UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________to________________________
Commission File Number: 0-23057
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LOGILITY, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-2281338
- ------------------------------- -------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
470 East Paces Ferry Road, N.E., Atlanta, Georgia 30305
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(404) 261-9777
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
-------
Indicate the number of shares outstanding of the issuer's common stock, as of
the latest practicable date.
Class Outstanding at December 13, 2000
- ------------------------------ --------------------------------
Common Stock, no par value 13,291,642 Shares
LOGILITY, INC.
Form 10-Q
Quarter Ended October 31, 2000
Index
Page
Number
-------------
Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
October 31, 2000 and April 30, 2000 3
Condensed Statements of Operations (Unaudited)
Three and Six Months Ended October 31, 2000 and 1999 4
Condensed Statements of Cash Flows (Unaudited)
Three and Six Months Ended October 31, 2000 and 1999 5
Notes to Condensed Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and 8-15
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15-16
Part II - Other Information 17
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LOGILITY, INC.
Condensed Balance Sheets (Unaudited)
(in thousands, except share data)
October 31, April 30,
2000 2000
------------- -----------
Current Assets:
Cash and cash equivalents $ 4,594 $ 3,524
Investments-current 11,483 14,425
Trade accounts receivable, less allowance for doubtful
accounts of
$558 and $684 at October 31, 2000 and April 30, 2000,
respectively:
Billed 3,836 4,599
Unbilled 1,766 2,558
Due from Parent 3,792 2,204
Prepaid expenses and other current assets 523 556
------------ ----------
Total current assets 25,994 27,866
Investments-noncurrent 4,411 6,738
Furniture and equipment, less accumulated depreciation 1,777 1,870
Intangible assets, less accumulated amortization 7,865 6,748
Other assets, net 1,391 1,312
------------ ----------
$ 41,438 $ 44,534
============ ==========
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 1,664 $ 1,225
Accrued compensation and related costs 1,475 1,879
Other current liabilities 1,540 1,750
Deferred revenues 4,888 5,705
------------ ----------
Total current liabilities 9,567 10,559
Deferred income taxes 2,762 2,762
------------ ----------
Total liabilities 12,329 13,321
------------ ----------
Shareholders' equity:
Preferred stock: 2,000,000 shares authorized; no shares - -
issued
Common stock, no par value; 20,000,000 shares authorized;
13,871,993 shares issued at October 31, 2000
and April 30, 2000 - -
Additional paid-in capital 44,662 43,312
Accumulated deficit (11,242) (7,788)
Treasury stock, at cost - 564,811 shares at October 31, 2000
and April 30, 2000 (4,311) (4,311)
------------ ----------
Total shareholders' equity 29,109 31,213
Commitments and contingencies - -
------------ ----------
$ 41,438 $ 44,534
============ ==========
See accompanying notes to condensed financial statements.
3
Item 1. Financial Statements (continued)
LOGILITY, INC.
Condensed Statements of Operations (Unaudited)
(in thousands except per share data)
Three Months Ended Six Months Ended
October 31, October 31,
2000 1999 2000 1999
------------ ----------- ------------ ------------
Revenues:
License fees $ 2,263 $ 4,014 $ 4,122 $ 8,314
Maintenance 2,479 2,308 5,136 4,520
Services 1,870 2,232 4,275 4,089
------------ ----------- ------------ ----------
Total revenues 6,612 8,554 13,533 16,923
------------ ----------- ------------ ----------
Cost of revenues:
License fees 902 904 1,680 1,726
Maintenance 408 452 819 961
Services 1,445 1,179 2,849 2,124
------------ ----------- ------------ ----------
Total cost of revenues 2,755 2,535 5,348 4,811
------------ ----------- ------------ ----------
Gross margin 3,857 6,019 8,185 12,112
------------ ----------- ------------ ----------
Operating expenses:
Research and development 2,209 2,066 4,370 4,294
Less: Capitalized development (700) (853) (1,498) (1,645)
Sales and marketing 4,077 3,343 7,153 6,860
General and administrative 888 796 1,860 1,435
Charge for restructuring 236 - 236 -
------------ ----------- ------------ ----------
Total operating expenses 6,710 5,352 12,121 10,944
------------ ----------- ------------ ----------
Operating income (loss) (2,853) 667 (3,936) 1,168
Other income, net 159 292 482 619
------------ ----------- ------------ ----------
Income (loss) before income taxes (2,694) 959 (3,454) 1,787
Income taxes 0 0 0 0
------------ ----------- ------------ ----------
Net income (loss) $ (2,694) $ 959 $ (3,454) $ 1,787
============ =========== ============ ==========
Net income (loss) per share: Basic $ (0.20) $ 0.07 ($ 0.26) $ 0.13
============ =========== ============ ==========
Diluted $ (0.20) $ 0.07 ($ 0.26) $ 0.13
============ =========== ============ ==========
Shares used in the calculation of net income
(loss) per common share: Basic 13,307 13,331 13,307 13,367
============ =========== ============ ==========
Diluted* 13,307 13,461 13,307 13,534
============ =========== ============ ==========
* Diluted weighted average common shares outstanding are not included in the
quarter or six months ended October 31, 2000 calcuation due to the anti-dilution
of the net loss.
See accompanying notes to condensed financial statements.
4
Item 1. Financial Statements (continued)
LOGILITY, INC.
Condensed Statements of Cash Flows (Unaudited)
(in thousands)
Six Months Ended
October 31,
-----------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (3,454) $1,787
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,778 1,626
Write-off of minority investment in business 300 -
Charge for restructuring - non-cash portion 177 -
(Increase) decrease in assets:
Accounts receivable 1,555 29
Due from Parent (1,588) (141)
Other assets (46) 37
Increase (decrease) in liabilities:
Accounts payable, accrued costs and other
liabilities (175) (15)
Deferred revenues (817) (9)
------------ -----------
Net cash provided by (used in) operating
activities (2,270) 3,314
------------ -----------
Cash flows from investing activities:
Additions to capitalized computer software development costs (1,498) (1,645)
Additions to purchased computer software costs (149) (42)
Net sales of investments 5,269 2,356
Minority investment in business (63) -
Purchases of furniture and equipment (219) (226)
------------ -----------
Net cash provided by investing activities 3,340 443
------------ -----------
Cash flows from financing activities:
Repurchase of common stock - (634)
------------ -----------
Net cash used in financing activities - (634)
------------ -----------
Net change in cash and cash equivalents 1,070 3,123
Cash and cash equivalents at beginning of
period 3,524 9,695
------------ -----------
Cash and cash equivalents at end of period $ 4,594 $12,818
============ ===========
Supplemental disclosure of noncash investing activity:
Transfer of software from Parent 1,173 -
See accompanying notes to condensed financial statements.
5
Item 1. Financial Statements (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
A. Basis of Presentation
The accompanying condensed financial statements of Logility, Inc. (the
"Company"), are unaudited. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). The financial information presented in the condensed
financial statements reflects all normal recurring adjustments, which are,
in the opinion of management, necessary for a fair presentation of the
periods indicated. These financial statements should be read in
conjunction with the Company's Form 10-K for the fiscal year ended April
30, 2000, as filed with the SEC on July 28, 2000. The interim results
reflected in the condensed financial statements are not necessarily
indicative of the results to be expected for the full year.
We are an approximately 85% owned subsidiary of American Software, Inc.
(the "Parent"), a publicly held applications software provider of
enterprise resource planning solutions (NASDAQ - AMSWA).
B. Industry Segments
On February 1, 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information. The Company operates and manages its business in one segment,
providing Business-to-Business Collaborative Commerce solutions to
participants along the value chain.
C. Comprehensive Income
On May 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements. No statements of comprehensive income (loss) have been
included in the accompanying condensed financial statements since
comprehensive income (loss) and net income (loss) presented in the
accompanying condensed statements of operations would be the same.
D. Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, Software Revenue Recognition, and SOP 98-9, Software Revenue
Recognition with Respect to Certain Transactions. License revenues in
connection with license agreements for standard proprietary and tailored
software are recognized upon delivery of the software, providing
collection is considered probable, the fee is fixed or determinable, there
is evidence of an arrangement, and vendor specific evidence exists to
defer any revenue related to undelivered elements of the arrangement.
6
Item 1. Financial Statements (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
E. Net Earnings (Loss) Per Common 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
is based on the weighted-average number of common shares outstanding and
dilutive potential common shares, such as dilutive stock options.
The numerator in calculating both basic and diluted earnings (loss) per
common share for each year is the same as net earnings (loss). The
denominator is based on the following number of common shares:
Three Months ended Six Months ended
October 31, October 31,
2000 1999 2000 1999
-------------------------- ------------------------
(in thousands) (in thousands)
Common Shares:
Weighted average common shares outstanding 13,307 13,331 13,307 13,331
Dilutive effect of outstanding stock options* - 130 - 167
-------------------------- ------------------------
Total 13,307 13,461 13,307 13,534
========================== ========================
Net (loss) earnings: $ (2,694) $ 959 $ (3,454) $ 1,787
Net (loss) earnings per common share:
Basic $ (0.20) $ 0.07 $ (0.26) $ 0.13
========================== ========================
Diluted $ (0.20) $ 0.07 $ (0.26) $ 0.13
========================== ========================
*For the three and six months ended October 31, 2000 approximately
313,000 and 248,000 stock options, respectively, were excluded from
the computation of diluted earnings (loss) per share because they were
antidilutive.
7
LOGILITY, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q 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. These factors include, but are not limited to, changes in general
economic conditions, technology and the market for our products and services
including economic conditions within the e-commerce markets, the timely
availability and market acceptance of these products and services, the effect of
competitive products and pricing, and the irregular pattern of our revenues, as
well as a number of other risk factors which could affect our future
performance.
OVERVIEW
Logility, Inc. ("Logility" or the "Company") develops, markets and supports e-
Business solutions for business-to-business (B2B) collaborative commerce that
optimize internal and external operating efficiencies of manufacturers,
suppliers, distributors, retailers and other organizations along the "value
chain." The value chain refers to the complex network of relationships that
organizations maintain with trading partners to source, manufacture and deliver
products to the customer. Logility Voyager Solutions(TM) consists of an
Internet-based, integrated software suite that provides advanced supply chain
management including collaborative planning, supply chain execution, and
collaborative logistics capabilities that are designed to increase revenues,
reduce inventory costs, improve forecast accuracy, decrease order cycle times,
optimize production scheduling, streamline logistics operations, reduce
transportation costs and improve customer service across our customers' value
chains, private Internet portals and public e-Business trading exchanges.
In addition to the Logility Voyager Solutions application suite, the i-
Community(SM) provides a complete solution for web-based networking of trading
partners that facilitates Collaborative Planning, Forecasting and
Replenishment(R) (CPFR(R))-based collaboration with suppliers, manufacturers,
retailers and customers. The i-Community allows trading partners to quickly
access and leverage the Logility Voyager Solutions suite and gain the benefits
of e-Business via a web-browser. We market our solution worldwide, primarily to
large enterprises that require a comprehensive supply chain planning and
execution solution. Sales are made through a dedicated sales force and through
relationships with third-party vendors (including American Software) and service
providers.
We previously conducted our business and operations as three separate business
units of American Software: a supply chain planning software group, a warehouse
management software group, and a transportation management software group.
Effective January 1997, American Software transferred substantially all of the
business, operations (including research and development), assets and associated
liabilities of its Supply Chain Planning division to us. Effective August 1997,
American Software transferred to us the WarehousePRO software and substantially
all associated operations, assets and liabilities. Also effective August 1997,
American Software's wholly-owned subsidiary, Distribution Sciences, Inc., was
merged into Logility, transferring its business, operations, assets and
liabilities, including the Transportation Planning and Transportation Management
software, to us. Our condensed financial statements included herein present the
combined assets, liabilities and results of operations for the three business
units for all periods.
8
Item 2. Management's Discussion and Analysis (continued)
Our revenues are derived primarily from three sources: software licenses,
maintenance and services. Software licenses generally are based upon the number
of modules, servers, users and/or sites licensed. License fee revenues are
recognized upon delivery of the software, provided collection is considered
probable, the fee is fixed or determinable, there is evidence of an arrangement,
and vendor-specific evidence exists to allocate the total fee to all elements of
the arrangement. Maintenance agreements typically are for a one- to three-year
term and usually are entered into at the time of the initial product license.
Maintenance revenues are recognized ratably over the term of the maintenance
agreement. Services revenues consist primarily of fees from software
implementation, training, consulting and customization services and are
recognized as the services are rendered.
COMPARISON OF RESULTS
The following table sets forth certain revenue and expense items as a percentage
of total revenues and the percentage increases or decreases in those items for
the three months ended October 31, 2000 and 1999:
Percentage of Pct. Change
Total Revenues in Dollars
---------------------------- ----------------
2000 1999 2000 vs 1999
------------ ------------ ----------------
Revenues:
License fees 34 % 47 % (44) %
Maintenance 38 27 7
Services 28 26 (16)
------------ ------------ ---------------
Total revenues 100 100 (23)
------------ ------------ ---------------
Cost of revenues:
License fees 14 11 0
Maintenance 6 5 (10)
Services 22 14 23
------------ ------------ ---------------
Total cost of revenues 42 30 9
------------ ------------ ---------------
Gross margin 58 70 (36)
Operating expenses:
Research and development (net) 23 14 24
Sales and marketing 62 39 22
General and administrative 13 9 12
Charge for restructuring 3 - nm
------------ ------------ ---------------
Total operating expenses 101 62 25
------------ ------------ ---------------
Operating income (loss) (43) 8 nm
------------ ------------ ---------------
Other income, net 2 3 (46)
------------ ------------ ---------------
Income (loss) before income taxes (41) 11 nm
Income tax expense - - -
------------ ------------ ---------------
Net income (loss) (41)% 11 % nm
============ ============ ===============
nm - not meaningful
9
Item 2. Management's Discussion and Analysis (continued)
The following table sets forth certain revenue and expense items as a percentage
of total revenues and the percentage increases or decreases in those items for
the six months ended October 31, 2000 and 1999:
Percentage of Pct. Change
Total Revenues in Dollars
---------------------------- ----------------
2000 1999 2000 vs 1999
------------ ------------ ----------------
Revenues:
License fees 30 % 49 % (50) %
Maintenance 38 27 14
Services 32 24 5
------------ ------------ ---------------
Total revenues 100 100 (20)
------------ ------------ ---------------
Cost of revenues:
License fees 12 10 (3)
Maintenance 6 5 (15)
Services 21 13 34
------------ ------------ ---------------
Total cost of revenues 39 28 11
------------ ------------ ---------------
Gross margin 61 72 (32)
------------ ------------ ---------------
Operating expenses:
Research and development, net 21 16 8
Sales and marketing 53 40 4
General and administrative 14 9 30
Charge for restructuring 2 - nm
------------ ------------ ---------------
Total operating expenses 90 65 11
------------ ------------ ---------------
Operating income (loss) (29) 7 nm
Other income, net 4 4 (22)
------------ ------------ ---------------
Income (loss) before income taxes (25) 11 nm
Income taxes - - -
------------ ------------ ---------------
Net income (loss) (25) 11 nm
============ ============ ===============
nm - not meaningful
10
Item 2. Management's Discussion and Analysis (continued)
THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999:
- --------------------------------------------
REVENUES:
Our total revenues decreased 23% to approximately $6.6 million from $8.6 million
for the comparable quarter a year ago. This decrease was largely due to a
decrease in our sales and related services, partially offset by an increase in
maintenance revenues. International revenues represented approximately 10% of
total revenues in the quarter ended October 31, 2000 compared to approximately
4% a year ago. This increase was due to increased international license fees, as
well as lower overall revenues.
LICENSES. License fee revenues decreased 44% to approximately $2.3 million from
the same quarter a year ago primarily as a result of reduced sales effectiveness
of direct and indirect sales efforts. The direct sales channel provided
approximately 70% of license fee revenues for the quarter ended October 31,
2000, compared to approximately 88% in the comparable quarter a year ago. This
decrease is mainly due to lower overall levels of license fees, in conjunction
with higher sales contribution from American Software, which is our principal
indirect sales channel. In the quarter ended July 31, 2000, we entered into a
marketing agreement with a major software distributor that we believe could
become an increased source of future indirect channel revenues.
MAINTENANCE. Maintenance revenues increased 7% to approximately $2.5 million
from a year ago, due to the current quarter being the beginning maintenance
period for a number of licensing transactions sold in the prior year.
Maintenance revenues have a direct relationship to current and historic license
fee revenues, since new licenses are the potential source of new maintenance
customers.
SERVICES. Services revenues decreased 16% to approximately $1.9 million from a
year ago as a result of lower license fee sales in the last two quarters
resulting in lower software implementation service levels.
GROSS MARGIN:
Total gross margin in the quarter ended October 31, 2000 was 58% of total
revenues, compared to 70% a year ago. This decrease was largely due to the
decreased level of license fees, which fell to 34% of total revenues, down from
47% a year ago. The gross margin on license fees declined to 60% from 77% a year
ago, due to the combination of lower license fees and the relatively fixed
amount of amortization expense on capitalized software, which makes up the
primary component of cost of license fees. Gross margin on maintenance revenues
rose to 84% compared to 80% a year ago, due to the increase in maintenance
revenues from customers acquired in previous quarters. Gross margin on services
revenues decreased to 23% compared to 47% in the same period a year ago, due to
lower levels of implementation services.
11
Item 2. Management's Discussion and Analysis (continued)
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
Three Months Ended
---------------------------------------------
October 31, Percent October 31,
2000 Change 1999
-------------- ---------- -------------
Gross product development costs $ 2,209 7% $ 2,066
Percentage of total revenues 33% 24%
Less: Capitalized development (700) (18)% (853)
Percentage of gross prod. dev. costs 32% 41%
-------------- ---------- -------------
Product development expenses $ 1,509 24% $ 1,213
Percentage of total revenues 23% 14%
Gross product development costs increased 7% in the quarter ended October 31,
2000 compared to a year ago, due to development expenses related to new
marketing alliances. Capitalized development decreased 18% from a year ago,
while the rate of capitalized development as a percentage of gross product
development costs declined to 32% versus 41% a year ago. Gross development costs
increased, while capitalized development decreased, due to timing issues between
the research and development phases of certain projects. Product development
expenses, as a percentage of total revenues, increased to 23% from 14% a year
ago, due primarily to the decrease in total revenues.
SALES AND MARKETING. Sales and marketing expenses increased 22% from a year ago,
due to increased expenditures related to attendance of trade shows, as well as
transition costs related to the hiring of new sales management. As a percentage
of total revenues, sales and marketing expenses were 62% for the quarter ended
October 31, 2000, compared to 39% for the quarter ended October 31, 1999. This
increase was due to the decrease in overall revenues, as well as the increased
expenditures.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 12% to
approximately $888,000 from a year ago, mainly as a result of an increase in
number of employees, as well as an increased allocation of shared intercompany
expenses from American Software. For the three months ended October 31, 2000,
the average number of employees was approximately 210, compared to approximately
193 for the three months ended October 31, 1999.
CHARGE FOR RESTRUCTURING. During the three months ended October 31, 2000, we
recorded a charge against earnings of approximately $236,000 resulting from from
severance expenses related to sales staff restructuring. Of this amount, $59,000
related to cash severance and $177,000 related to the acceleration of vesting of
stock options to terminated sales staff. The restructuring was completed during
the quarter ended October 31, 2000.
OTHER INCOME:
Other income is comprised of investment earnings from the investment of our cash
reserves. Our investments are generally short term in nature, and all
investments mature within two years. For the quarter ended October 31, 2000,
these investments generated a yield of approximately 6.5%.
12
Item 2. Management's Discussion and Analysis (continued)
INCOME TAXES:
We are included in the consolidated Federal income tax return filed by American
Software, Inc. However, we provide for income taxes as if we were filing a
separate income tax return. For the quarter ended October 31, 2000, we did not
record any income taxes as a result of the cumulative operating losses incurred
since our IPO.
SIX MONTHS ENDED OCTOBER 31, 2000 AND 1999:
- -------------------------------------------
REVENUES:
Our total revenues decreased 20% to approximately $13.5 million from $16.9
million for the comparable period a year ago. This decrease was largely due to a
decrease in our product sales, partially offset by increases in services and
maintenance revenues. International revenues represented approximately 14% of
total revenues in the six months ended October 31, 2000 compared to
approximately 10% a year ago. This increase was mainly due to lower overall
revenues.
LICENSES. License fee revenues decreased 50% to approximately $4.1 million from
the same period a year ago primarily as a result of lower license fee levels due
to reduced sales effectiveness of direct and indirect sales efforts. The direct
sales channel provided approximately 71% of license fee revenues for the six
months ended October 31, 2000, compared to approximately 86% in the comparable
period a year ago. This decrease is mainly due to lower overall levels of
license fees, in conjunction with higher sales contribution from American
Software, which is our principal indirect sales channel.
MAINTENANCE. Maintenance revenues increased 14% to approximately $5.1 million
from a year ago, due to the current period being the beginning maintenance
period for a number of licensing transactions sold in the prior year.
Maintenance revenues have a direct relationship to current and historic license
fee revenues, since new licenses are the potential source of new maintenance
customers.
SERVICES. Services revenues increased 5% to approximately $4.3 million from a
year ago as a result of implementation services performed for new customers
acquired through license fee transactions closed in previous quarters.
GROSS MARGIN:
Total gross margin for the six months ended October 31, 2000 was 61% of total
revenues, compared to 72% a year ago. This decrease was largely due to the
decreased level of license fees, which fell to 30% of total revenues, down from
49% a year ago. The gross margin on license fees declined to 59% from 79% a year
ago, due to the combination of lower license fees and the relatively fixed
amount of amortization expense on capitalized software, which makes up the
primary component of cost of license fees. Gross margin on maintenance revenues
rose to 84% compared to 79% a year ago, due to the increase in maintenance
revenues from customers acquired in previous quarters. Gross margin on services
revenues decreased to 33% compared to 48% in the same period a year ago, due to
higher staffing and infrastructure costs incurred in anticipation of higher
levels of license fees.
13
Item 2. Management's Discussion and Analysis (continued)
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
Six Months Ended
---------------------------------------------
October 31, Percent October 31,
2000 Change 1999
-------------- ---------- -------------
Gross product development costs $ 4,370 2% $ 4,294
Percentage of total revenues 32% 25%
Less: Capitalized development (1,498) (9)% (1,645)
Percentage of gross prod. dev. costs 34% 38%
-------------- ---------- -------------
Product development expenses $ 2,872 8% $ 2,649
Percentage of total revenues 21% 16%
Gross product development costs increased 2% in the six months ended October 31,
2000 compared to a year ago, due to development expenses related to new
marketing alliances. Capitalized development decreased 9% from a year ago, while
the rate of capitalized development as a percentage of gross product development
costs declined to 34% versus 38% a year ago. Gross development costs increased,
while capitalized development decreased, due to timing issues between the
research and development phases of certain projects. Product development
expenses, as a percentage of total revenues, increased to 21% from 16% a year
ago, due primarily to the decrease in total revenues.
SALES AND MARKETING. Sales and marketing expenses increased 4% from a year ago,
due to increased expenditures related to attendance of trade shows, as well as
transition costs related to the hiring of new sales management. As a percentage
of total revenues, sales and marketing expenses were 53% for the six months
ended October 31, 2000 compared to 40% for the six months ended October 31,
1999. This increase was due to the decrease in overall revenues, as well as the
increased expenditures.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 30% to
approximately $1.9 million from a year ago, mainly as a result of an increase in
employees, as well as an increased allocation of shared intercompany expenses
from American Software. For the six months ended October 31, 2000, the average
number of employees was approximately 209, compared to approximately 184 for the
six months ended October 31, 1999.
OTHER INCOME:
Other income is comprised of investment earnings from the investment of our cash
reserves. Our investments are generally short term in nature, and all
investments mature within two years. For the six months ended October 31, 2000,
these investments generated a yield of approximately 6.3%.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Our operating activities used cash of approximately $2.3 million in the six
months ended October 31, 2000, and provided cash of approximately $3.3 million
in the same period of the prior year. The cash used by operations during the six
months ended October 31, 2000 was primarily attributable to the net loss of $3.5
million, increase in amount due from Parent of $1.6 million, decrease in
deferred revenues of $817,000, and decrease in accounts payable and other
accrued liabilities of $175,000. This was partially offset by depreciation and
amortization
14
Item 2. Management's Discussion and Analysis (continued)
expense of $1.8 million, a decrease in accounts receivable of $1.6 million, the
write-off of a minority investment in a business of $300,000, and the non-cash
portion of a restructuring charge of $177,000. In the six months ended October
31, 2000, $1.2 million in capitalized software was transferred to Logility from
its Parent.
The cash provided by operations during the six months ended October 31, 1999 was
primarily attributable to net income of $1.8 million, and non-cash depreciation
and amortization expense of $1.6 million. This was partially offset by an
increase in due from Parent of $141,000.
Cash provided by investing activities was approximately $3.3 million and
$443,000 for the six months ended October 31, 2000 and 1999, respectively. For
the six months ended October 31, 2000, cash provided by investing activities
consisted of $5.3 million in the net sale of investments. This was partially
offset by $1.5 million in capitalized software development costs, $219,000 in
purchases of furniture and equipment, $63,000 of a minority investment in a
business, and $149,000 in purchases of computer software. For the six months
ended October 31, 1999, $2.4 million was provided by the net sale of
investments, partially offset by $1.6 million in additions to capitalized
software development costs, and $226,000 in purchases of furniture and
equipment.
No cash was provided by or used in financing activities for the six months ended
October 31, 2000. For the six months ended October 31, 1999, $634,000 was used
for the repurchase of our common stock.
Days Sales Outstanding (DSO) in accounts receivable were 76 days as of October
31, 2000, compared to 75 days as of October 31,1999.
Our current ratio on October 31, 2000 was 2.59 to 1 and we have no debt. Our
principal sources of liquidity are our cash and investments, which totaled
approximately $20.5 million at October 31, 2000. We believe that our sources of
liquidity and capital resources will be sufficient to satisfy our presently
anticipated requirements during at least the next twelve months for working
capital, capital expenditures and other corporate needs. Management is not aware
of any condition that would materially alter this trend.
On December 15, 1997, the Board of Directors approved a resolution authorizing
the Company to repurchase up to 350,000 shares of the Company's common stock
through open market purchases at prevailing market prices. The Company completed
this repurchase plan in November 1998. In November 1998 the Company adopted an
additional repurchase plan for up to 800,000 shares. The timing of any
repurchases would depend on market conditions, the market price of Logility's
common stock and management's assessment of the Company's liquidity and cash
flow needs. For both plans, through December 14, 2000, the Company had purchased
a cumulative total of 580,411 shares at a total cost of approximately $4.3
million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency. For the six months ended October 31, 2000, the Company
generated 14% of its revenues outside the United States. International sales
usually are made by the Company's foreign subsidiaries and are denominated
typically in U.S. Dollars or British Pounds Sterling. However, the expense
incurred by foreign subsidiaries is denominated in the local currencies. The
Company has not engaged in any hedging activities.
Interest rates. The Company manages its interest rate risk by maintaining an
investment portfolio of held-to-maturity instruments with high credit quality
and relatively short average maturities. These instruments include, but are not
limited to, money-market instruments, bank time deposits, and taxable and
tax-advantaged variable rate and fixed rate obligations of corporations,
municipalities, and national, state, and local government agencies,
15
Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)
in accordance with the Company's investment policy. These instruments are
denominated in U.S. dollars. The fair value of securities held at October 31,
2000 was approximately $15.9 million.
The Company also holds cash balances in accounts with commercial banks in the
United States and foreign countries. These cash balances represent operating
balances only and are invested in short-term time deposits of the local bank.
Such operating cash balances held at banks outside the United States are
denominated in the local currency.
Many of the Company's investments carry a degree of interest rate risk. When
interest rates fall, the Company's income from investments in variable-rate
securities declines. When interest rates rise, the fair market value of the
Company's investments in fixed-rate securities declines. The Company attempts to
mitigate risk by holding fixed-rate securities to maturity, but should its
liquidity needs force it to sell fixed-rate securities prior to maturity, the
Company may experience a loss of principal.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
The registrant is not currently involved in legal proceedings
requiring disclosure under this item.
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) The Company held its 2000 Annual Meeting of Stockholders on
August 23, 2000.
(b) Not applicable.
(c) At the Company's 2000 Annual Meeting of Stockholders, the only
Stockholder vote taken was on the election of directors. The
following is the results of such election, in which there was no
opposition, for each nominee for election:
Parker H. Petit: Votes "For": 13,175,913; withholding authority
to vote for: 8,893. Frederick E. Cooper: Votes "For": 13,174,695;
withholding authority to vote for: 10,111.
(d) Not applicable.
Item 5. Other Information
- ------- -----------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter ended October
31, 2000.
17
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOGILITY, INC.
DATE December 13, 2000 /s/ J. Michael Edenfield
-------------------------- -----------------------------------
J. Michael Edenfield
President, Chief Executive Officer
DATE December 13, 2000 /s/ Vincent C. Klinges
------------------------- -----------------------------------
Vincent C. Klinges
Chief Financial Officer
DATE December 13, 2000 /s/ Deirdre J. Lavender
------------------------- -----------------------------------
Deirdre J. Lavender
Controller and Principal Accounting Officer
18