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, 1995 ------------------------------------------ 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, 1995 ------------------------------------ --------------------------------- <S> <C> Class A Common Stock, $.10 par value 17,426,490 Shares Class B Common Stock, $.10 par value 4,836,889 Shares </TABLE> 1
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Form 10-Q Quarter ended July 31, 1995 Index ----- <TABLE> <CAPTION> <S> <C> Page No. ---- Part I - Financial Information Condensed Consolidated Balance Sheets - Unaudited - July 31, 1995 and April 30, 1995 3-4 Condensed Consolidated Statements of Operations - Unaudited - Three Months ended July 31, 1995 and 1994 5 Condensed Consolidated Statement of Shareholders' Equity - Unaudited - Three Months ended July 31, 1995 6 Condensed Consolidated Statements of Cash Flows - Unaudited - Three Months ended July 31, 1995 and July 31, 1994 7 Notes to Condensed Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II - Other Information 10 </TABLE> 2
PART I FINANCIAL INFORMATION ------ Item 1. Financial Statements AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) <TABLE> <CAPTION> July 31, 1995 April 30, 1995 ------------- -------------- ASSETS <S> <C> <C> Current assets: Cash $ 2,944,935 $ 1,228,461 Investments 33,763,262 31,276,773 Trade accounts receivable, less allowance for doubtful accounts of $1,844,845 at July 31, 1995 and $1,906,284 at April 30, 1995 12,790,145 11,008,273 Unbilled accounts receivable 3,521,077 5,409,390 Current deferred income taxes 4,038,892 2,269,548 Refundable income taxes 1,226,880 8,304,601 Prepaid expenses and other current assets 2,145,736 2,474,950 ------------ ------------ Total current assets 60,430,927 61,971,996 ------------ ------------ Property and equipment, at cost 37,929,243 37,375,541 Less accumulated depreciation and amortization 19,899,825 19,283,211 ------------ ------------ Net property and equipment 18,029,418 18,092,330 ------------ ------------ Capitalized computer software development costs, net 21,328,392 20,372,465 Purchased computer software costs, net 4,859,192 5,414,553 ------------ ------------ Total computer software costs 26,187,584 25,787,018 ------------ ------------ Other assets, net 2,937,571 1,940,209 ------------ ------------ $107,585,500 $107,791,553 ============ ============ </TABLE> See accompanying notes to condensed consolidated financial statements. (continued) 3
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited), Continued <TABLE> <CAPTION> July 31, 1995 April 30, 1995 ------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> Current liabilities: Accounts payable $ 5,000,944 $ 5,132,774 Accrued compensation and related costs 3,180,556 2,797,422 Accrued royalties 1,106,675 1,161,836 Other current liabilities 3,230,999 3,722,891 Deferred revenue 12,342,448 12,750,156 ------------ ------------ Total current liabilities 24,861,622 25,565,079 Deferred income taxes 8,312,337 8,189,662 ------------ ------------ Total liabilities 33,173,959 33,754,741 ------------ ------------ Shareholders' equity: Common stock: Class A, $.10 par value. Authorized 50,000,000 shares; issued 18,729,871 shares at July 31, 1995 and April 30, 1995 1,872,988 1,872,988 Class B, $.10 par value. Authorized 10,000,000 shares; issued and outstanding 4,840,489 shares at July 31, 1995 and April 30, 1995; convertible into Class A shares on a one-for- one basis 484,049 484,049 Additional paid-in capital 30,661,545 30,656,333 Retained earnings 53,214,948 52,846,986 ------------ ------------ 86,233,530 85,860,356 Less Class A treasury stock, 1,306,650 shares at July 31, 1995 and 1,306,943 shares at April 30, 1995, at cost 11,821,989 11,823,544 ------------ ------------ Total shareholders' equity 74,411,541 74,036,812 ------------ ------------ $107,585,500 $107,791,553 ============ ============ </TABLE> See accompanying notes to condensed consolidated financial statements. 4
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) <TABLE> <CAPTION> For the Three Months Ended -------------------------- July 31, -------------------------- 1995 1994 ----------- ------------- <S> <C> <C> Revenues: License fees $ 7,449,508 $ 2,656,324 Services 7,608,850 10,076,374 Maintenance 5,899,312 5,524,327 ----------- ----------- Total revenues 20,957,670 18,257,025 ----------- ----------- Cost of revenues: License fees 5,969,770 6,315,618 Services 4,846,003 5,492,760 Maintenance 1,015,291 1,152,286 ----------- ----------- Total cost of revenues 11,831,064 12,960,664 ----------- ----------- Selling, general, and administrative expenses 9,101,485 11,105,742 ----------- ----------- Operating earnings (loss) 25,121 (5,809,381) Other income, net 588,876 818,384 ----------- ----------- Earnings (loss) before income taxes 613,997 (4,990,997) Income tax expense (benefit) 246,035 (2,023,990) ----------- ----------- Net earnings (loss) $ 367,962 $(2,967,007) =========== =========== Net earnings (loss) per common and common equivalent share $.02 $(.13) =========== =========== Weighted average number of common and common equivalent shares outstanding 23,391,219 22,298,934 =========== =========== </TABLE> See accompanying notes to condensed consolidated financial statements. 5
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Shareholders' Equity (Unaudited) <TABLE> <CAPTION> Three months ended July 31, 1995 -------------------------------------------------------------------------------------------------- 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, 1995 18,729,871 $1,872,988 4,840,489 $484,049 $30,656,333 $52,846,986 $(11,823,544) $74,036,812 Net earnings -- -- -- -- -- 367,962 -- 367,962 Proceeds from dividend reinvestment and stock purchase plan -- -- -- -- -- -- 1,555 1,555 Grants of compensatory stock options -- -- -- -- 5,212 -- -- 5,212 ---------- ---------- --------- -------- ----------- ----------- ------------ ----------- Balance at July 31, 1995 18,729,871 $1,872,988 4,840,489 $484,049 $30,661,545 $53,214,948 $(11,821,989) $74,411,541 ========== ========== ========= ======== =========== =========== ============ =========== </TABLE> See accompanying notes to condensed consolidated financial statements. 6
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) <TABLE> <CAPTION> For the Three Months Ended --------------------------- July 31, --------------------------- 1995 1994 ----------- ------------ <S> <C> <C> Cash flows from operating activities: Net earnings (loss) $ 367,962 $(2,967,007) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 2,910,124 2,945,327 Net gain on investments (303,846) (324,308) Grants of compensatory stock options 5,212 64,808 Equity in loss of investee 100,345 - Deferred income taxes (1,646,669) (448,752) Change in operating assets and liabilities: Net (increase) decrease in money market funds (3,154,712) 1,235,611 Purchases of investments (1,282,964) (2,403,500) Proceeds from sales and maturities of investments 2,255,033 3,808,872 Accounts receivable 106,441 2,797,187 Prepaids and other assets 292,765 570,812 Accounts payable and other accrued liabilities (295,749) 281,464 Income taxes 5,977,721 (1,651,185) Deferred revenue (407,708) (845,583) ----------- ----------- Net cash provided by operating activities 4,923,955 3,063,746 ----------- ----------- Cash flows from investing activities: Capitalized software development costs (2,655,334) (1,310,900) Purchases of property and equipment (553,702) (1,188,235) ----------- ----------- Net cash used in investing activities (3,209,036) (2,499,135) ----------- ----------- Cash flows from financing activities: Proceeds from exercise of stock options - 67,803 Proceeds from dividend reinvestment and stock purchase plan 1,555 - Dividends paid - (1,783,518) ----------- ----------- Net cash provided by (used in) financing activities 1,555 (1,715,715) ----------- ----------- Net increase (decrease) in cash 1,716,474 (1,151,104) Cash at beginning of period 1,228,461 2,172,745 ----------- ----------- Cash at end of period $ 2,944,935 $ 1,021,641 =========== =========== Supplemental disclosure of cash received during the period for income taxes $(4,085,017) $(3,541,352) =========== =========== </TABLE> 7
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements July 31, 1995 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 1995 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. 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 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS --------------------- For the quarter ended July 31, 1995, revenues totaled $20,957,670, up 15% from $18,257,025 in the corresponding quarter of fiscal 1995. Software license fees were 180% higher than the first quarter of 1995 due to an increase in the number of contracts and an increase in their average value. Management believes that a significant factor contributing to the increase in software license fees was the number and experience of the sales force that was put in place during fiscal 1995. Services revenues were 24% lower than the corresponding quarter a year ago. This decrease is due to lower license fee revenues in fiscal 1995. Generally, the consulting and custom programming components of services revenues tend to increase or decrease with software license fee revenue fluctuations, typically lagging six to nine months behind changes in the related license fee revenues. Maintenance revenues increased 7% from first quarter 1995, and represented 28% of total revenues for the quarter ended July 31, 1995 compared to 30% for the quarter ended July 31, 1994. This increase is due to the long- term growth in the installed base of the Company's software. All components of cost of revenues decreased from first quarter of fiscal 1995 primarily due to costs related to reductions in the number of employees during fiscal 1995. Selling, general and administrative expenses decreased 18% over the same period in fiscal 1995. The decrease is primarily due to decreases in salaries and other costs associated with fewer employees. The effective tax rate was an expense of 40% in first quarter of fiscal 1996 compared to a benefit of 41% in the same quarter a year ago. These fluctuations are due to the loss in the first quarter of fiscal 1995. FINANCIAL CONDITION ------------------- The Company's consolidated balance sheet remains very strong with a current ratio of 2.4 to 1. Liquidity also remains strong with cash and short-term investments totaling 34% 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. 9
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 ------- --------------------------------------------------- Not applicable 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 September 6, 1995. 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, 1995. 10
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 13, 1995 /s/ James C. Edenfield ------------------ ----------------------------------- James C. Edenfield President, Chief Executive Officer and Treasurer DATE September 13, 1995 /s/ Peter W. Pamplin ------------------ ----------------------------------- Peter W. Pamplin Chief Accounting Officer 11
EXHIBIT INDEX ------------- Exhibit Page ------- ---- 10.1 Amended and restated 1991 Employee Stock Option Plan effective September 6, 1995. 13 11 Statement re: computation of Per Share Earnings (Loss) 18 12