995, or 1994.
(8) CONTINGENCIES
The Company has been named as a defendant in legal actions arising from
their normal business activities in which certain damages have been claimed.
Although the amount of any ultimate liability with respect to such matters
cannot be determined, in the opinion of management, based upon consultation
with legal counsel, any such liability will not have a material adverse effect
on the consolidated financial position or results of operations of the
Company.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, excluding investments, consisted of
cash, trade accounts receivable and unbilled accounts receivable, refundable
income taxes, accounts payable, accrued compensation and related costs,
accrued royalties, other current liabilities and deferred revenue. These
aforementioned financial instruments carrying amounts approximate fair value
because of the short maturity of those instruments.
The Company's investments are classified as "trading" and, accordingly, the
carrying value represents fair value.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American Software, Inc.:
We have audited the accompanying consolidated balance sheets of American
Software, Inc. and subsidiaries as of April 30, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the years in the three-year period ended April 30, 1996. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Software, Inc. and subsidiaries as of April 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-
year period ended April 30, 1996, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Atlanta, Georgia
June 14, 1996
26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
ANDFINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James C. Edenfield............. 61 President, Chief Executive Officer, Treasurer and Director
Thomas L. Newberry............. 63 Chairman of the Board of Directors
David H. Gambrell.............. 66 Director
Thomas R. Williams............. 67 Director
James L. Altman................ 62 Vice President-Facilities
Paul Di Bono, Jr............... 57 Senior Vice President, General Manager-Midrange Division
J. Michael Edenfield........... 38 Executive Vice President, Chief Operating Officer
Ellen M. Valentine............. 35 Vice President-Marketing
Peter W. Pamplin............... 41 Controller
James R. McGuone............... 48 Secretary
</TABLE>
All directors hold office until the next annual meeting of the shareholders
of the Company. Executive officers of the Company are elected annually and
serve at the pleasure of the Board of Directors.
Mr. James C. Edenfield is a co-founder of the Company and has served as
Chief Executive Officer since November, 1989, and as Co-Chief Executive
Officer for more than five years prior to that time. He has been a Director
since 1971. Prior to founding the Company, Mr. Edenfield held several
executive positions and was a director of Management Science America, Inc., an
applications software development and sales company. He holds a Bachelor of
Industrial Engineering degree from the Georgia Institute of Technology.
Dr. Newberry is a co-founder of the Company and has served as its Chairman
of the Board since November, 1989, and was Co-Chief Executive Officer prior to
that for more than five years. He has been a Director since 1971. Prior to
founding the Company, he held executive positions with several companies
engaged in computer systems analysis and software development and sales
including Management Science America, Inc., where he was also a director. Dr.
Newberry holds Bachelor, Master of Science, and Ph.D. degrees in Industrial
Engineering from the Georgia Institute of Technology.
Mr. Gambrell has served as a Director of the Company since January, 1983. He
has been a practicing attorney since 1952, and is a partner of the law firm of
Gambrell & Stolz, L.L.P., counsel to the Company. He served as a member of the
United States Senate from the State of Georgia in 1971 and 1972. Mr. Gambrell
holds a Bachelor of Science degree from Davidson University and a J.D. degree
from the Harvard Law School.
Mr. Williams has served as a Director of the Company since April, 1989. He
is currently the President of the Wales Group, Inc., a closely-held
corporation engaged in investments and venture capital, and has held such
position since 1987. He is a Former Chairman of the Board of First Wachovia
Corporation, First National Bank of Atlanta and First Atlanta Corporation. He
holds a Bachelor of Science degree in Industrial Engineering from the Georgia
Institute of Technology and a Master of Science degree in Industrial
Management from the Massachusetts Institute of Technology. Mr. Williams is a
director of BellSouth Corporation; Georgia Power Company; National Life
Insurance Company of Vermont; ConAgra, Inc.; and AppleSouth, Inc. He is also a
trustee of The Fidelity Group of Mutual Funds.
27
<PAGE>
Mr. Altman joined the Company in June, 1972. In December, 1977, he became a
Vice President responsible for systems development and project management. Mr.
Altman holds a Bachelor of Industrial Engineering degree from the Georgia
Institute of Technology and is a registered professional engineer with the
State of Georgia.
Mr. Di Bono joined the Company in January, 1982 and in July, 1993 was
elected Senior Vice President and General Manager for Midrange Division. Prior
to that time, he served as Vice President for Marketing since December, 1985.
Mr. Di Bono holds a B.S. degree in industrial psychology/business
administration from Iowa State University.
Mr. J. Michael Edenfield joined the Company in September, 1981 and has
served as Senior Vice President of North American Sales and Marketing of
American Software USA, Inc. since July, 1993. Prior to holding that position,
he served as Senior Vice President of North American Sales from August, 1992
to July, 1993, as Group Vice President from May, 1991 to August, 1992 and as
Regional Vice President from May, 1987 to May, 1991. Mr. Edenfield holds a
Bachelor of Industrial Management degree from the Georgia Institute of
Technology. Mr. Edenfield is the son of James C. Edenfield, Chief Executive
Officer of the Company.
Ms. Valentine joined the Company in May, 1995. In February, 1996 she was
named Vice President of Marketing. From December, 1984 to May, 1995, Ms.
Valentine was employed by IBM, where she held a variety of marketing and sales
management positions. Ms. Valentine holds a Bachelor of Science degree from
Pennsylvania State University.
Mr. Pamplin joined the Company in February, 1985 and became Controller in
August, 1987. Mr. Pamplin holds a B.S. in Biochemistry and an M. B. A. from
Virginia Polytechnic Institute and State University.
Mr. McGuone was elected the Secretary of the Company in May, 1988. He has
been a practicing attorney since 1972, and is a partner of the law firm of
Gambrell & Stolz, L.L.P., counsel to the Company. Mr. McGuone holds a B.A.
degree from Pennsylvania State University and a J.D. degree from Fordham
University School of Law.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 (the "Exchange Act") requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and holders of more than 10% of the
Common Stock are required by regulations promulgated by the Commission
pursuant to the Exchange Act to furnish the Company with copies of all Section
16(a) forms they file. The Company assists officers and directors in complying
with the reporting requirements of Section 16(a) of the Exchange Act.
Based upon review of filings made under Section 16(a) of the Exchange Act,
not all of the reports required to be filed have been filed as of this date.
The Company is aware of the following Form 5 reports that have not yet been
filed with the Commission by directors of the Company:
<TABLE>
<CAPTION>
NUMBER OF
INDIVIDUALS REQUIRED NUMBER OF TRANSACTIONS NATURE OF
TO FILE REPORTS REPORTS NOT REPORTED TRANSACTIONS
-------------------- --------- ------------ ------------
<S> <C> <C> <C>
James C. Edenfield.................. 1 1 Gift of stock
Thomas L. Newberry.................. 1 3 Two stock option
grants received; one
gift of stock
David H. Gambrell................... 1 2 Two stock option
grants received
Thomas L. Williams.................. 1 2 Two stock option
grants received
</TABLE>
It is anticipated that these reports will be filed within ten days after the
filing of this annual report on Form 10-K. Based upon its review of the copies
of forms received by it, the Company believes that since May 1, 1995 all other
Section 16(a) filing requirements applicable to its directors, officers and
greater than 10% beneficial owners were complied with.
28
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
This information is set forth under the caption "Certain Information
Regarding Executive Officers and Directors" in the Company's 1996 Proxy
Statement (the "Proxy Statement"), which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is set forth under the caption "Voting Securities--Security
Ownership" in the Company's 1996 Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is set forth under the caption "Certain Information
Regarding Executive Officers and Directors--Certain Transactions; Compensation
Committee and Relationship to Company" in the Company's 1996 Proxy Statement,
which information is incorporated herein by reference. Refer also to the
Properties Section (Part I, Item 2) of this report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1. Financial statements;
All financial statements of the Company as described in Item 8 of this
report on Form 10-K.
2. Financial statement schedule included in Part IV of this Form:
<TABLE>
<CAPTION>
PAGE
----
Schedule II--Consolidated Valuation Accounts--for the three years ended
April 30, 1996 32
All other financial statements and schedules not listed above are
omitted as the required information is not applicable or the information
is presented in the financial statements or related notes.
3. Exhibits
The following exhibits are filed herewith or incorporated herein by
reference:
<C> <S> <C>
3.1 The Company's Amended and Restated Articles of Incorporation, and
amendments thereto, included as Exhibit 3.1 to the Company's Form
10-Q for the quarter ended October 31, 1990, and incorporated
herein by this reference.
3.2 The Company's Amended and Restated By-Laws dated November 13,
1989, included as Exhibit 3.1 to the Form 10-Q for the quarter
ended January 31, 1990, and incorporated herein by this reference.
10.1 Amended and Restated 1991 Employee Stock Option Plan effective
August 23, 1994, included as Exhibit 10.1 to the Form 10-Q for the
quarter ended July 31, 1995, and incorporated herein by this
reference.
10.2 Amended and Restated Directors and Officers Stock Option Plan
effective August 23, 1994, included as Exhibit 10.2 to the Form
10-K for the fiscal year ended April 30, 1995, and incorporated
herein by this reference.
10.3 Stock Option Agreement between the Company and James C. Edenfield
dated May 15, 1990, included as Exhibit 10.5 to the Company's Form
10-K for the fiscal year ended April 30, 1990 and incorporated
herein by this reference.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
---
<C> <S> <C>
10.4 Stock Option Agreement between the Company and James C. Edenfield
dated January 30, 1995, included as Exhibit 10.4 to the Form 10-K
for the fiscal year ended April 30, 1995, and incorporated herein
by this reference.
10.5 American Software, Inc. 401(k)/Profit Sharing Plan and Trust
Agreement included as Exhibits 4.1 and 4.2, respectively, to the
Registrant's Registration Statement No. 33-55214 on Form S-8 and
incorporated herein by this reference.
10.6 Lease Agreement dated December 15, 1981, between Company and
Newfield Associates, included as Exhibit 10.6 to the Company's
Registration Statement Number 2-81444 on Form S-1 (the "1983
Registration Statement") and incorporated herein by this reference.
10.7 Amendment dated January 14, 1983, to Lease Agreement between the
Company and Newfield Associates, included as Exhibit 10.7 to the
1983 Registration Statement and incorporated herein by this
reference.
11.1 Statement re: Computation of Per Share Loss.
21.1 Subsidiaries.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the fourth quarter of
the recently completed fiscal year.
30
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
AMERICAN SOFTWARE, INC.
/s/ James C. Edenfield
By: _________________________________
JAMES C. EDENFIELD PRESIDENT,
CHIEF EXECUTIVE OFFICER, TREASURER
AND DIRECTOR
DATE:
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ James C. Edenfield President, Chief July 26, 1996
- - ------------------------------------- Executive Officer,
JAMES C. EDENFIELD Treasurer and
Director
/s/ Thomas L. Newberry Chairman of the July 26, 1996
- - ------------------------------------- Board of Directors
THOMAS L. NEWBERRY
/s/ David H. Gambrell Director July 26, 1996
- - -------------------------------------
DAVID H. GAMBRELL
/s/ Thomas R. Williams Director July 26, 1996
- - -------------------------------------
THOMAS R. WILLIAMS
/s/ Peter W. Pamplin Chief Accounting July 26, 1996
- - ------------------------------------- Officer and Acting
PETER W. PAMPLIN Chief Financial
Officer
31
<PAGE>
SCHEDULE II
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED VALUATION ACCOUNTS
YEARS ENDED APRIL 30, 1996, 1995, AND 1994
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AT END
YEAR ENDED OF YEAR AND EXPENSES DEDUCTIONS(1) OF YEAR
---------- ---------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
April 30, 1994.................. $1,400,000 6,626,099 4,226,099 3,800,000
April 30, 1995.................. 3,800,000 (158,944) 1,734,772 1,906,284
April 30, 1996.................. 1,906,284 2,371,306 3,077,590 1,200,000
</TABLE>
- - --------
(1) Write-offs of accounts receivable.
DEFERRED INCOME TAX VALUATION ALLOWANCE
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AT END
YEAR ENDED OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
April 30, 1994..................... $-- -- -- --
April 30, 1995..................... -- -- -- --
April 30, 1996..................... -- 1,980,209 -- 1,980,209
</TABLE>
32
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
------- ----------------------- ------
<C> <S> <C>
11.1 Statement re: Computation of Per Share Loss ................... 34
21.1 Subsidiaries .................................................. 35
23.1 Independent Auditors' Consent ................................. 36
27 Financial Data Schedule .......................................
</TABLE>
33
<PAGE>
EXHIBIT 11.1
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE LOSS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Common shares:
Weighted average common shares out-
standing:
Class A shares...................... 17,423,093 17,477,410 17,474,604
Class B shares...................... 4,838,689 4,840,489 4,849,654
------------ ----------- -----------
Totals................................ 22,261,782 22,317,899 22,324,258
============ =========== ===========
Net loss.............................. $ (9,749,337) $(6,689,162) $(6,588,022)
============ =========== ===========
Net loss per common and common equiva-
lent share........................... $ (.44) $ (.30) $ (.30)
============ =========== ===========
</TABLE>
34
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Unless otherwise indicated, each of the following subsidiaries does business
under its corporate name.
1. American Software Research and Development Corp. incorporated under the
laws of the State of Georgia.
2. American Software FSC, Inc. incorporated under the laws of the United
States Virgin Islands.
3. American Software USA, Inc. incorporated under the laws of the State of
Georgia.
4. ASI Properties, Inc. incorporated under the laws of the State of Georgia.
5. American Software (UK) Ltd. incorporated under the laws of the United
Kingdom.
6. American Software (Thailand), Ltd. incorporated under the laws of Thailand.
7. American Software (Australia) Pty. Ltd. incorporated under the laws of
Australia.
8. American Software (Japan) KK incorporated under the laws of Japan.
9. American Software France, SA incorporated under the laws of France.
10. Distribution Sciences, Inc. incorporated under the laws of the State of
Georgia.
11. American Software Asia Pacific (s) Pte. Ltd. incorporated under the laws of
Singapore.
12. Amedia, Inc. incorporated under the laws of the State of Georgia.
13. The Proven Method, Inc. incorporated under the laws of the State of
Georgia.
14. Amquest, Inc. incorporated under the laws of the State of Georgia.
15. Intellimedia Commerce, Inc. incorporated under the laws of the State of
Georgia.
35
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
American Software, Inc.:
We consent to incorporation by reference in Registration Statement Numbers
33-55214 and 33-83396 on Form S-8 and Registration Statement Number 33-79640
on Form S-3 of American Software, Inc. of our report dated June 14, 1996
relating to the consolidated balance sheets of American Software, Inc. and
subsidiaries as of April 30, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows and related
schedule for each of the years in the three-year period ended April 30, 1996,
which report appears in the April 30, 1996 annual report on Form 10-K of
American Software, Inc.
/s/KPMG Peat Marwick LLP
----------------------------
KPMG Peat Marwick LLP
Atlanta, Georgia
July 26, 1996
36
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
SOFTWARE, INC. CONSOLIDATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> APR-30-1996 APR-30-1995
<PERIOD-START> MAY-01-1995 MAY-01-1994
<PERIOD-END> APR-30-1996 APR-30-1995
<CASH> 1,947,249 1,228,461
<SECURITIES> 24,207,169 31,276,773
<RECEIVABLES> 16,259,452 18,323,947
<ALLOWANCES> 1,200,000 1,906,284
<INVENTORY> 0 0
<CURRENT-ASSETS> 46,054,329 61,971,996
<PP&E> 39,423,021 37,375,541
<DEPRECIATION> 21,804,448 19,283,211
<TOTAL-ASSETS> 90,781,954 107,791,553
<CURRENT-LIABILITIES> 24,542,827 25,565,079
<BONDS> 0 0
0 0
0 0
<COMMON> 2,360,599 2,357,037
<OTHER-SE> 61,894,799 71,679,775
<TOTAL-LIABILITY-AND-EQUITY> 90,781,954 107,791,553
<SALES> 0 0
<TOTAL-REVENUES> 77,557,085 79,461,652
<CGS> 0 0
<TOTAL-COSTS> 55,904,178 50,306,527
<OTHER-EXPENSES> 36,982,103 42,742,929
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (12,759,892) (11,342,476)
<INCOME-TAX> (3,010,555) (4,653,314)
<INCOME-CONTINUING> (9,749,337) (6,689,162)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,749,337) (6,689,162)
<EPS-PRIMARY> (.44) (.30)
<EPS-DILUTED> 0 0
</TABLE>
