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, 1997 ----------------------------------------------- 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 ----------------------------------------------------- AMERICAN SOFTWARE, INC. - ------------------------------------------------------------------------------- (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 - ------------------------------------------------- ----------- (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. <TABLE> <CAPTION> Classes Outstanding at September 11, 1997 - ------------------------------------ --------------------------------- <S> <C> Class A Common Stock, $.10 par value 17,817,343 Shares Class B Common Stock, $.10 par value 4,810,289 Shares </TABLE>
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Form 10-Q Quarter ended July 31, 1997 Index ----- <TABLE> <CAPTION> Page No. ---- <S> <C> Part I - Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - Unaudited - July 31, 1997 and April 30, 1997 3-4 Condensed Consolidated Statements of Operations - Unaudited - Three Months ended July 31, 1997 and 1996 5 Condensed Consolidated Statement of Shareholders' Equity - Unaudited - Three Months ended July 31, 1997 6 Condensed Consolidated Statements of Cash Flows - Unaudited - Three Months ended July 31, 1997 and July 31, 1996 7 Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-10 Part II - Other Information 11 </TABLE> 2
PART I FINANCIAL INFORMATION - ------ Item 1. Financial Statements AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (in thousands except share data) <TABLE> <CAPTION> July 31, 1997 April 30, 1997 ------------- -------------- <S> <C> <C> ASSETS Current assets: Cash $ 1,615 $ 3,442 Investments 25,818 20,964 Trade accounts receivable, less allowance for doubtful accounts of $1,182 at July 31, 1997 and April 30, 1997 17,310 15,919 Unbilled accounts receivable 2,640 3,172 Current deferred income taxes 1,995 1,995 Refundable income taxes 1,060 1,060 Prepaid expenses and other current assets 1,970 1,766 -------- ------- Total current assets 52,408 48,318 -------- ------- Property and equipment, at cost 41,780 41,647 Less accumulated depreciation and amortization 24,687 24,244 -------- ------- Net property and equipment 17,093 17,403 -------- ------- Capitalized computer software development costs, net 28,809 28,171 Purchased computer software costs, net 814 846 -------- ------- Total computer software costs 29,623 29,017 -------- ------- Other assets, net 2,303 2,374 -------- ------- $101,427 $97,112 ======== ======= </TABLE> See accompanying notes to condensed consolidated financial statements. (continued) 3
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets(Unaudited), Continued (in thousands except share data) <TABLE> <CAPTION> July 31, 1997 April 30, 1997 ------------- -------------- <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,576 $ 5,221 Accrued compensation and related costs 5,212 5,077 Accrued royalties 635 839 Other current liabilities 5,034 4,368 Deferred revenue 12,942 11,321 -------- ------- Total current liabilities 29,399 26,826 Deferred income taxes 3,134 3,134 -------- ------- Total liabilities 32,533 29,960 -------- ------- Shareholders' equity: Common stock: Class A, $.10 par value. Authorized 50,000,000 shares; issued 19,097,352 shares at July 31, 1997 and 18,972,926 shares at April 30, 1997 1,910 1,897 Class B, $.10 par value. Authorized 10,000,000 shares; issued and outstanding 4,819,289 shares at July 31, 1997 and April 30, 1997; convertible into Class A shares on a one-for-one basis 482 482 Additional paid-in capital 31,696 31,317 Retained earnings 46,778 45,430 -------- ------- 80,866 79,126 Less Class A treasury stock, 1,330,038 shares at July 31, 1997 and 1,330,251 shares at April 30, 1997, at cost 11,972 11,974 -------- ------- Total shareholders' equity 68,894 67,152 -------- ------- $101,427 $97,112 ======== ======= </TABLE> See accompanying notes to condensed consolidated financial statements. 4
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (in thousands except share and per share data) <TABLE> <CAPTION> For the -------------------------- Three Months Ended -------------------------- July 31, -------------------------- 1997 1996 ------------ ------------ <S> <C> <C> Revenues: License fees $ 8,548 $ 5,474 Services 10,804 7,444 Maintenance 5,764 5,208 ----------- ----------- Total revenues 25,116 18,126 ----------- ----------- Cost of revenues: License fees 2,033 1,394 Services 8,085 6,629 Maintenance 1,993 1,815 ----------- ----------- Total cost of revenues 12,111 9,838 ----------- ----------- Research and development expenses 5,290 4,472 Less: Capitalizable software (2,078) (3,067) Marketing and sales expenses 5,980 5,157 General and administrative expenses 2,751 3,049 ----------- ----------- Operating earnings (loss) 1,062 (1,323) Other income, net 982 120 ----------- ----------- Earnings (loss) before income taxes 2,044 (1,203) Income tax expense 695 - ----------- ----------- Net earnings (loss) $ 1,349 $ (1,203) =========== =========== Earnings (loss) per common and common equivalent share $.06 $(.05) =========== =========== Weighted average number of common and common equivalent shares outstanding 24,228,887 22,297,778 =========== =========== </TABLE> See accompanying notes to condensed consolidated financial statements. 5
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Condensed Consolidated Statement of Shareholders' Equity (Unaudited) <TABLE> <CAPTION> Three months ended July 31, 1997 ------------------------------------------------------------------------------------------------------- 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, 1997 18,972,926 $1,897,294 4,815,289 $481,529 $31,317,194 $45,429,506 $(11,973,776) $67,151,747 Net earnings -- -- -- -- -- 1,348,826 -- 1,348,826 Proceeds from stock options exercised 124,426 12,443 -- -- 379,156 -- -- 391,599 Proceeds from dividend reinvestment and stock purchase plan -- -- -- -- -- -- 1,757 1,757 ---------- ---------- --------- ---------- ----------- ----------- ------------ ----------- Balance at July 31, 1997 19,097,352 $1,909,737 4,815,289 $481,529 $31,696,350 $46,778,332 $(11,972,019) $68,893,929 ========== ========== ========= ========== =========== =========== ============ =========== </TABLE> See accompanying notes to Condensed consolidated financial statements. 6
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows(Unaudited) (in thousands) <TABLE> <CAPTION> For the Three Months Ended ------------------ July 31, ------------------ 1997 1996 ------- ------- <S> <C> <C> Cash flows from operating activities: Net earnings (loss) $ 1,349 $(1,203) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 2,383 1,687 Loss on disposal of fixed assets 208 - Equity in loss of investee - 35 Net (gain) loss on investments (1,180) 266 Grants of compensatory stock options - 3 Deferred income taxes - - Change in operating assets and liabilities: Net increase in money market funds (3,572) (837) Purchases of investments (840) (34) Proceeds from sales and maturities of investments 738 3,087 Accounts receivable (859) 780 Prepaids and other assets (309) (428) Accounts payable and other accrued liabilities 952 160 Income taxes - 227 Deferred revenue 1,621 (506) ------- ------- Net cash provided by operating activities 491 3,237 ------- ------- Cash flows from investing activities Capitalized software development costs (2,178) (3,067) Purchases of property and equipment (533) (366) ------- ------- Net cash used in investing activities (2,711) (3,433) ------- ------- Cash flows from financing activities: Proceeds from exercise of stock options 391 106 Proceeds from dividend reinvestment and stock purchase plan 2 1 ------- ------- Net cash provided by financing activities 393 107 ------- ------- Net decrease in cash (1,827) (89) Cash at beginning of period 3,442 1,947 ------- ------- Cash at end of period $ 1,615 $ 1,858 ======= ======= Supplemental disclosure of cash paid during the period for income taxes $ 50 $ 114 ======= ======= </TABLE> See accompanying notes to condensed consolidated financial statements. 7
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements July 31, 1997 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 Company's 1997 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. Certain reclassifications were made to the fiscal 1998 amounts to conform to classifications adopted in fiscal 1997. B. Earnings (Loss) Per Common and Common Equivalent Share ------------------------------------------------------ Earnings (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 earnings (loss) per share computation, and share equivalents from dilutive stock options outstanding during each period. Share equivalents are excluded from the aforementioned computation during loss periods. 8
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (dollar amounts in thousands) ITEM 2. RESULTS OF OPERATIONS - --------------------- For the quarter ended July 31, 1997, revenues totaled $25,116, up 39% from $18,126 in the corresponding quarter of fiscal 1997. Software license fees were 56% higher than the first quarter of fiscal 1997. License fees from the Company's mainframe and midrange ERP Solutions, along with its Warehouse PRO and client server Value Chain Solutions, all contributed to the increase in license fees revenue. Services revenues were 45% higher than the corresponding quarter a year ago. The Company believes the increase was caused by both the increase in license fees and an improvement in the Company's ability to offer higher margin services for its client server offerings. Maintenance revenues increased 11% from first quarter 1997, continuing the trend that began in the first quarter of fiscal 1997. Maintenance revenues generally follow license fee revenues, as new license fees are the source of new maintenance customers. The cost of revenues for license fees increased 46% compared to the first quarter of fiscal 1997 due primarily to higher amortization of capitalized software. Services costs increased 22% versus the same quarter a year ago due to increased service related activity corresponding to the increase in service revenue. Similarly, maintenance costs increased 10% compared to the year ago first quarter due to increased maintenance activities as compared to the quarter ended July 31, 1996. Research and development expenditures increased 18% as compared to first quarter of fiscal 1997, with a 32% decrease in the amount of these expenditures that were capitalized. The decrease in amounts capitalized relate to the relative stages of completion of software projects. Marketing and sales expense increased 16% over the corresponding quarter of fiscal 1997, due to an increase in sales and marketing activities. General and administrative expenses decreased 10% for the quarter ended July 31, 1997 over the same period in fiscal 1997. These expenses decreased in several categories primarily due to management's continued attention to cost control. Other income increased approximately $862,000 for the quarter over the same period in fiscal 1997. The increase is primarily due to increases in the fair market value of the Company's stock and bond portfolios, which are treated as a "trading" portfolio under SFAS 115. Therefore, any increase in market value of these portfolios has the effect of increasing other income. The effective tax rate was 34% as compared to 0% in the first quarter of fiscal 1997, because the Company experienced net earnings in the quarter ended July 9
31, 1997 and a net loss for the corresponding quarter a year ago. The Company elected not to recognize a tax benefit from the loss incurred in the corresponding quarter a year ago. FINANCIAL CONDITION - ------------------- The Company's operating activities provided cash of approximately $500,000 for the three months ended July 31, 1997 and approximately $3.2 million in the prior year period. This decrease of approximately $2.7 million occurred while the Company had net earnings of approximately $1.3 million for the three months ended July 31, 1997 and a net loss of approximately $1.2 million for the prior year period. The primary reasons for this decrease are 1) the increase in accounts receivable, 2) the increase in the market value of the Company's stock and bond portfolio, and 3) the transfer of monies into the Company's investment portfolio, as compared to the corresponding quarter a year ago, where sales and maturities of investments were used to fund the Company's operating activities. Partially offsetting these decreases, deferred revenue increased by approximately $2.1 million, accounts payable and other accrued liabilities increased by approximately $.8 million and depreciation and amortization expense increased by approximately $.7 million. Cash used for investing activities was approximately $2.7 million for the three months ended July 31, 1997 and approximately $3.4 million in the prior year period. Comparing these two periods, one component of investing activities, capitalized software development costs, decreased approximately $1.0 million. Partially offsetting this decrease, purchases of property and equipment increased approximately $200,000 as between the three months ended July 31, 1997 and 1996. The Company's current ratio was 1.8 to 1 on July 31, 1997. Liquidity remains strong, with cash and short-term investments totaling 27% of total assets. The Company believes that existing cash and short-term investments as well as cash from operations will be sufficient to meet its operational objectives for at least the next twelve month period, though it may seek additional capital to fund its continuing software development. 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 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. Furthermore, any projections regarding services revenues from preparing customers for the turn of the millennium are even more uncertain due to the fact that there is no precedent for providing these kinds of services. 10
PART II OTHER INFORMATION - ------- Item 1. Legal Proceedings - ------- ----------------- Not applicable Item 2. Changes in Securities - ------- --------------------- Not applicable Item 3. Defaults Upon Senior Securities - ------- ------------------------------- Not applicable Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- The Registrant's Annual Meeting was held on August 26, 1997. At that meeting, in addition to re-election of directors, the shareholders voted upon a proposed amendment to the 1991 Employee Stock Option Plan to increase the base number of option shares authorized under that Plan from 2,400,000 to 2,700,000. On a weighted basis, 5,730,084 shares were voted in favor of the amendment, 272,887 shares were voted against the amendment and 3,232 shares abstained from voting on the amendment. The shareholders also voted upon a proposed amendment to the Director and Officer Stock Option Plan to increase the base number of option shares authorized under that Plan from 900,000 to 1,000,000. On a weighted basis, 5,741,108 shares were voted in favor of the amendment, 262,081 shares were voted against the amendment and 3,734 shares abstained from voting on the amendment. Item 5. Other Information - ------- ----------------- Not applicable Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibit 10.1 Amended and Restated 1991 Employee Stock Option Plan effective August 26, 1997. (b) Exhibit 10.2 Amended and Restated Director and Officer Stock Option Plan effective August 26, 1997. (c) Exhibit 11 Statement re: computation of Per Share Earnings (Loss). (d) No reports on Form 8-K were filed during the quarter ended July 31, 1997. 11
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 16, 1997 /s/James C. Edenfield ------------------------ ------------------------------------ James C. Edenfield President, Chief Executive Officer and Treasurer DATE September 16, 1997 /s/David E. Weigand ------------------------ ------------------------------------ David E. Weigand Vice President of Finance and Chief Accounting Officer 12
EXHIBIT INDEX ------------- <TABLE> <CAPTION> Exhibit Page ------- ---- <S> <C> <C> 10.1 Amended and Restated 1991 Employee Stock Option Plan effective August 26, 1997. 10.2 Amended and Restated Director and Officer Stock Option Plan effective August 26, 1997. 11 Statement re: computation of Per Share Earnings (Loss) </TABLE> 13