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, 1996
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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
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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
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(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
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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
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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 10, 1996
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Class A Common Stock, $.10 par value 17,506,416 Shares
Class B Common Stock, $.10 par value 4,819,289 Shares
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Form 10-Q
Quarter ended July 31, 1996
Index
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Page
No.
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - Unaudited - July 31, 1996
and April 30, 1996 3-4
Condensed Consolidated Statements of Operations
- Unaudited - Three Months ended July 31, 1996 and 1995 5
Condensed Consolidated Statement of Shareholders' Equity
- Unaudited - Three Months ended July 31, 1996 6
Condensed Consolidated Statements of Cash Flows
- Unaudited - Three Months ended July 31, 1996 and July 31, 1995 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
2
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
July 31, 1996 April 30, 1996
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ASSETS
Current assets:
Cash $ 1,857,992 $ 1,947,249
Investments 21,725,018 24,207,169
Trade accounts receivable, less allowance
for doubtful accounts of $1,200,000 at
July 31, 1996 and April 30, 1996 12,886,215 14,106,363
Unbilled accounts receivable 1,392,926 953,089
Current deferred income taxes 1,938,059 1,938,059
Refundable income taxes 795,187 1,021,915
Prepaid expenses and other current assets 2,125,495 1,880,485
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Total current assets 42,720,892 46,054,329
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Property and equipment, at cost 39,788,059 39,423,021
Less accumulated depreciation and amortization 22,434,891 21,804,448
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Net property and equipment 17,353,168 17,618,573
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Capitalized computer software development costs, net 25,168,416 22,943,859
Purchased computer software costs, net 1,062,093 1,231,076
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Total computer software costs 26,230,509 24,174,935
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Other assets, net 3,037,706 2,934,117
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$89,342,275 $90,781,954
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See accompanying notes to condensed consolidated financial statements.
(continued)
3
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets(Unaudited), Continued
July 31, 1996 April 30, 1996
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,068,342 $ 4,940,084
Accrued compensation and related costs 3,773,044 3,656,371
Accrued royalties 1,111,320 946,548
Other current liabilities 3,244,059 3,493,964
Deferred revenue 10,999,722 11,505,860
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Total current liabilities 24,196,487 24,542,827
Deferred income taxes 1,983,729 1,983,729
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Total liabilities 26,180,216 26,526,556
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Shareholders' equity:
Common stock:
Class A, $.10 par value. Authorized
50,000,000 shares; issued 18,822,020
shares at July 31, 1996 and 18,769,083
shares at April 30, 1996 1,882,204 1,876,910
Class B, $.10 par value. Authorized
10,000,000 shares; issued and outstanding
4,819,289 shares at July 31, 1996 and
4,836,889 shares at April 30,1996;
convertible into Class A shares
on a one-for-one basis 481,929 483,689
Additional paid-in capital 30,881,555 30,776,204
Retained earnings 41,894,489 43,097,649
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75,140,177 76,234,452
Less Class A treasury stock, 1,330,923 shares at
July 31, 1996 and 1,331,119 shares
at April 30, 1996, at cost 11,978,118 11,979,054
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Total shareholders' equity 63,162,059 64,255,398
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$89,342,275 $90,781,954
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See accompanying notes to condensed consolidated financial statements.
4
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
July 31,
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1996 1995
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Revenues:
License fees $ 5,473,938 $ 7,449,508
Services 7,444,198 7,608,850
Maintenance 5,207,886 5,899,312
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Total revenues 18,126,022 20,957,670
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Cost of revenues:
License fees 2,279,439 3,481,205
Services 6,628,774 5,909,905
Maintenance 1,815,249 1,979,188
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Total cost of revenues 10,723,462 11,370,298
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Research and development expenses 3,587,149 3,546,205
Less: Capitalizable software (3,067,471) (2,655,334)
Marketing and sales expenses 5,156,866 5,222,052
General and administrative expenses 3,048,701 3,449,328
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Operating earnings (loss) (1,322,685) 25,121
Other income, net 119,525 588,876
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Earnings (loss) before income taxes (1,203,160) 613,997
Income tax expense - 246,035
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Net earnings (loss) $(1,203,160) $ 367,962
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Earnings (loss) per common and
common equivalent share $(.05) $.02
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Weighted average number of
common and common
equivalent shares outstanding 22,297,778 23,391,219
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See accompanying notes to condensed consolidated financial statements.
5
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated
Statement of Shareholders' Equity
(Unaudited)
Three months ended July 31, 1996
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Common stock
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Class A Class B Additional Total
------------------------ --------------------- paid-in Retained Treasury shareholders'
Shares Amount Shares Amount capital earnings stock equity
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Balance at
April 30, 1996 18,769,083 $1,876,910 4,836,889 $483,689 $30,776,204 $43,097,649 $(11,979,054) $64,255,398
Net earnings -- -- -- -- -- (1,203,160) -- (1,203,160)
Proceeds from stock
options exercised 35,337 3,534 -- -- 102,249 -- -- 105,783
Proceeds from dividend
reinvestment and stock
purchase plan -- -- -- -- -- -- 936 936
Conversion of Class B
shares into
Class A shares 17,600 1,760 (17,600) (1,760) -- -- -- --
Grants of compensatory
stock options -- -- -- -- 3,102 -- -- 3,102
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Balance at
July 31, 1996 18,822,020 $1,882,204 4,819,289 $481,929 $30,881,555 $41,894,489 $(11,978,118) $63,162,059
========== ========== ========= ======== =========== == ======== ============ ===========
See accompanying notes to condensed consolidated financial statements.
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the
Three Months Ended
July 31,
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1996 1995
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Cash flows from operating activities:
Net earnings (loss) $(1,203,160) $ 367,962
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,686,562 2,910,124
Loss on disposal of fixed assets 94 -
Equity in loss of investee 35,054 100,345
Net (gain) loss on investments 266,469 (303,846)
Grants of compensatory stock options 3,102 5,212
Deferred income taxes - (1,646,669)
Change in operating assets and liabilities:
Net increase in money market funds (837,189) (3,154,712)
Purchases of investments (34,125) (1,282,964)
Proceeds from sales and maturities of investments 3,086,996 2,255,033
Accounts receivable 780,311 106,441
Prepaids and other assets (427,865) 292,765
Accounts payable and other accrued liabilities 159,798 (295,749)
Income taxes 226,728 5,977,721
Deferred revenue (506,138) (407,708)
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Net cash provided by operating activities 3,236,637 4,923,955
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Cash flows from investing activities
Capitalized software development costs (3,067,471) (2,655,334)
Purchases of property and equipment (365,142) (553,702)
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Net cash used in investing activities (3,432,613) (3,209,036)
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Cash flows from financing activities:
Proceeds from exercise of stock options 105,783 -
Proceeds from dividend reinvestment
and stock purchase plan 936 1,555
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Net cash provided by financing activities 106,719 1,555
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Net increase (decrease) in cash (89,257) 1,716,474
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Cash at beginning of period 1,947,249 1,228,461
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Cash at end of period $ 1,857,992 $ 2,944,935
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Supplemental disclosure of cash paid (received) during the
period for income taxes $ 114,453 $(4,085,017)
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See accompanying notes to condensed consolidated financial statements.
7
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
July 31, 1996
A. Basis of Presentation
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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 1996 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 1996 amounts to
conform to classifications adopted in fiscal 1997.
B. Earnings (Loss) Per Common and Common Equivalent Share
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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
ITEM 2.
RESULTS OF OPERATIONS
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For the quarter ended July 31, 1996, revenues totaled $18,126,022, down 14% from
$20,957,670 in the corresponding quarter of fiscal 1996. Software license fees
were 27% lower than the first quarter of fiscal 1996. The reduction in license
fee revenues for the first quarter of fiscal 1997 was primarily due to a
significant shortfall in sales of the Company's legacy mainframe products.
Revenues from sales of its client server product, Supply Chain Planning,
increased 45% over the same quarter last year. The Company's ability to
stabilize and increase license fee revenues in the near term will depend
primarily on its ability to make sales of its mainframe and midrange products
while it expands its client server business.
Services revenues were 2% lower than the corresponding quarter a year ago. One
factor contributing to the lower levels is a lower rate of services requested
for the Company's client server products than that experienced for its mainframe
products. The Company expects to generate services revenues by assisting its
customers in preparing their enterprise solutions to operate successfully
through the turn of the millennium. Additionally, the Company continues to
refine its services model for client server implementations.
Maintenance revenues decreased 12% from first quarter 1996. The quarterly
decline was due to reduced license fees, from which maintenance fees are
generated.
The cost of revenues for license fees decreased 35% compared to the first
quarter of fiscal 1996 due to lower amortization of capitalized software and
purchased software due to write-offs made in the fourth quarter of fiscal 1996.
Services costs increased 12% versus the same quarter a year ago due to increased
outsourcing costs. Maintenance costs decreased 8% compared to the year ago
first quarter due to reduced maintenance activities as compared to the quarter
ended July 31, 1995.
Research and development expenditures increased 1% as compared to first quarter
of fiscal 1996, with a 16% increase in the amount of these expenditures that
were capitalizable. Marketing and sales expense decreased 1% over the
corresponding quarter of fiscal 1996.
General and administrative expenses decreased 12% for the quarter ended July 31,
1996 over the same period in fiscal 1996. The expenses decreased in several
categories due to management's continued attention to cost control.
Other income decreased approximately $469,000 for the quarter over the same
period in fiscal 1996. The decrease is primarily due to decreases 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 decrease in market value of
these portfolios has the effect of reducing other income.
9
The effective tax rate was 0% as compared to 40% in the first quarter of fiscal
1996. The Company's tax rate fluctuated because the Company has established a
full valuation allowance against carryforward benefits arising from current net
operating losses, since the realization of tax benefits from operating loss
carryforwards is not assured. Accordingly, the Company has recorded no tax
benefit for the current quarter net operating loss.
FINANCIAL CONDITION
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The Company's operating activities provided cash of approximately $3.2 million
for the three months ended July 31, 1996 and approximately $4.9 million in the
prior year period. This decrease of approximately $1.7 million occurred because
the Company had a net loss of approximately $1.2 million for the three months
ended July 31, 1996 and net earnings of approximately $368,000 for the prior
year period. The Company received an income tax refund of approximately $4.1
million in the prior year period from the carryback of a net operating loss from
the year ended April 30, 1995 which resulted in a lesser use of the Company's
investment portfolio for working capital purposes in the prior year period.
Cash used for investing activities was approximately $3.4 million for the three
months ended July 31, 1996 and approximately $3.2 million in the prior year
period. Comparing these two periods, one component of investing activities,
capitalized software development costs, increased approximately $400,000 as a
result of increased product development efforts. Partially offsetting this
increase, purchases of property and equipment decreased approximately $200,000
as between the three months ended July 31, 1996 and 1995.
The Company's current ratio was 1.8 to 1 on July 31, 1996. Liquidity remains
strong, with cash and short-term investments totaling 26% 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
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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, 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
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Item 1. Legal Proceedings
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Not applicable
Item 2. Changes in Securities
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Not applicable
Item 3. Defaults Upon Senior Securities
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Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable
Item 5. Other Information
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Not applicable
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibit 11 Statement re: computation of Per Share Earnings (Loss).
(b) No reports on Form 8-K were filed during the quarter ended July 31,
1996.
SIGNATURES
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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 13, 1996 /s/James C. Edenfield
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James C. Edenfield
President, Chief Executive Officer
and Treasurer
DATE September 13, 1996 /s/Peter W. Pamplin
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Peter W. Pamplin
Chief Accounting Officer
11
EXHIBIT INDEX
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Exhibit Page
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11 Statement re: computation of Per Share Earnings (Loss) 13
12