<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ ---------------
Commission File Number: 0-12456
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AMERICAN SOFTWARE, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1098795
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
470 East Paces Ferry Road, N.E., Atlanta, Georgia 30305
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(Address of principal executive offices) (Zip Code)
(404) 261-4381
----------------------------------------------------
(Registrant's telephone number, including area code)
None
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Classes Outstanding at September 4, 1998
- ------------------------------------ --------------------------------
Class A Common Stock, $.10 par value 17,906,984 Shares
Class B Common Stock, $.10 par value 4,797,289 Shares
<PAGE>
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Form 10-Q
Quarter ended July 31,1998
Index
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Page
No.
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
- Unaudited - July 31, 1998 and April 30, 1998 3-4
Condensed Consolidated Statements of Operations
- Unaudited - Three Months ended July 31, 1998 and July 31, 1997 5
Condensed Consolidated Statements of Cash Flows
- Unaudited - Three Months ended July 31, 1998 and July 31, 1997 6
Notes to Condensed Consolidated Financial Statements - Unaudited 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9-15
PART II - OTHER INFORMATION 15
2
<PAGE>
PART I FINANCIAL INFORMATION
------
ITEM 1. FINANCIAL STATEMENTS
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands except share data)
(Unaudited)
July 31, 1998 April 30, 1998
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,631 $ 2,161
Investments 49,672 58,062
Trade accounts receivable, less allowance for
doubtful accounts of $1,212 at July 31, 1998
and $1,222 at April 30, 1998
Billed 20,878 20,309
Unbilled 7,816 7,091
Deferred income taxes 1,780 823
Refundable income taxes 1,117 1,117
Prepaid expenses and other current assets 2,537 2,577
-------- --------
Total current assets 87,431 92,140
-------- --------
Property and equipment, net 17,464 17,189
-------- --------
Capitalized computer software development costs, net 30,240 30,338
Purchased computer software costs, net 783 888
-------- --------
Total computer software costs 31,023 31,226
-------- --------
Other assets, net 4,120 2,101
-------- --------
$140,038 $142,656
======== ========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
(continued)
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, Continued
(in thousands except share data)
(Unaudited)
July 31, 1998 April 30, 1998
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,035 $ 2,972
Accrued compensation and related costs 3,812 3,798
Accrued royalties 781 574
Other current liabilities 4,961 4,523
Deferred revenue 19,721 17,283
-------- --------
Total current liabilities 33,310 29,150
Deferred income taxes 6,260 6,260
Long term debt 950
-------- --------
Total liabilities 40,520 35,410
-------- --------
Minority interest in subsidiaries 5,597 6,709
-------- --------
Shareholders' equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000
shares; issued 19,414,844 shares at
July 31, 1998 and 19,369,756 shares at
April 30, 1998 1,942 1,937
Class B, $.10 par value. Authorized 10,000,000
shares; issued and outstanding 4,797,289
shares at July 31, 1998 and 4,798,289 shares
at April 30,1998; convertible into Class A
shares on a one-for-one basis 480 480
Additional paid-in capital 57,042 57,656
Retained earnings 47,819 53,225
-------- --------
107,283 113,298
Less Class A treasury stock, 1,508,860 shares at
July 31, 1998 and 1,428,427 shares
at April 30, 1998, at cost 13,362 12,761
-------- --------
Total shareholders' equity 93,921 100,537
-------- --------
$140,038 $142,656
======== ========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands except share and per share data)
(Unaudited)
Three Months Ended
--------------------------
July 31
--------------------------
1998 1997
------------ ------------
Revenues:
License fees $ 5,158 $ 8,548
Services 15,502 10,804
Maintenance 6,707 5,764
------- -------
Total revenues 27,367 25,116
------- -------
Cost of revenues:
License fees 3,216 2,033
Services 9,691 8,085
Maintenance 2,336 1,993
------- -------
Total cost of revenues 15,243 12,111
------- -------
Gross Margin 12,124 13,005
------- -------
Research and development expenses 6,112 5,290
Less: capitalizable software (2,299) (2,078)
Sales and marketing expenses 8,393 5,980
General and administrative expenses 4,425 2,751
Purchased research & development 1,800 --
------- -------
Total operating expense 18,431 11,943
------- -------
Operating earnings (loss) (6,307) 1,062
Other income, net 572 982
Minority interest in loss of subsidiary, net 529 --
------- -------
Earnings(loss) before income
tax expense (5,206) 2,044
Income tax expense 200 695
------- -------
Net earnings (loss) $(5,406) $ 1,349
======= =======
Basic net earnings (loss)
per common share $ (.24) $ .06
======= =======
Diluted net earnings (loss)
per common share * $ (.24) $ .06
======= =======
Weighted average common
shares outstanding: Basic 22,739 22,525
======= =======
Diluted 23,912 24,229
======= =======
*Diluted weighted average common shares outstanding are not included in the
quarter ended July 31, 1998 calculation due to the anti-dilution of the net
loss.
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
July 31
--------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(5,406) $ 1,349
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,190 2,383
Loss on disposal of fixed assets -- 208
Minority interest in subsidiary earnings (loss) (529) --
Net (gain) loss on investments 78 (1,180)
Deferred income taxes (957) --
Change in operating assets and liabilities:
Net (increase) decrease in money market funds 4,185 (3,572)
Purchases of trading securities (529) (840)
Proceeds from trading securities 590 --
Proceeds from sales and maturities of investments 348 738
Accounts receivable (1,076) (859)
Prepaid expenses and other assets 361 (309)
Accounts payable and other accrued liabilities 1,633 952
Deferred revenue 1,783 1,621
Acquired in Process research & development 1,800 --
Currency translation adjustment 23 --
------- -------
Net cash provided by operating activities 5,494 491
------- -------
Cash flows from investing activities:
Additions to capitalized software development costs (2,298) (2,078)
Additions to purchased computer software costs (36) (100)
Purchase of majority interest in subsidiaries (1,971) --
Minority investment in business (763) --
Purchases of property and equipment (859) (533)
Sale of short term investments, net 3,718
------- -------
Net cash used in investing activities (2,209) (2,711)
------- -------
Cash flows from financing activities:
Repurchase of common stock (601) --
Repurchase of common stock by subsidiary (1,373) --
Proceeds from exercise of stock options 159 391
Proceeds from dividend reinvestment
and stock purchase plan -- 2
------- -------
Net cash provided by (used in) financing activities (1,815) 393
------- -------
Net increase (decrease) in cash 1,470 (1,827)
Cash at beginning of period 2,161 3,442
------- -------
Cash at end of period $ 3,631 $ 1,615
======= =======
Supplemental disclosure of cash paid during the
period for income taxes $ 324 $ 50
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands except share data)
(Unaudited)
<TABLE>
<S> <C>
Supplement disclosures of non-cash investing and
financing activities:
Acquisition of business:
Fair value of assets acquired $ 2,472
Acquired in-process research and development costs 1,800
Fair value of liabilities assumed (1,693)
-------
Total cash paid for acquisition 2,579
Cash acquired (703)
-------
Net cash paid for acquisitions $ 1,876
=======
</TABLE>
7
<PAGE>
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
July 31, 1998
A. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements should be used in conjunction with the consolidated financial
statements and related notes contained in the 1998 Annual Report on Form 10-
K. The financial information presented in the condensed consolidated
financial statements reflects all normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of the period
indicated.
B. NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK
On January 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings per Share ("SFAS No. 128"), which prescribes the
calculation methodology and financial reporting requirements for basic and
diluted earnings per share. Basic earnings (loss) per common share available
to common shareholders are based on the weighted average number of common
shares outstanding. Diluted earnings (loss) per common share available to
common shareholders are based on the weighted average number of common shares
outstanding and dilutive potential common shares, such as dilutive stock
options. All prior period net earnings (loss) data presented in these
condensed consolidated financial statements have been restated to conform to
the provisions of SFAS No. 128.
C. COMPLETION OF INITIAL PUBLIC OFFERING
On October 10, 1997, Logility, Inc., a subsidiary of the Company,
successfully completed its initial public offering of common stock.
Logility, Inc. sold 2.2 million shares of Common Stock in the initial public
offering for $31.9 million less issuance costs of $3.1 million.
On November 6, 1997, Logility, Inc. sold 330,000 shares of Common Stock as
part of the underwriters' over-allotment from the initial public offering for
$4.8 million less issuance costs of approximately $400,000.
D. PURCHASE OF MAJORITY INTEREST IN NEW GENERATION COMPUTING
On July 10, 1998, the Company purchased a majority interest in New Generation
Computing, a leading software vendor which specializes in accounting and
manufacturing control software for the sewn goods industry (apparel,
handbags, shoes, hats, etc.) This investment was accounted for based on the
purchase accounting method with the results of operations included from the
date of acquisition. The acquisition resulted in purchased research and
development of approximately $1.8 million, purchased computer software
products of approximately $460,000, and goodwill of approximately $1.4
million.
E. CONTINGENCIES
The Company is involved in various claims arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse affect on the financial position or
results of operations of the Company.
8
<PAGE>
AMERICAN SOFTWARE, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
American Software Inc. ("American Software" or the "Company") develops, markets,
and supports enterprise resource planning ("ERP") and integrated supply chain
management solutions. The product line encompasses integrated business
applications such as demand forecasting, logistics planning, warehouse
management, order management, financials, manufacturing, and transportation
solutions. The Company offers professional services to its customers in support
of its products and third party products. These services include training,
system implementation, consulting, custom programming, network management,
millennium conversion, and telephonic support services.
The Company's revenues are derived primarily from three sources: software
licenses, services and maintenance. Software licenses generally are based upon
the number of modules, servers, users and/or sites licensed. License fee
revenues are recognized at the time of product delivery and fulfillment of
acceptance terms, provided persuasive evidence of an arrangement exists, the fee
is fixed and determinable and collection is deemed probable. Services revenues
consist primarily of fees from software implementation, training, consulting and
customization services and are recognized as the services are rendered.
Maintenance agreements typically are for a one- to three-year term and usually
are entered into at the time of the initial product license. Maintenance
revenues are recognized ratably over the term of the maintenance agreement.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
The following table sets forth certain revenue and expense items as a percentage
of total revenues and the percentage increases in those items for the three
months ended July 31, 1998 and 1997:
<TABLE>
<CAPTION>
Percentage of Pct. Change
Total Revenues in Dollars
-------------- ------------
1998 1997 1998 vs 1997
---- ---- ------------
<S> <C> <C> <C>
Revenues:
License fees 19 % 34 % (40) %
Services 57 43 43
Maintenance 25 23 16
--- --- ---
Total revenues 100 100 9
--- --- ---
Cost of revenues:
License fees 12 8 58
Services 35 32 20
Maintenance 9 8 17
--- --- ---
Total cost of revenues 56 48 26
--- --- ---
Gross margin 44 52 (7)
--- --- ---
Operating expenses:
Research and development expenses 22 21 16
Less: Capitalizable software (8) (8) 11
Sales and marketing 31 24 40
General and administrative expenses 16 11 61
Purchased research & development 7 0 nm
--- --- ---
Total operating expenses 67 48 54
--- --- ---
Operating earnings (loss) (23) 4 nm
Other income, net 2 4 (42)
Minority interest in loss of subsidiary, net 2 0 nm
--- --- ---
Earnings (loss) before income tax expense (19) 8 nm
Income tax expense 1 3 (71)
--- --- ---
Net earnings (loss) (20) 5 nm
=== === ===
</TABLE>
nm--not meaningful
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
THREE MONTHS ENDED JULY 31, 1998 AND 1997
- -----------------------------------------
REVENUES
For the quarter ended July 31, 1998 revenues totaled $27.4 million, up 9% from
$25.1 million in the corresponding quarter of fiscal 1998. This increase was
due to an increase in implementation, training and support services, partially
offset by a decrease in license fees from lower product sales. International
revenues represented approximately 12% of total revenues in the quarter ended
July 31, 1998 compared to approximately 8% a year ago.
LICENSES. Software license fee revenues were 40% lower than the first quarter of
fiscal 1998. License fee revenues from the Company's subsidiary Logility Inc.,
constituted 49%, of the total license fee revenues for the three month period
ended July 31, 1998 compared to the prior year comparable period, when they
comprised 51% of those revenues. The Company believes the lower license fees
were a result of lower than expected sales by the Company's direct sales force,
coupled with an increasingly competitive market for the Company's products.
SERVICES. Services revenues were $15.5 million or 43% higher than the
corresponding quarter a year ago. The Company believes this was caused by 1) an
increase in the demand for professional services in assisting customers to
prepare their software for the year 2000, 2) an improvement in the Company's
ability to offer a more comprehensive package of services for its client server
offerings and 3) an increase in demand for professional services.
MAINTENANCE. Maintenance revenues increased 16% from the first quarter of fiscal
year 1998 to $6.7 million from $5.8 million. The increase for the quarter is
due to increased license fees realized in prior quarters, as new licenses are
the source of new maintenance customers and therefore future maintenance income
streams.
GROSS MARGIN:
The total gross margin in the quarter ended July 31, 1998 was 44% compared to
52% a year ago. This decrease was largely due to a decrease in the license fees
gross margin to 38% this quarter compared to 76% in the same quarter a year ago.
This is primarily due to the commencement of amortization expense of the
Company's new Enterprise Resource Planning product that became generally
available in the current quarter. In addition, amortization expense is
relatively fixed and negatively impacted gross margin as the level of license
fees decreased. The Company will monitor the market acceptance of these newly
released products. The gross margin on services revenues increased to 37%
compared to 25% the same quarter a year ago due to better utilization of
resources and increased demand for professional services. Maintenance gross
margin remained the same as the comparable quarter a year ago at 65%.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
RESEARCH AND DEVELOPMENT. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
July 31, Percent July 31,
1998 Change 1997
-------- ------- --------
Gross product development costs $ 6,112 16% $ 5,290
Percentage of total revenues 22% 21%
Less: capitalized development (2,299) 11% (2,078)
Percentage of gross prod. dev. costs 38% 39%
------- -- -------
Product development expenses $ 3,813 19% $ 3,212
Percentage of total revenues 14% 13%
Gross product development costs increased 16% in the quarter ended July 31, 1998
compared to a year ago as a result of the Company's continued investment in new
product development. Capitalized development increased as well by 11% from a
year ago, while the rate of capitalized development decreased slightly to 38%
from 39% a year ago. Product development expenses, as a percentage of total
revenues, increased to 14% compared to 13% a year ago due to the decrease in
total revenues as well as increased investment in new product development.
SALES & MARKETING. Sales and marketing expenses increased 40% to $8.4 million
for the quarter ended July 31, 1998 over the corresponding quarter a year ago.
As a percentage of total revenues, sales and marketing expenses were 31% for the
quarter ended July 31, 1998 compared to 24% for the quarter ended July 31, 1997.
This increase was due to both increased sales and marketing expenditures, as
well as a decrease in the growth rate of revenues.
GENERAL & ADMINISTRATIVE. General and administrative expenses increased 61% to
$4.4 million for the quarter over the same period in fiscal 1998. These
expenses increased primarily as a result of the Company's growth in employees
and the resulting growth in administrative costs. During the quarter the
average number of employees was 735 compared to 612 during the same period a
year ago.
PURCHASED RESEARCH & DEVELOPMENT. Purchased Research & Development expense was
$1.8 million for the quarter ended July 31, 1998. This one-time cost is related
to the in-process research and development expense related to the acquisition of
New Generation Computing during the quarter ended July 31, 1998.
OTHER INCOME. Other income is comprised predominantly of interest income, gains
and losses from sales of investments, changes in the market value of
investments, and minority interest in subsidiary's earnings (loss). Other income
increased 12% to $1.1 million in the quarter ended July 31, 1998 compared to one
year ago due primarily to the increase in minority interest in the loss to
$529,000 in the quarter ended July 31,1998 from $0 in the prior year.
INCOME TAXES
The Company recorded an income tax expense of $200,000 in the quarter ended July
31, 1998 compared to $695,000 in the prior year quarter. This expense was based
on the Company's estimate of tax liability for the fiscal year 1999.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES AND FINANCIAL CONDITION
The Company's operating activities provided cash of approximately $5.5 million
in the three months ended July 31, 1998, and provided cash of approximately
$491,000 in the same period last year. The cash provided by operations during
the three months ended July 31, 1998, was primarily attributable to a decrease
in money market funds of $4.2 million, non-cash depreciation and amortization
expense of $3.2 million, an increase to deferred revenue of $1.8 million, an
increase in accounts payable and other liabilities of $1.6 million, an increase
of $1.8 million for in-process research and development and an increase in
proceeds from trading securities of $590,000. This is partially offset by a net
loss of $5.4 million, an increase in accounts receivable of $1.1 million, an
increase in deferred income taxes of $957,000 and a decrease in minority
interest in subsidiary loss of $529,000. The cash provided by operations during
the same period of the prior year was attributed to net income of $1.3 million,
increase in non-cash depreciation and amortization expense of $2.4 million, and
an increase to deferred revenue of $1.6 million. This was partially offset by an
increase in money market funds of $3.6 million and a net gain on investments of
$1.2 million.
Cash used for investing activities was approximately $2.2 million for the three
months ended July 31, 1998 and approximately $2.7 million in the same period in
the prior year. The substantial use of cash was used for majority interest of
companies for $2.0 million, capitalized software development costs of $2.3
million, minority interest in business of $763,000 and the purchase of property
and equipment of $859,000. This was substantially offset by the sale of
investments of $3.7 million. Cash used for the same period in the prior year was
primarily for capitalized software of $2.1 million and property and equipment of
$533,000.
Cash used in financing activities was approximately $1.8 million for the three
months ended July 31, 1998 and provided by financing activities in the amount of
$393,000 in the same period of the prior year. Cash was used to purchase common
stock of the Company of $601,000 and the Company's subsidiary of $1.4 million
during the quarter ended July 31, 1998.
Days Sales Outstanding in accounts receivable were 94 days as of July 31, 1998,
compared to 72 days as of July 31, 1997.
The Company's current ratio was 2.6 to 1 and cash and investments totaled 38% of
total assets at July 31, 1998 compared to 1.8 to 1 and cash and investments
totaled 27% of total assets at July 31, 1997. The Company expects existing cash
and investments, combined with cash generated from operations, to be sufficient
to meet its cash requirements for at least the next twelve months. To the extent
that such amounts are insufficient to finance the Company's capital
requirements, the Company will be required to raise additional funds through
equity or debt financing. The Company does not currently have a bank line of
credit. No assurance can be given that bank lines of credit or other financing
will be available on terms acceptable to the Company. If available, such
financing may result in further dilution to the Company's shareholders and
higher interest expense.
On December 18, 1997, American Software Inc.'s board of directors approved a
resolution authorizing the Company to repurchase up to 1.5 million shares of the
Company's class A common stock through open market purchases. The timing of any
repurchases will depend on market conditions, the market price of the Company's
common stock and management's assessment of the Company's liquidity and cash
flow needs. Since this resolution was adopted, the Company has repurchased
179,333 shares of common stock at a cost of approximately $1,396,515 as of July
31, 1998.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
YEAR 2000 COMPLIANCE
Based on management's assessment, the Company believes that the current versions
of its software products are Year 2000 compliant. However, the Company believes
some of its customers may be running earlier versions of the Company's products
that are not Year 2000 compliant, and the Company has been encouraging such
customers to migrate to current product versions. Moreover, the Company's
products are generally integrated into other systems involving complex software
products developed by other vendors. Year 2000 problems inherent in a
customer's other software programs might significantly limit that customer's
ability to utilize the Company's products.
The Company may in the future be subject to claims based on Year 2000 problems
in its own, as well as in others' products, and issues arising from the
integration of multiple products within an overall system. Although the Company
has not been a party to any litigation involving its products or services
related to Year 2000 compliance issues, there can be no assurance that the
Company will not in the future be required to defend its products or services in
such proceedings, or otherwise address claims based on Year 2000 issues. The
cost of defending and resolving Year 2000-related disputes, and any liability of
the Company for Year 2000-related damages, including consequential damages,
could have a material adverse effect on the Company's business, operating
results, and financial condition.
The Company currently utilizes third-party vendor equipment, telecommunication
products and software products that is not Year 2000 compliant. Although the
Company is currently taking steps to address the impact, if any, of the Year
2000 compliance issue surrounding such third-party products, failure of any
critical technology components to be Year 2000 compliant may have an adverse
impact on business operations or require the Company to incur unanticipated
expenses to remedy any problems.
The Company believes that Year 2000 issues may affect the purchasing decisions
of customers and potential customers of the Company's products. Many businesses
are expending significant resources on projects to make their current hardware
and software systems Year 2000 compliant. Such expenditures may result in
reduced funding for projects to purchase software products such as those offered
by the Company. Potential customers may also choose to defer purchasing Year
2000 compliant products until they believe it is absolutely necessary, thus
resulting in potentially stalled market sales within the industry. Conversely,
Year 2000 issues may cause other companies to accelerate purchases, thereby
causing an increase in short-term demand and a consequent decrease in long-term
demand for software products and services. Any of the foregoing could have a
material adverse effect on the Company's business, operating results and
financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income. SFAS 130 requires companies to display, with
the same prominence as other financial statements, the components of other
comprehensive income. SFAS 130 requires that an enterprise classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. SFAS 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes are required. The Company's financial statements will
include the disclosure of other comprehensive income in accordance with the
provisions of SFAS 130 beginning in the first quarter of fiscal year ended April
30, 1999.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS 131
requires that an enterprise disclose certain information about operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997 with the first disclosure required in the annual
financial statement thereafter. The Company will evaluate the need for such
disclosures at that time.
In October 1997, the Accounting Standards Executive Committee issued Statement
of Position 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-2 is
effective for financial statements for fiscal years beginning after December 15,
1997 (commencing May 1, 1998 for the Company). The Company does not expect that
adoption of SOP 97-2 will significantly affect its results of operations.
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 that could cause actual results to differ materially from those
anticipated by statements made herein. The timing of releases of the Company's
software products can be affected by client needs, marketplace demands and
technological advances. Development plans frequently change, and it is
difficult to predict with accuracy the release dates for products in
development. In addition, other factors include changes in general economic
conditions, the growth rate of the market for the Company's products and
services, the timely availability and market acceptance of these products and
services, the effect of competitive products and pricing, and the irregular
pattern of revenues, as well as a number of other risk factors which could
affect the future performance of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable.
15
<PAGE>
Item 5. Other Information
- ------- -----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibit 11 - Statement re: Computation of Per Share Earnings
(Loss).
(b) A Form 8-K was filed on July 15, 1998 related to the acquisition
of a majority interest in New Generation Computing.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN SOFTWARE, INC.
DATE September 14, 1998 /s/ James C. Edenfield
-------------------- ----------------------
James C. Edenfield
President, Chief Executive Officer
and Treasurer
DATE September 14, 1998 /s/ Vincent C. Klinges
-------------------- ----------------------
Vincent C. Klinges
Chief Accounting Officer
16
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
------- ----
11 Statement re: computation of Per Share Earnings (loss) 18
17
<PAGE>
EXHIBIT 11
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Statement re: computation of Per Share Earnings (loss)
(In thousands, except per share amounts)
Three Months Ended
----------------------
July 31,
----------------------
1998 1997
------- -------
Common stock:
Weighted average common
shares outstanding:
Class A shares 17,942 17,710
Class B shares 4,797 4,815
------- -------
Basic weighted average common
shares outstanding 22,739 22,525
Dilutive effect of outstanding
Class A common stock
options (as determined by
the application of the treasury
stock method using the
average market price for
the period) 1,174 1,703
------- -------
Diluted weighted average common
shares outstanding for
earnings per share - $23,912 $24,229
======= =======
Net earnings (loss) $(5,406) $ 1,349
======= =======
Basic net earnings(loss) per common share $ (.24) $ .06
======= =======
Diluted net earnings (loss) per common share* $ (.24) $ .06
======= =======
* Diluted weighted average common shares outstanding are not included in the
quarter ended July 31, 1998 calculation due to the anti-dilution of the net
loss.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> APR-30-1999 APR-30-1998
<PERIOD-START> MAY-01-1998 MAY-01-1997
<PERIOD-END> JUL-31-1998 APR-30-1998
<CASH> 3,631 2,161
<SECURITIES> 49,672 58,062
<RECEIVABLES> 29,907 28,622
<ALLOWANCES> 1,213 1,222
<INVENTORY> 0 0
<CURRENT-ASSETS> 87,431 92,140
<PP&E> 44,852 43,828
<DEPRECIATION> 27,389 26,639
<TOTAL-ASSETS> 140,038 142,656
<CURRENT-LIABILITIES> 33,310 29,150
<BONDS> 0 0
0 0
0 0
<COMMON> 2,422 2,417
<OTHER-SE> 93,921 100,537
<TOTAL-LIABILITY-AND-EQUITY> 140,038 142,656
<SALES> 0 0
<TOTAL-REVENUES> 27,367 107,472
<CGS> 0 0
<TOTAL-COSTS> 15,243 49,263
<OTHER-EXPENSES> 18,431 49,557
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (5,206) 12,443
<INCOME-TAX> 200 4,648
<INCOME-CONTINUING> (5,406) 7,795
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,406) 7,795
<EPS-PRIMARY> (.24) .34
<EPS-DILUTED> (.24) .32
</TABLE>
