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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended April 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File Number 0-23057
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LOGILITY, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-2281338
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
470 East Paces Ferry Road, N.E. 30305
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 261-9777
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, No Par Value
(Title of class)
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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. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
At July 12, 2001, 13,253,503 Common Shares of the registrant were
outstanding. The aggregate market value (based upon the closing price of Common
Shares as quoted on the NASDAQ National Market System at July 12, 2001) of the
shares held by nonaffiliates was approximately $6.4 million.
DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-K
1. 2001 Proxy Statement into Part III.
2. Form S-1 Registration Statement No. 333-33385 into Part IV.
3. Form S-8 Registration Statement No. 333-62531 into Part IV.
4. Form S-8 Registration Statement No. 333-66773 into Part IV.
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PART I
Item 1. Business
In addition to the historical information contained herein, the discussion
in this Form 10-K contains certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that involve risks and uncertainties, such as
statements concerning: growth and future operating results; developments in our
markets and strategic focus; future economic, business and regulatory
conditions; strategic relationships; new products and product enhancements;
future customer benefits attributable to our products; and potential
acquisitions and the integration of acquired businesses, products and
technologies. The cautionary statements made in this Form 10-K should be read
as being applicable to all related forward-looking statements wherever they
appear in this Form 10-K. Our actual results could differ materially from the
results discussed in the forward-looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed under the section captioned "Risk Factors" in Item 1 of this Form 10-
K as well as the cautionary statements and other factors set forth elsewhere
herein.
Company Overview
Logility, Inc. ("Logility" or the "Company") was incorporated as a Georgia
corporation in July 1996. Logility provides e-Business solutions for business-
to-business (B2B) collaborative commerce that optimize internal and external
supply chain efficiencies of manufacturers, suppliers, distributors, retailers
and other organizations. The supply chain refers to the complex network of
relationships that organizations maintain with trading partners to source,
manufacture, and deliver products to the customer and includes demand chain,
supply chain, logistics, warehouse management and business-to-business process
management for collaborative relationships between customers, suppliers and
carriers. Logility's solutions enable enterprises to significantly improve
efficiencies, collaborate with suppliers and customers, respond to market
demands and engage in dynamic business relationships via the Internet. Logility
Voyager Solutions(TM) consists of an Internet-based, integrated software suite
that provides advanced supply chain management including collaborative
planning, strategic network design, optimized supply sourcing, warehouse
management, 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' supply chains, corporate Internet portals and public e-Business
trading exchanges.
Leveraging our supply chain management expertise, Logility has been an
innovator in developing and deploying B2B e-Business with our first Internet-
based collaborative planning solution implemented in 1996. We continue to
invest and expand our e-Business offerings and innovative solutions, which
support the Voluntary Interindustry Commerce Standards Association ("VICS"),
Collaborative Planning, Forecasting and Replenishment (CPFR(R)) standards, as
well as other emerging collaborative supply chain management standards for
transportation and distribution center management. Our Logility Voyager
Solutions suite and related services are designed to power the emerging
Internet trading exchanges and private marketplaces for collaborative planning
and procurement of direct materials and collaborative transportation
management. We believe that private and public Internet-based trading exchanges
and marketplaces will increase demand for our solutions. We will continue to
focus our efforts on the evolving market requirements for innovative B2B e-
Business solutions.
Our software solution is modular and scaleable to meet the management
requirements of complex organizations involving tens of thousands of products
across multiple sites. In addition, customers can integrate our solution with
existing software systems and a variety of Internet and client-server operating
environments and platforms. We have licensed one or more modules of Logility
Voyager Solutions to more than 400 companies worldwide, including British
Telecommunications, Canandaigua Wine, CITGO, ConAgra, Eastman Chemical Company,
Epson America, Florida Power and Light, Heineken USA, The HoneyBaked Ham
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Company, Komatsu America International, L'Oreal USA, Magneti Marelli, Mercury
Marine, Pharmacia & Upjohn, Pfizer International, Porsche, Rand McNally,
Reynolds Metals, Sony Electronics, VF Corporation, and Xpedex. We sell our
products through direct and indirect channels. We derived approximately 14% of
our revenues in the fiscal year ended April 30, 2001 from international sales.
Industry Background
In response to global competitive pressures, companies are continually
seeking new ways to enhance the productivity of their enterprise business
systems and processes. Those companies that effectively communicate,
collaborate and integrate with their trading partners within the extended
enterprise or "supply chain" can realize significant competitive advantages in
the form of lower costs, greater customer responsiveness, and increased
revenue. Supply chain management refers to the process of managing the complex
network of relationships that organizations maintain with external trading
partners (suppliers, manufacturers, distributors and retailers) to source,
manufacture and deliver goods and services to the end consumer. Supply chain
management involves both the activities related to supplying products or
services (source, make, move, buy, store, and deliver) as well as the sales and
marketing activities that impact the demand for goods and services, such as
promotions, pricing and forecasting.
Today several market trends are driving organizations to expand
collaboration with trading partners along the supply chain. A general shift in
market power has forced manufacturers and distributors to become more
responsive to retailers and consumers, which has increased the demand for
improved planning capabilities. At the same time, competitive pressures are
forcing manufacturers to reduce costs, decrease order cycle times and improve
operating efficiencies. As a result, manufacturers are increasingly under
pressure to better manage the supply chain as they seek to improve
manufacturing efficiency and logistics operations while maintaining flexibility
and responsiveness to changing market conditions and customer demands. These
pressures are compounded by the increasing complexity and globalization of the
interactions among suppliers, manufacturers, distributors, retailers and
consumers.
The growth and rapid adoption of the Internet has enhanced the ability of
organizations along the supply chain to integrate their processes through
collaborative planning to synchronize internal assets and production with
external demand and supplier capabilities. Behind this rapid adoption are
technologies and concepts that are converging more quickly than ever before
toward the enormous opportunities to reduce costs, earn fees or sell products,
and optimize operations that facilitate e-Business and the integration of
supply chains comprised of suppliers, manufacturers, distributors, retailers
and customers. These "networked" supply chains are evolving into Internet-based
trading exchanges or marketplaces, re-engineering business processes to improve
flexibility and responsiveness to changing market conditions. The result is
business-to-business e-Business, focused on planning, forecasting, procurement
of direct materials and fulfillment and delivery of customer orders.
AMR Research (AMR Research, "The Executive View," February 2001 and The
Report on e-Commerce Applications, April 2000) projects that B2B e-commerce
will reach $5.7 trillion by the end of 2004, representing 29% of the dollar
value of US-based commercial transactions. AMR states: "E-commerce does not
replace the need to improve internal Supply Chain Management (SCM) practices.
On the contrary, e-commerce is the next step in the evolution of advanced SCM
concepts. To take full advantage of B2B e-commerce's rapid adoption, companies
will have to step up the implementation of Advanced Planning and Scheduling
(APS), Available-to-Promise (ATP), Vendor-Managed Inventories (VMIs),
collaboration, and other supply chain management techniques."
To leverage the Internet for commercial benefit and facilitate enhanced
collaboration among the various trading partners in the supply chain,
organizations are increasingly deploying business-to-business e-Business
solutions to address their planning and supply chain execution requirements.
The planning function involves the proactive use of information to facilitate
the delivery of the right products on time to the correct location and at the
lowest cost. The planning process focuses on demand forecasting, inventory
simulation, event planning,
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distribution, transportation and manufacturing planning and scheduling.
Planning software is designed to increase revenues, improve forecast accuracy,
optimize production scheduling, reduce inventory costs, decrease order cycle
times, reduce transportation costs, and improve customer service. The supply
chain execution function addresses procuring, manufacturing, order fulfillment
and distributing products throughout the supply chain. Within the supply chain
execution function, organizations are increasing their focus on the effective
management of warehouse and transportation operations and the need for
integration with planning systems and other enterprise applications, to
increase the efficient and effective fulfillment of customer orders in both the
business-to-business and the business-to-consumer sectors.
In order to effectively manage and coordinate supply chain activities,
companies require planning and supply chain execution software that provides
for integrated communication, optimization and collaboration among the various
constituents along the supply chain. This enhanced collaboration synchronizes
production plans with demand forecasts, thereby minimizing bottlenecks that
lead to production delays and excess inventory. Companies that have implemented
our advanced collaboration processes such as Collaborative Planning,
Forecasting and Replenishment (CPFR) have seen benefits such as increased
revenues, lower operational costs and shortened cycle times. According to the
Voluntary Interindustry Commerce Standards Association, of which Logility is an
advisory board member on the CPFR subcommittee, "CPFR is a business process
model for supply chain partners to coordinate plans in order to reduce variance
between supply and demand." VICS developed this process in conjunction with
major retailers, manufacturers and suppliers to enable true collaboration. CPFR
is a business model that changes the nature of the relationship between trading
partners.
In addition, companies seek integrated planning and supply chain execution
systems that further optimize the flow of products to the customer through
enhanced transportation and warehouse management capabilities. Organizations
are also demanding solutions that are modular and scaleable to fit the changing
needs of the organization and that can be rapidly deployed.
Strategy
Our objective is to be the leading provider of business-to-business (B2B)
collaborative commerce solutions to power e-Business and optimize the supply
chain, enabling companies to optimize their operations associated with the
sourcing, manufacture and distribution of products in distribution-intensive
target markets such as consumer goods, retail and process manufacturing. Our
strategy includes the following key elements:
Leverage and Expand Installed Base of Customers. We currently target
businesses in the consumer goods, retail, chemicals, pharmaceuticals, food
and beverage, and aftermarket distribution supply chains consisting of
suppliers, manufacturers, distributors, and retailers. We intend to
continue to leverage our installed base of more than 400 customers to
introduce additional functionality, product upgrades, complementary
modules, and application hosting services. In addition, we intend to expand
sales to new customers in our existing vertical markets and to target
additional vertical markets over time.
Continue to Expand Sales and Marketing. We intend to continue to pursue
an increased share of the e-Business market for business-to-business
software solutions by focusing our sales and marketing activities on supply
chain collaboration and optimization initiatives in distribution-intensive
industries such as consumer products, retail, food and beverage, and
aftermarket distribution. Our competitive advantage is providing the most
rapid implementation, an easy-to-maintain configuration, and rapid time-to-
benefit across the full suite of supply chain products. We intend to
continue building a direct sales force that is focused on selected vertical
markets, such as consumer goods, retail and manufacturing supply chains.
Expand Indirect Channels to Increase Market Penetration. We believe that
key relationships with value added resellers will increase sales and expand
market penetration of our products. In the fiscal year ended April 30,
2001, we established a strategic relationship with Microsoft Great Plains
Business Solutions (formerly Great Plains Software) to market, sell,
implement and support components of the Logility Voyager Solutions suite as
the Supply Chain Series Powered by Logility. Additionally, we
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established reseller relationships with Pitney Bowes and 3Plex for
marketing, sales and implementation of the transportation collaboration,
planning and management components of the Logility Voyager Solutions suite.
We also expanded our marketing relationship with IBM to include key
business partners within the IBM distribution channel.
Maintain Technology Leadership. We believe that we are a technology
leader in the field of collaborative commerce and supply chain optimization
solutions and intend to continue to provide innovative, advanced solutions
and services to this market. We believe that we were one of the earliest
providers of supply chain planning software solutions on a client-server
platform and on Windows NT, and the first to introduce a collaborative
supply chain planning solution that operates over the Internet. We intend
to continue to develop and introduce new or enhanced products and keep pace
with technological developments and emerging industry standards. The
Logility Voyager Solutions suite is available on the Windows NT/2000, Unix
and AS/400 server platforms and supports Oracle, Microsoft SQL Server and
DB2 databases.
Extend e-Business Strategy. We continued an e-Business initiative in
fiscal year 2001 to deliver a full suite of products and services for
Internet-based collaborative supply chain planning and execution to power
business-to-business trading exchanges and marketplaces. Our collaborative
commerce strategy includes four levels of products and services designed to
enable the optimization of the customer's supply chain. These products and
services include:
. Logility Voyager Solutions--B2B collaborative commerce supply chain
management business application solution suite for end-to-end supply
chain management including network design, planning, forecasting,
supply optimization, warehouse and transportation management
. Supply Chain Collaboration--Expands the number of business processes
that can be executed via intranets, extranets and the Internet to
include both internal and external trading partners for automated,
exception-based management of collaborative initiatives inside an
organization as well as between buyer and seller trading partners
. Supply Chain Event Management--Provides advanced exception-based
management of supply chain performance by allowing trading partners
to efficiently monitor, notify, control and measure supply chain
processes to prioritize daily activities and ensure optimal
performance within an organization and across the supply chain
. i-CommunitySM--Logility's applications hosting service, enables
companies to rapidly deploy and easily maintain their collaborative
relationships with trading partners through a web-based network
and/or Logility's traditional supply chain management offerings
Invest Aggressively to Build Market Share. Logility will continue to
make investments to expand our sales force, research and development
efforts, and consulting infrastructure balanced with our goals for
increasing profitability. We believe investments are necessary to increase
our market share and to capitalize on the growth opportunities in the
emerging business-to-business e-Business market.
Acquire or Invest in Complementary Businesses, Products and
Technologies. We believe that select acquisitions or investments may
provide opportunities to broaden our product offering to provide more
advanced solutions for e-Business which complement or expand our solutions
and target markets.
Focus on Integrated Planning and Supply Chain Execution Solution. We
believe we are one of the few providers of integrated supply chain
management software solutions addressing demand and supply planning as well
as transportation and warehousing logistics requirements. We are focusing
on providing the most comprehensive planning and execution solution aimed
at optimizing operations along the supply chain. We intend to continue to
focus our development initiatives on enhancing our end-to-end solution and
introducing additional capabilities that complement our integrated
solution.
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Focus on MidMarket. We have defined as "MidMarket" those corporations or
divisions of corporations that have annual revenues ranging from $200
million to $2 billion. Organizations of this size fit our historical
customer profile, and are prime candidates for the purchase and use of our
unique full suite of integrated products operating on Windows NT/Windows
2000, OS400, and UNIX platforms.
Increase Penetration of International Markets. In the fiscal year ended
April 30, 2001, we generated 14% of our total revenues from international
sales, resulting from marketing relationships with a number of
international distributors. We intend to expand our international presence
by creating additional relationships with distributors in Latin America,
Europe, and the Asia/Pacific region.
Expand Strategic Relationships. We intend to expand the depth and number
of strategic relationships with leading enterprise software, systems
integrators and e-Business vendors to integrate the Logility Voyager
Solutions suite into their services and products and to create joint
marketing opportunities. We have a number of marketing alliances, including
those with GERS Retail Systems, IBM, INSIGHT, Inc., Microsoft, Microsoft
Great Plains Business Solutions (formerly Great Plains Software), Pitney
Bowes, 3Plex, and Tompkins Associates. In addition, we have developed a
network of international agents who assist in the sale and support of our
products. We intend to utilize these and future relationships with software
and service organizations to enhance our sales and marketing position.
Continue to Focus on Providing High Quality Customer Service. Providing
high quality customer service is a critical element of our strategy. We
intend to continue to invest in technology and personnel to accommodate the
needs of our growing customer base. Logility will continue to seek new ways
to improve service to customers. By providing application hosting services,
our customers have an alternative deployment option to managing their own
Logility Voyager Solutions applications.
Logility Products and Services
Key Benefits
Our integrated product line, Logility Voyager Solutions, is an e-Business
suite of business-to-business collaborative commerce solutions that enables
end-to-end supply chain management within and between manufacturers, suppliers,
distributors and retailers to more effectively manage the activities along
their respective supply chains and enable collaboration among external trading
partners. Logility also provides collaborative commerce products to expand the
number of business processes that can be executed via intranets, extranets and
the Internet. Logility's services include the i-Community, which facilitates
CPFR-based collaborative commerce within a web-based network of trading
partners, including suppliers, manufacturers, retailers and customers. Logility
Voyager Solutions are also designed to power Internet-based trading exchanges,
marketplaces and private company portals. The i-Community is powered by the
Logility Voyager Solutions suite and enables companies to quickly reap the
benefits of collaboration with external trading partners.
The key benefits of our software solutions and services include the
following:
e-Business Solution for End-to-End Supply Chain Management. Our Logility
Voyager Solutions provide functionality that addresses both the flow of
information and the flow of products throughout the supply chain. By
synchronizing our comprehensive planning software products with our
transportation and warehouse management software solutions, our product
suite can more efficiently and accurately coordinate the delivery of
products to the customer. This end-to-end approach allows maximum
synchronization of activities along the supply chain including
collaboration with external trading partners.
Advanced Collaborative Planning and Supply Chain Execution
Functionality. Our products allow for collaboration among the various
levels within an organization and among external constituents (trading
partners) throughout the supply chain. The architecture of Logility Voyager
Solutions enables key constituents to participate in the planning process,
including marketing, sales, manufacturing, procurement, logistics and
transportation personnel, so that the requirements of all groups are
factored in to create one
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consensus plan. Our collaborative planning functionality is further
enhanced with collaborative commerce tools such as Logility Voyager
Collaborate(TM) (formerly Logility Voyager XPS(TM), eXtensible Planning
Solution), which leverages Internet technology to facilitate information
sharing directly with trading partners. Voyager Collaborate supports the
business processes and practices defined in the VICS' CPFR guidelines,
enabling B2B collaborative commerce via the Internet between two or more
trading partners. Complementing Voyager Collaborate for supply chain
planning is Logility Voyager Fulfill(TM) (formerly Logility Voyager
XES(TM), eXtensible Execution Solution) on the supply chain execution side.
Voyager Fulfill extends collaboration to transportation and distribution
center management trading partners. Through our i-CommunitySM, a
collaborative network of trading partners, customers will be able to
exchange information and conduct collaborative planning, forecasting and
replenishment as well as streamline the order fulfillment process through
collaboration amongst warehouse, transportation and carrier trading
partners. Voyager Fulfill supports emerging industry standards for
collaborative transportation management.
Comprehensive Planning Solution. Our planning solution is comprised of
demand, inventory, event, life cycle, replenishment, supply, manufacturing,
and transportation planning modules that balance demand opportunities with
supply constraints through the synchronization of information gathered from
supply chain participants. A key benefit of our planning solution
components is its emphasis on addressing the full range of complex demand
planning requirements of our customers, including comprehensive forecasting
capabilities that take into account each user's unique perspective of the
supply chain. Additionally, the solution implements and manages key
business initiatives like profit maximization or cost minimization,
advancing traditional distribution resource planning (DRP), and advanced
planning systems (APS) by applying financial and optimization capabilities
to sourcing decisions, enabling companies with complex supply chains to
balance profits, costs, and service while simultaneously considering all
supply chain constraints.
Robust Supply Chain Execution Solution. The Supply Chain Execution
components of Logility Voyager Solutions support the needs of single or
multi-site operations by systematically balancing logistics strategies,
customer service policies, carrier effectiveness and inventory levels to
optimize warehouse and transportation operations. During fiscal year 2001,
Logility introduced the industry's first Internet-based collaborative
transportation management solution, Voyager Fulfill, that incorporates the
carrier in the buyer/seller relationship to optimize order fulfillment,
increase on-time shipments, and provide greater visiblity of the status of
customer orders.
Rapid Deployment. Our products utilize a modular design centered around
proven business processes that streamline implementation and accelerate
deployment. The comprehensive functionality of each module generally
permits customers to implement the solutions with nominal modifications. In
addition, our software combines sophisticated techniques and tools with
intuitive, Windows-and browser-based interfaces to reduce training
requirements and implementation tasks. The Logility i-Community provides a
complete solution for web-based networking of trading partners that
facilitates collaboration with suppliers, manufacturers, distributors,
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 hosted deployment with a web-browser access.
Open, Scaleable, Internet and Client-Server Architecture. Logility's
software has been designed to leverage the Internet to reach remote
corporate users and incorporate external trading partners. The application
suite integrates with existing in-house and third-party software
applications and a variety of operating environments and platforms. The
software is scaleable to manage complex processes involving tens of
thousands of products across multiple sites.
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Product Features
Logility Voyager Solutions is designed to synchronize demand opportunities
with supply constraints and logistics operations. The suite is comprised of a
series of Internet-based, integrated modules that provide a robust solution for
supply chain management resulting in both external and internal collaboration
to streamline the supply chain. These modules can be implemented individually,
as well as in combinations or as a full solution suite. Logility Voyager
Solutions supports multiple communications protocols and is designed to operate
with industry-standard open technologies, including leading web-based and
client-server environments, such as UNIX, AS/400 and Intel-based servers
running Windows NT/Windows 2000 on Oracle, Microsoft SQL Server 2000 and DB2
databases. The following table summarizes our product line:
Module Features
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SUPPLY CHAIN
COLLABORATION
Logility Voyager . VICS Collaborative Planning, Forecasting and
Collaborate (formerly Replenishment (CPFR) compliant
Logility Voyager XPS) . Collaborative planning with trading partners
(customers and suppliers)
. Configurable deployment
. Open integration architecture supports rapid
integration with any forecasting scenario
. Value Chain Workflow
. Exception-based management of business
conditions across the supply chain
. Deployable in both private and public trading
exchanges
Logility Voyager . Collaborative warehouse and transportation
Fulfill (formerly planning with trading partners (suppliers,
Logility Voyager XES) customers, and carriers)
. Configurable deployment
. Open integration architecture
. Value Chain Workflow
. Exception-based management of order fulfillment
business conditions
. Deployable in both private and public trading
exchanges
Logility Voyager . Optimizes transportation performance and
Select(TM) pricing for total landed cost calculations
. Targets private and public trading exchanges
. Extends order sourcing, procurement and
logistics offerings
SUPPLY CHAIN EVENT
MANAGEMENT
Logility Voyager . Provides supply chain event management for
Navigate(TM) increased visibility
. Exception-based management of the supply chain
. Efficiently monitors, notifies, controls and
measures supply chain performance
. Incorporates any Open Data Base Connectivity
(ODBC)-compliant data source for an accurate
view of key business conditions
VALUE CHAIN STRATEGY
Value Chain . Strategic distribution network optimization
Designer(TM) . Customer assignment
. Facility location
. Balancing customer service levels and cost
. Sourcing selection and capacity planning
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Module Features
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DEMAND CHAIN PLANNING
Life Cycle Planning . Plans each phase of a product's life cycle from
introduction, maturity, replacement,
substitution and retirement
. Flexible demand profile definition
. Self-correcting model management automatically
reforecasts based on POS data
. Exception-based management alerts users of key
business conditions
Demand Planning . Item and Group forecasting
. Self-selecting forecast models
. Personalized data views
. Item stratification
. Product life cycle management with simulation
. Drag and drop data manipulation
Inventory Planning . Time-phased view of inventory
. Graphical simulations of inventory trade-off
. Views of dependent and independent demand
. Inventory management variables
Event Planning . Promotion planning
. Self-learning capabilities using artificial
intelligence
. Causal-based forecasting
. Promotion profitability simulations
Demand Chain . Forecast retrieval and modifications via the
Voyager(TM) Internet and Corporate Intranets
. Tight integration with Demand Planning
. Promotion planning calendars
. Comprehensive security features
. Collaborative planning with trading partners
SUPPLY CHAIN PLANNING
Manufacturing Planning . Enterprise-wide capacity planning
. Plant-level scheduling
. Supports activity-based costing
. Optimizes sourcing decisions' actual costs
. Interactive simulation
. Real-time, in memory model
. Distributed and remote visual capacity planning
. Remote and collaborative manufacturing
Supply Planning . Comprehensive constraint-based management of
sourcing process
. Supports business goals such as profit
maximization or cost minimization
. Provides available-to-promise (ATP), capable to
promise (CTP) and profitable to promise (PTP)
methodologies
. Exception-based management of supply chain
conditions
Replenishment Planning . Supports continuous replenishment strategies
. Provides time-phased distribution requirements
planning
. Proactive action messages
. EDI integration
. ATP methodologies
. Multi-site sourcing and allocation
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Module Features
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Transportation Planning . Load Control Center
. Shipment planning and consolidation
. Freight rating and routing
. Carrier selection
. Optimized inbound and outbound planning
SUPPLY CHAIN EXECUTION
Transportation . Load tendering
Management . Shipment confirmation
. Freight audit and payment control
. Shipment documentation and tracking
WarehousePRO(R) . Customizable workflows and attributes
incorporate best-of-breed warehouse practices
. Directs all pick, pack, and ship activities
through hand-held radio frequency devices
. User terminals support a variety of languages
. Dynamic label and report printing
. Integrated graphical user interface
LOGILITY VOYAGER SOLUTIONS FOR B2B COLLABORATIVE COMMERCE
These e-Business applications allow companies to execute and manage
strategic trading partner relationships for direct material procurement,
logistics and customer order fulfillment via the Internet, intranets and
extranets.
SUPPLY CHAIN COLLABORATION
Logility Voyager Collaborate (formerly Logility Voyager XPS) enables
companies to communicate easily and share real-time information with trading
partners by uniting suppliers, manufacturers, distributors and retailers under
the power of common goals, common business processes and VICS Collaborative
Planning, Forecasting and Replenishment (CPFR) standards that eliminates
traditional barriers among trading partners. Voyager Collaborate is a
completely CPFR-compliant application that provides configurable deployment,
scaleability, Microsoft-centric architecture, open-integration architecture,
value chain workflow and an exception-based management of business conditions
both within the enterprise and across the supply chain network.
Logility Voyager Fulfill (formerly Logility Voyager XES) extends
collaboration to transportation and distribution center management trading
partners to allow real-time information sharing and collaboration between
customers, suppliers and carriers to ensure that customer orders are
efficiently scheduled, executed and tracked for on-time delivery. Voyager
Fulfill is compliant with emerging collaborative transportation management
standards and provides configurable deployment, scaleability, Microsoft-centric
architecture, open-integration architecture, value chain workflow and an
exception-based management of business conditions.
Logility Voyager Select optimizes transportation performance and pricing for
private and public trading exchanges by enabling a total landed cost
calculation within order sourcing, procurement and logistics processes.
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SUPPLY CHAIN EVENT MANAGEMENT
Logility Voyager Navigate provides the benefits of Supply Chain Event
Management (SCEM) by allowing trading partners to efficiently monitor, notify,
control and measure supply chain processes on an exception basis, both within
the company and throughout the supply chain to improve the efficiency and
effectiveness of the overall operation.
VALUE CHAIN STRATEGY
The Value Chain Designer module provides a strategic view of the Supply
Chain Network. Companies can optimize location decisions, resource allocation,
customer assignment and transportation strategies to minimize costs or maximize
profitability.
DEMAND CHAIN PLANNING
These solutions provide the visibility to increase forecast accuracy by as
much as 40%. They create a comprehensive overview of demand. With demand
patterns revealed, companies can build plans that are totally attuned to the
market.
Life Cycle Planning provides collaborative life cycle planning, enabling the
supply chain to effectively control each phase in a product's sunrise-to-sunset
cycle--including introduction, maturity, replacement, substitution and
retirement--to ensure that the right products are available at the point of
customer demand.
The Demand Planning module reconciles demand history, existing customer
orders, point-of-sale data, market forecasts and other information to generate
a graphical representation of demand by item, location, customer and/or group.
Demand Planning has an automatic self-correcting, self-selecting modeling
process that utilizes a number of advanced forecasting models to generate
sales, marketing, logistics and other forecasts. The system allows for user-
override of certain modeling parameters, such as quantities or percentages, to
account for promotions, supply constraints and other "what-if" scenarios.
The Inventory Planning module is designed to determine the optimal balance
between inventory and service levels. With extensive simulation capabilities,
Inventory Planning helps manufacturers and distributors reduce inventory costs
while meeting customer service requirements at the individual stock keeping
unit (SKU) level. Built around industry best practices, Inventory Planning can
enhance planning and scheduling of inventory while taking into consideration
replenishment frequency and order size, seasonal build and manufacturing plans.
Service level targets and policies can be applied individually to every product
within an enterprise or uniformly throughout the various product lines.
Event Planning is a causal-based forecasting solution designed to facilitate
product life-cycle management and promotion planning, and provide forecasting
capabilities to help determine the impact of promotions, price changes or other
events, enabling manufacturers to adjust production to match changing demand.
Event Planning utilizes advanced algorithms based on neural network techniques
that allow the system to refine forecasting by incorporating the results of
ongoing promotions and other activities.
Demand Chain Voyager. Through the use of the Internet, the Demand Chain
Voyager module extends the reach of Demand Planning by allowing remote users to
view corporate forecasts and to input demand data in real-time. Demand Chain
Voyager provides an online, updated schedule of events including promotions,
product launches and holidays. In addition, it allows for the revision of
inventory goals and objectives such as service levels and turns.
SUPPLY CHAIN PLANNING
Logility offers support for optimizing assets, synchronizing supply, and
planning order fulfillment. With multiple and simultaneous sourcing
capabilities, supply issues and alternatives are immediately visible.
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The Manufacturing Planning module is designed as a constraint-based planning
solution that balances manufacturing processes and resources with demand
priorities and corporate objectives. Manufacturing Planning models the
operations of a business by capturing capacity constraints, such as equipment
capabilities, intermediate storage limitations, shop floor calendars and raw
material availability and production constraints, such as synchronization of
multi-step operations, product sequencing, production changeovers and inventory
policies. Manufacturing Planning enables collaborative decision-making by
comparing the feasibility and cost effectiveness of various scheduling
strategies through the use of simulation.
Supply Planning supports sourcing options based on business goals such as
profit maximization or cost minimization, balances manufacturing constraints,
and applies advanced financial and optimization capabilities to sourcing
decisions. Supply Planning also enables companies with complex supply chains to
balance profits, costs, and service while simultaneously considering all supply
chain constraints to satisfy business requirements.
The Replenishment Planning module addresses the planning needs of an
organization to determine the optimal balance between customer service levels
and inventory. Replenishment Planning takes into account manufacturing
constraints, inventory investment, desired service levels, and current orders
and commitments. Features of Replenishment Planning include automatic detailed
item planning to balance delivery loads and orders, filtered order review, SKU
change simulation and constrained distribution requirements planning. The
benefits of Replenishment Planning include, among others, faster inventory
turns, optimized inventory levels and the ability to allocate customer orders
based on user-defined priorities. Replenishment Planning provides support for
continuous replenishment strategies, such as Vendor Managed Inventory, Quick
Response and Efficient Consumer Response.
The Transportation Planning module synchronizes transportation plans with
demand, inventory, manufacturing and replenishment strategies. Transportation
Planning consolidates shipments and determines the optimal transportation mode
and carrier while providing a list of alternatives. The solution includes a
Load Control Center that reviews all inbound, outbound and inter-facility
shipments and provides an integrated view of all orders requiring shipping
decisions. This product is designed to reduce freight costs, improve customer
service levels and increase responsiveness to customer requirements.
SUPPLY CHAIN EXECUTION
Logility provides capabilities for managing both inventory and
transportation with our Supply Chain Execution Solution. With these
applications, companies can systematically balance logistics strategies,
customer service policies, carrier effectiveness and inventory management.
Transportation Management facilitates the timely execution of the optimized
shipping plan developed by the Transportation Planning module. Load tendering
and shipment tracking are included via Electronic Data Interchange (EDI), e-
mail or automatic fax. The freight audit and payment capabilities enable
flexible reporting of landed cost by shipment, customer or product group. The
module is designed to reduce freight costs, improve carrier utilization and
provide comprehensive freight management reporting.
WarehousePRO incorporates advanced workflow technology, industry-specific
practices and radio frequency data collection terminals to optimize warehouse
operations. The software's object-oriented design allows users to define the
properties of specific items, locations, or processes, thereby reducing the
need for custom programming. The solution is highly flexible and can be
reconfigured by the user to adapt to changing business requirements.
WarehousePRO features an extensive workflow library of user-selected templates
incorporating industry-specific best-practice warehousing techniques. With
built-in standard interfaces to major radio frequency data collection systems,
the software delivers more accurate inventory accountability and improved
warehouse efficiency. WarehousePRO's performance analysis tools generate
graphical reports that illustrate productivity gains, warehouse efficiency and
inventory controls, enabling users to make real-time management decisions.
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The price for our products typically is determined based upon the number of
modules licensed and the number of servers, users and/or sites for which the
solution is designed. During fiscal year ended April 30, 2001, license fees for
new customers ranged from $123,000 to $1.2 million.
Customers
We primarily target businesses in distribution-intensive markets such as
consumer-packaged goods, retail and manufacturing supply chains, including
suppliers, manufacturers, distributors and retailers. A sample of companies
that have purchased one or more of our products follows:
Chemicals, Oil & Gas,
Consumer Goods Pharmaceuticals Manufacturing and Others
-------------- ----------------------------------- ---------------------------
Ashley Furniture BOC Distribution Services Ltd. Appleton Paper
Aurora Foods CITGO Petroleum Corporation British Telecommunications
Bell Sports Eastman Chemical Company Corning Cable Systems
Canandaigua Wine Company Nordic Synthesis AB Dal-Tile Corporation
ConAgra, Inc. Pfizer, Inc. Florida Power & Light
Eagle Family Foods Pharmacia & Upjohn Koch Industries
Heineken USA Sigma-Aldrich Corporation Magneti Marelli
Haverty Furniture Company Mercury Marine
L'Oreal USA Mohawk Paper
Maybelline Inc. Peugeot International
McCormick & Company Powerware Corporation
Nestle France Rand McNally & Company
Pharmavite Corporation Raytheon Marine Company
Saks Incorporated Reynolds Metals
Sara Lee Knit Products Robert Horne Paper Company
S.C. Johnson & Sons, Inc. After Market Distribution RJ Reynolds
Seagram's ------------------------- Sprint PCS
The Franklin Mint Epson America, Inc. Subaru of America, Inc.
The HoneyBaked Ham Komatsu America International Tyco Plastics and Adhesives
Company Porsche Cars of North America, Inc. US Ceramic Tile Company
Tiffany & Co. Rheem Manufacturing Xpedx
Unilever Research Sony Electronics
VF Corporation
Wickes Furniture
No single customer accounted for 10% or more of our total revenues during
fiscal year 2001.
Sales and Marketing
We market our products through direct and indirect sales channels. We
conduct our principal sales and marketing activities from corporate
headquarters in Atlanta, Georgia, and have sales and/or support offices in
Boston, Chicago, Dallas, Pittsburgh and Raleigh. Sales channels outside of
North America are managed from Logility's international offices in the United
Kingdom, France, Spain and Australia.
We have a number of marketing alliances, including those with GERS Retail
Systems, IBM, INSIGHT, Inc., Microsoft, Microsoft Great Plains Business
Solutions (formerly Great Plains Software), Pitney Bowes, 3Plex, and Tompkins
Associates. In addition, we have developed a network of international agents
who assist in selling our products in 25 countries. We intend to utilize these
and future relationships with software and service organizations to enhance our
sales and marketing position. These independent distributors and resellers
throughout Latin America, Europe and the Asia/Pacific region distribute our
product lines in foreign countries.
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These vendors typically sell their own consulting and systems integration
services in conjunction with licensing our products.
To support our direct sales force, we conduct marketing programs that
include public relations, direct marketing, advertising, trade shows, product
seminars, industry speakers, user group conferences and ongoing customer
communication programs.
Customer Service and Support
We provide the following services and support to our customers:
Implementation Support: ExpressROI(TM). We offer our customers a
professional and proven implementation program that facilitates rapid
implementation of our software products. Logility consultants, through the
ExpressROI program, help customers define the nature of their project, and
subsequently proceed through the implementation process. We provide
training for all users and managers involved. We first establish measurable
financial and logistical performance indicators, then evaluate them for
conformance during and after implementation. Additional services beyond
implementation can include post-implementation reviews and benchmarks to
further enhance the benefits to customers.
Implementation: General Training Services. We offer our customers post-
delivery professional services consisting primarily of implementation and
training services, for which we typically charge on a daily basis.
Customers that choose to purchase implementation services receive
assistance in integrating our solution with existing software applications
and databases. Implementation of Logility Voyager Solutions typically
requires three to nine months, depending on factors such as the complexity
of a customer's existing system, the number of modules purchased, and the
number of end users.
Product Maintenance and Updates: Support Services. We provide our
customers with ongoing product support services. Support or maintenance
contracts typically are sold to customers for an initial three year term at
the time of the product license with renewal for additional periods
thereafter. Under these contracts, we provide telephone consulting, product
updates and releases of new versions of products previously purchased by
the customer, as well as error reporting and correction services. We
provide ongoing support and maintenance services on a seven-day-a-week, 24-
hours-a-day basis through telephone, electronic mail and web-based support,
using a call logging and tracking system for quality assurance.
Research and Product Development
During fiscal 2001, 2000, and 1999, we expensed approximately $5.2 million,
$4.9 million, and $6.2 million, respectively, for research and development. In
addition, we capitalized $3.0 million, $3.4 million, and $3.9 million in
software development costs during fiscal years 2001, 2000, and 1999,
respectively, in accordance with the Statement of Financial Accounting
Standards No. 86. Our internal new product development and enhancements of
existing products include two categories: research and development expenditures
and additions to capitalized computer software development costs. These
combined categories totaled $8.2 million, $8.3 million, and $10.1 million in
fiscal years 2001, 2000, and 1999, respectively, and represented 29%, 26%, and
37%, respectively, of total revenues in those years.
We believe that our future success depends in part upon our ability to
continue to enhance existing products, respond to changing customer
requirements, develop and introduce new or enhanced products and keep pace with
technological developments and emerging industry standards. Our development
efforts are focused on, but are not limited to, enhancing operability of our
products across distributed and changing heterogeneous hardware platforms,
operating systems and relational databases and the addition of new
functionality to existing products. These development efforts will continue to
focus on deploying applications within a multi-tiered supply chain environment,
including the Internet.
The current release of Logility Voyager Solutions is version 6.0. This
version is based on an integrated object-oriented architecture for maximum
scaleability and messaging functionality that supports the
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increasingly distributed nature of supply chain planning, supply chain
execution and collaborative commerce. Logility Voyager Solutions easily
interfaces with leading ERP vendors such as SAP, Oracle and PeopleSoft.
Competition
Our products are targeted at emerging markets within the application
software market, which is intensely competitive and characterized by rapid
technological change. Our competitors are diverse and offer a variety of
solutions directed at various aspects of the value chain, as well as the
enterprise as a whole. Our existing competitors include vendors focusing on the
supply chain application software market, such as i2 Technologies and
Manugistics. In addition, we face potential competition from (i) large
enterprise resource planning (ERP) application software vendors such as SAP,
PeopleSoft, JD Edwards, and Oracle, each of which currently offers
sophisticated ERP solutions that currently or may in the future incorporate
supply chain management modules, advanced planning and scheduling or
collaboration software; (ii) application hosting services vendors;
(iii) vendors that establish electronic marketplaces and indirect procurement
capabilities; (iv) other business application software vendors that may broaden
their product offerings by internally developing, or by acquiring or partnering
with independent developers of supply chain management software; and (v)
internal development efforts by corporate information technology departments.
In addition, we may face competition from other application software
vendors, including ERP vendors that from time to time jointly market our
products as a complement to their own systems. To the extent such vendors
develop or acquire systems with functionality comparable or superior to our
products, their significant installed customer base, long-standing customer
relationships and ability to offer a broad solution could provide a significant
competitive advantage over our products.
We also expect to face additional competition as other established and
emerging companies enter the market for collaborative commerce and supply chain
management software and new products and technologies are introduced. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of our
prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Increased competition could result in fewer customer
orders, reduced gross margins and loss of market share.
Many of our competitors and potential competitors have significant worldwide
presence, longer operating histories, significantly greater financial,
technical, marketing and other resources, greater name recognition and a larger
installed base of customers than ours. Some competitors have become more
aggressive with their prices, payment terms and issuance of contractual
implementation terms or guarantees. In order to be successful in the future, we
must continue to develop innovative software solutions and respond promptly and
effectively to technological change and competitors' innovations. We may also
have to lower prices or offer other favorable terms. Our competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements or devote greater resources to the development, promotion
and sale of their products. The principal competitive factors affecting the
market for our products include vendor and product reputation; product
architecture, functionality and features; costs; ease and speed of
implementation; return on investment; product quality; price and performance;
and level of support.
Proprietary Rights and Licenses
Logility's success and ability to compete is dependent in part upon its
proprietary technology. To protect our proprietary technology, we rely on a
combination of copyright and trade secret laws, confidentiality procedures and
contractual provisions, which may afford only limited protection. In addition,
effective copyright and trade secret protection may be unavailable or limited
in certain foreign countries. Although we rely on the limited protection
afforded by such confidential and contractual procedures and intellectual
property laws, we also believe that factors such as the knowledge, ability, and
experience of our personnel, new product developments, frequent product
enhancements, reliable maintenance and timeliness and quality of support
services are essential to establishing and maintaining a technology leadership
position. We presently have no
15
patents or patent applications pending. The source code for our proprietary
software is protected both as a trade secret and as a copyrighted work. We
generally enter into confidentiality or license agreements with our employees,
consultants and customers, and generally control access to and distribution of
our software, documentation and other proprietary information.
We provide our software products to customers under non-exclusive license
agreements. As is customary in the software industry, in order to protect our
intellectual property rights, we do not sell or transfer title to our products
to our customers. Although the license agreements place restrictions on the use
by the customer of our products, there can be no assurance that unauthorized
use of our products will not occur. In addition, we have licensed the source
code for our software to American Software on a limited basis to enable
American Software to perform warranty, maintenance and support obligations for
certain customers, for which it is responsible under certain license agreements
that were not assigned to us in connection with the formation of Logility.
Despite the measures taken to protect our proprietary rights, unauthorized
parties may attempt to reverse engineer or copy aspects of our products or to
obtain and use information that we regard as proprietary. Policing unauthorized
use of our products is difficult. In addition, litigation may be necessary in
the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition.
In the future, we may increasingly be subject to claims of intellectual
property infringement as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Although we are not aware that any of our products infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not claim infringement by us with respect to current or future
products. In addition, we may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the validity
of our proprietary rights. Any such claims against us, with or without merit,
as well as claims initiated by us against third parties, can be time consuming
and expensive to defend, prosecute or resolve. Moreover, an adverse outcome in
litigation or similar adversarial proceedings could subject us to significant
liabilities to third parties, require the expenditure of significant resources
to develop non-infringing technology, require a substantial amount of attention
from management, require disputed rights to be licensed from others, require us
to enter into royalty arrangements or require us to cease the marketing or use
of certain products, any of which would have a material adverse effect on our
business, operating results and financial condition. To the extent that we
desire or are required to obtain licenses to patents or proprietary rights of
others, there can be no assurance that any such licenses will be made available
on terms acceptable to us, if at all.
We have relicensed, and expect in the future to relicense, certain software
from third parties for use in connection with our products. There can be no
assurance that these third-party software vendors will not change their product
offerings or that these software licenses will continue to be available to us
on commercially reasonable terms, if at all. The termination of any such
licenses or product offerings, or the failure of the third-party licensors to
adequately maintain or update their products, could result in delay in our
ability to ship certain of our products while we seek to implement technology
offered by alternative sources. Any required replacement licenses could prove
costly. Further, any such delay, if it becomes extended, could result in a
material adverse effect on our results of operations.
Employees
As of April 30, 2001, Logility had 167 full-time employees, consisting of 49
in sales and marketing, 53 in product development, 59 in customer support and
implementation services and 6 in administration and finance. In addition, we
share a number of administrative and finance personnel with American Software.
None of our employees are represented by a labor union or are subject to a
collective bargaining agreement. Logility believes its employee relations are
good.
16
RISK FACTORS
Factors That May Affect Future Results and Market Price of Stock.
We have included certain forward-looking statements in the Management's
Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere in this Form 10-K. We may also make oral and written forward-looking
statements from time to time, in reports filed with the Securities and Exchange
Commission, and otherwise. Actual results may differ materially from those
projected in any such forward-looking statements due to a number of factors,
including those set forth below and elsewhere in this Form 10-K.
We operate in a dynamic and rapidly changing environment that involves
numerous risks and uncertainties. The following section lists some, but not
all, of the risks and uncertainties that may have a material adverse effect on
our business, financial condition or results of operations. This section should
be read in conjunction with the audited Consolidated Financial Statements and
Notes thereto, and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the fiscal years ended April 30, 1999, 2000 and
2001 contained elsewhere in this Form 10-K.
We Could Experience Fluctuations in Quarterly Operating Results That Could
Adversely Impact Our Stock Price.
Our revenues and results of operations are difficult to predict and may
fluctuate substantially from quarter to quarter. License revenues in any
quarter depend substantially upon our ability to recognize revenues in that
quarter in accordance with our revenue recognition policies.
Our contracting activity is difficult to forecast for a variety of reasons,
including the following:
. a significant portion of our license agreements are completed within the
last few weeks of each quarter;
. our sales cycle is relatively long and variable because of the complex
and mission-critical nature of our products;
. the size of our license transactions can vary significantly;
. the possibility of economic downturns, both domestic and international,
characterized by decreased product demand, price erosion, technological
shifts, work slowdowns and layoffs, may substantially reduce customer
demand and contracting activity;
. customers may unexpectedly postpone or cancel system replacement or new
system evaluations due to changes in their strategic priorities, project
objectives, budgetary constraints or company management;
. customer evaluations and purchasing processes vary from company to
company, and a customer's internal approval and expenditure authorization
process can be difficult and time consuming, even after selection of a
vendor; and
. the number, timing and significance of software product enhancements and
new software product announcements by us and by our competitors may
affect purchase decisions.
Several factors may require us to defer recognition of license revenue for a
significant period of time after entering into a license agreement, including:
. whether the license agreement relates to then unavailable software
products;
. whether transactions include both currently deliverable software products
and software products that are under development or other undeliverable
elements;
. whether the customer demands services that include significant
modifications, customizations or complex interfaces that could delay
product delivery or acceptance;
17
. whether the transaction involves acceptance criteria that may preclude
revenue recognition or if there are identified product-related issues,
such as known defects; and
. whether the transaction involves payment terms or fees that depend upon
contingencies.
Because of the factors listed above and other specific requirements under
Generally Accepted Accounting Principles (GAAP) for software revenue
recognition, we must have very precise terms in our license agreements in order
to recognize revenue when we initially deliver software or perform services.
Although we have a standard form of license agreement that meets the criteria
under GAAP for current revenue recognition on delivered elements, we negotiate
and revise these terms and conditions in some transactions. Negotiation of
mutually acceptable terms and conditions can extend the sales cycle, and
sometimes we do not obtain terms and conditions that permit revenue recognition
at the time of delivery or even as work on the project is completed.
Variances or slowdowns in our contracting activity in prior quarters may
affect current and future consulting, training and maintenance service revenues
since these revenues typically follow license fee revenues. Our ability to
maintain or increase services revenue primarily depends on our ability to
increase the number of our licensing agreements. In addition, our expense
levels, operating costs and hiring plans are based on projections of future
revenues and are relatively fixed. If our actual revenues fall below
expectations, our net income is likely to be disproportionately adversely
affected.
There Is Intense Competition in Our Industry, Which Requires Us to Constantly
Create New Products, Improve Our Existing Products and Sell Our Products at
Competitive Prices.
We compete with a variety of software vendors, including:
. vendors focusing on the supply chain application software market segment;
. large ERP software vendors;
. application hosting services vendors;
. vendors that establish electronic marketplaces and indirect procurement
capabilities; and
. numerous other firms that offer products and services with new or
advanced features.
We also face competition from internal development efforts by corporate
information technology departments. As a result, the market for business
application software and related services has been and continues to be
intensely competitive. Some competitors have become more aggressive with their
prices and payment terms and issuance of contractual implementation terms or
guarantees. We may be unable to continue to compete successfully with new and
existing competitors without lowering prices or offering other favorable terms.
In addition, we believe we must differentiate ourselves through different or
more subtle architectural and technological factors.
Some of our competitors may have the following advantages over us:
. significant worldwide presence;
. longer operating and product development history;
. substantially greater financial, technical and marketing resources than
ours;
. greater name recognition; and
. a larger installed customer base than ours.
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Furthermore, potential customers may consider outsourcing options, including
application service providers, data center outsourcing and service bureaus as
viable alternatives to licensing our software products.
We May Derive a Significant Portion of Our Revenue in any Quarter from a
Limited Number of Large, Non-Recurring License Sales.
We expect to continue to experience from time to time large, individual
license sales, which may cause significant variations in quarterly license
fees. We also believe that purchasing our products is relatively discretionary
and generally involves a significant commitment of a customer's capital
resources. Therefore, a downturn in any potential customer's business could
result in order cancellations that could have a significant adverse impact on
our revenue and quarterly results. Moreover, declines in general economic
conditions could precipitate significant reductions in corporate spending for
information technology, which could result in delays or cancellations of orders
for our products.
We Are Dependent Upon Key Personnel, and Need to Hire Additional Personnel in
All Areas.
Our future operating results depend significantly upon the continued service
of a relatively small number of key senior management and technical personnel,
including our Chief Executive Officer, J. Michael Edenfield. None of our key
personnel are bound by long-term employment agreements. The loss of
Mr. Edenfield or one or more other key individuals could have an adverse effect
on us.
Our future success also depends on our continuing ability to attract and
retain other highly qualified managerial and technical personnel. Competition
for these personnel is intense, and at times we have experienced difficulty in
recruiting and retaining qualified personnel. We may be unable to retain our
key managerial and technical employees and we may not be successful in
attracting, assimilating and retaining other highly qualified managerial and
technical personnel in the future. If our competitors increase their use of
non-compete agreements, the pool of available sales and technical personnel may
further narrow in certain areas, even if the non-compete agreements ultimately
prove to be unenforceable. We may grant large numbers of stock options to
attract and retain personnel, which could be highly dilutive to our
stockholders. The loss of key management and technical personnel or the
inability to attract and retain additional qualified personnel would have an
adverse effect on us.
We Rely to a Large Extent on Services Provided by American Software and Are
Subject to Effective Control by American Software.
We operated as a division of American Software, Inc. until we went public in
1997. Today, we are approximately 85% owned by American Software. We receive a
substantial amount of financial, accounting, sales and management services from
American Software. Although the bulk of our sales are generated by our direct
sales force, we have relied, and we expect that we will continue to rely, to a
substantial extent on our sales relationship with American Software. We also
rely heavily on financial, accounting and management services provided by
American Software. With few exceptions, American Software has no obligation to
continue providing these services to us. Therefore, our business, operating
results and financial condition may be adversely affected by a reduction or
discontinuation of services from American Software.
As long as American Software owns a majority of our Common Stock, it will be
able to determine, without the consent of our other stockholders, the outcome
of any corporate action requiring stockholder approval, including the election
of our entire Board of Directors. In addition, through its ownership of a
majority of our Common Stock and control of our Board of Directors, American
Software will be able to control our management and affairs, including all
determinations with respect to acquisitions, dispositions, mergers, and other
business combinations, borrowings, issuances of our Common Stock or other
equity securities, our dividend policy, and any change in control of Logility.
19
The Impact of Changes in Global Economic Conditions on Our Customers May Cause
Us to Fail to Meet Expectations, Which Would Negatively Impact the Price of Our
Stock.
Our operating results can vary significantly based upon the effect of
changes in global economic conditions on our customers. In particular, the
current macro-economic environment is more uncertain than in recent periods and
has the potential to materially and adversely affect us. The revenue growth and
profitability of our business depends on the overall demand for computer
software and services, particularly in the areas in which we compete. Because
we sell primarily to major corporate customers whose businesses fluctuate with
general economic and business conditions, a softening of demand for computer
software caused by a weakening economy has resulted, and may continue to
result, in decreased revenues and lower growth rates. Because historically we
have relied upon relatively large license transactions, we may be especially
prone to this risk. Customers have, and may continue to, defer or reconsider
purchasing products if they experience a downturn in their business or if there
is a downturn in the general economy.
We Have Recently Expanded Our Technology into Several New Business Areas and
Cannot Be Certain that Our Expansion Will Be Successful.
Our future success depends to a large degree on the Internet being accepted
and widely used for commerce. We have recently expanded our technology into a
number of new business areas to foster long-term growth, including electronic
commerce, on-line business services and other products and services that can be
offered over the Internet. These areas are relatively new to our product
development, sales and marketing personnel and we cannot be assured that the
markets for these products will develop or that we will be able to compete
effectively or will generate significant revenues in these new areas. As a
result, our success in these areas is difficult to predict.
Future Regulation of the Internet May Slow its Growth, Resulting in Decreased
Demand for Our Products and Services and Increased Costs of Doing Business.
Due to increasing popularity of the Internet, it is possible that state,
federal and international regulators could adopt laws and regulations that
impose additional burdens on companies conducting business online. For example,
the growth and development of the market for Internet-based services may prompt
calls for more stringent consumer protection laws. Moreover, the applicability
to the Internet of existing laws in various jurisdictions governing issues such
as property ownership, sales tax, libel and personal privacy is uncertain and
may take years to resolve. Any new legislation or regulation, the application
of laws and regulations from jurisdictions whose laws do not currently apply to
our business, or the application of existing laws and regulations to the
Internet and other online services could inhibit the expansion of the Internet,
causing our costs to increase and our growth to be harmed.
The Viability of Electronic Marketplaces Is Uncertain.
Electronic marketplaces that allow collaboration over the Internet among
trading partners are relatively new and unproven. There can be no assurance
that trading partners will adopt electronic marketplaces as a method of doing
business. Trading partners may fail to participate in electronic marketplaces
for a variety of reasons, including:
. concerns about the confidentiality of information provided electronically
to electronic marketplaces;
. the inability of technological advances to keep pace with the volume of
information processed by electronic marketplaces; and
. regulatory issues, including antitrust issues that may arise when trading
partners collaborate through electronic marketplaces.
20
Any of these factors could limit the growth of electronic marketplaces as an
accepted means of commerce. Slower growth or the abandonment of the electronic
marketplace concept in one or more industries could have a material adverse
effect on our results of operations and financial condition.
We Depend on Third-Party Technology that Could Result in Increased Costs or
Delays in the Production and Improvement of Our Products.
We license critical third-party software products that we incorporate into
our own software products. If any of the third-party software vendors were to
change their product offerings or terminate our licenses, we might need to
incur additional development or acquisition costs to ensure continued
performance of our products. In addition, if the cost of licensing any of these
third-party software products significantly increases, our gross margin levels
could significantly decrease.
We rely on existing relationships with certain other software vendors who
are also competitors. If these vendors change their business practices in the
future, we may be compelled to find alternative vendors with complementary
software, which may not be available on attractive terms, or may not be as
widely accepted or as effective as the software provided by our existing
vendors.
Services Revenues Carry Lower Gross Margins Than License Revenues and an
Overall Increase in Services Revenue as a Percentage of Total Revenues Could
Have an Adverse Impact on Our Business.
Because service revenues have lower gross margins than license revenues, an
increase in the percentage of total revenue represented by service revenues
could have a detrimental impact on our overall gross margins and could
adversely affect operating results. As a result, our gross margins can be
negatively affected based on the percentage of service revenues as a percentage
of total revenue and the mix between services that are provided by our
employees versus services provided by third-party consultants.
We May Change Our Pricing Practices, Which Could Impact Operating Margins or
Customer Ordering Patterns.
In the future, we may choose to make changes to our pricing practices. For
example, we may (i) offer additional discounts to customers, (ii) increase (or
decrease) the use of pricing that involves periodic fees based on the number of
users of a product, or (iii) change maintenance pricing. Such changes could
reduce margins or inhibit our ability to sell our products.
Recent Accounting Pronouncements Could Adversely Impact Our Profitability by
Delaying Some Revenue Recognition into Future Periods.
In recent years, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition", and
SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect
to Certain Transactions." These standards address software revenue recognition
matters primarily from a conceptual level and do not include specific
implementation guidance. We believe that we currently comply with SOPs 97-2 and
98-9.
The American Institute of Certified Public Accountants has issued
implementation guidelines for these standards and the accounting profession is
still discussing a wide range of potential interpretations. These
implementation guidelines, once finalized, could lead to unanticipated changes
in our current revenue accounting practices that could cause us to recognize
lower profits. As a result, we may change our business practices significantly
in order to continue to recognize a substantial portion of our license revenues
when we deliver our software products and services. Such changes may adversely
affect our business.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") and amended it in March 2000. We
21
were required to adopt the provisions of SAB 101 in our fourth quarter of
fiscal 2001. SAB 101 does not supercede the software industry specific revenue
recognition guidance, with which we believe we comply.
Our Continued Growth Depends Upon Our Ability to Build and Maintain Strategic
Relationships with Third Parties.
A key aspect of our sales and marketing strategy is to build and maintain
strong working relationships with businesses that we believe play an important
role in the successful marketing of our software products and services. Our
current and potential customers often rely on third-party system integrators to
implement, deploy and manage client/server and other platform-based
applications. We believe that our marketing and sales efforts are enhanced by
the worldwide presence of these companies. However, these companies, most of
which have significantly greater financial and marketing resources than us, may
start, or in some cases increase, the marketing of business application
software in competition with us, or may otherwise discontinue their
relationships with or support of us. In addition, if these strategic partners
are unable to recruit and adequately train a sufficient number of consulting
personnel to support the implementation of our software products, we may lose
customers.
As we have done in the past, in the future we may enter into various
development or joint business arrangements to develop new software products or
extensions to our existing software products. Under these joint business
arrangements, we may distribute ourself or jointly sell with our business
partners an integrated software product and pay a royalty to the business
partner based on end-user license fees. While we intend to develop business
applications that are integrated with our software products, these software
products may in fact not be integrated or brought to market or the market may
not accept the integrated enterprise solution. As a result, we may not achieve
the revenues that we anticipated at the time we entered into the joint business
arrangement.
Our Software Products and Product Development Are Complex, Which Make It
Increasingly Difficult to Innovate, Extend Our Product Offerings, and Avoid
Costs Related to Correction of Program Errors.
The market for our software products is characterized by rapid technological
change, evolving industry standards, changes in customer requirements and
frequent new product introductions and enhancements. Our future success will
depend in part upon our ability to:
. continue to enhance and expand our core applications;
. continue to sell our products;
. continue to successfully integrate third-party products;
. enter new markets; and
. develop and introduce new products that keep pace with technological
developments, including developments related to the Internet, satisfy
increasingly sophisticated customer requirements and achieve market
acceptance. We may not be able to enhance existing products or develop
and introduce new products in a timely manner.
Our software products can be licensed for use with a variety of popular
industry standard database management systems. There may be future or existing
database management system platforms that achieve popularity within the
business application marketplace and on which we may desire to offer our
applications. These future or existing database management system products may
or may not be architecturally compatible with our software product design. We
may not be able to develop software products on additional platforms with the
specifications and within the time frame necessary for market success.
Despite testing by us, our software programs, like all software programs
generally, may contain a number of undetected errors when they are first
introduced or as new releases are subsequently released. This may
22
result in increased costs to correct such errors and reduced acceptance of our
software products in the marketplace. The effort and expense of developing,
testing, implementing and maintaining software product lines will increase with
the increasing number of possible combinations of:
. vendor hardware platforms;
. operating systems and updated versions;
. application software products and updated versions; and
. database management system platforms and updated versions.
Developing consistent software product performance characteristics across
all of these combinations could place a significant strain on our development
resources and software product release schedules.
Future Acquisitions May Not Be Successful.
We may acquire or invest in complementary companies, products and
technologies, and enter into joint ventures and strategic alliances with other
companies. Risks commonly encountered in such transactions include:
. the difficulty of assimilating the operations and personnel of the
combined companies;
. the risk that we may not be able to integrate the acquired technologies
or products with our current products and technologies;
. the potential disruption of our ongoing business;
. the inability to retain key technical and managerial personnel;
. the inability of management to maximize our financial and strategic
position through the successful integration of acquired businesses;
. adverse impact on our annual effective tax rate;
. dilution of existing equity holders caused by capital stock issuances to
the stockholders of acquired companies or to retain employees of the
acquired companies;
. difficulty in maintaining controls, procedures and policies;
. potential adverse impact on our relationships with partner companies or
third-party providers of technology or products;
. the impairment of relationships with employees and customers; and
. issues with product quality, product architecture, legal contingencies,
product development issues, or other significant issues that may not be
detected through our due diligence process.
Recent changes in the law require the use of the purchase method of
accounting in all new business acquisitions. The purchase method of accounting
for business combinations may require large write-offs of any in-process
research and development costs related to companies being acquired, as well as
ongoing amortization costs for certain intangible assets and potential
impairment charges for goodwill valued in combinations of companies. Such
write-offs and ongoing amortization and other charges may have a significant
negative impact on operating margins and net income in the quarter of the
combination and for several subsequent years. We may not be successful in
overcoming these risks or any other problems encountered in connection with
such transactions.
23
Our International Operations and Sales Subject Us to Risks Associated with
Unexpected Activities Outside of the United States.
The global reach of our business could cause us to be subject to unexpected,
uncontrollable and rapidly changing events and circumstances in addition to
those experienced in locations within the United States. Changes in the
following factors, among others, could have an adverse impact on our business
and earnings:
. conducting business in currencies other than United States dollars
subjects us to factors such as currency controls and fluctuations in
currency exchange rates;
. we may be unable to hedge some transactions because of uncertainty or the
inability to reasonably estimate our foreign exchange exposure;
. we may hedge some anticipated transactions and transaction exposures, but
could experience losses if exchange rates move in the opposite direction;
. differing foreign technical standards;
. increased cost and development time required to localize our products;
. lack of experience in a particular geographic market;
. regulatory, social, political, labor or economic conditions in a specific
country or region;
. laws, policies and other regulatory requirements affecting trade and
investment including loss or modification of exemptions for taxes and
tariffs, and import and export license requirements;
. exposure to different legal standards; and
. operating costs in many countries are higher than in the United States.
We Have Limited Protection of Intellectual Property and Proprietary Rights and
May Potentially Infringe Third-Party Intellectual Property Rights.
We consider certain aspects of our internal operations, software and
documentation to be proprietary, and rely on a combination of contract,
copyright, trademark and trade secret laws and other measures to protect this
information. Existing copyright laws afford only limited protection. We believe
that the rapid pace of technological change in the computer software industry
has made trade secret and copyright protection less significant than factors
such as:
. knowledge, ability and experience of our employees;
. frequent software product enhancements; and
. timeliness and quality of support services.
Our competitors may independently develop technologies that are
substantially equivalent or superior to our technology. The laws of some
countries in which our software products are or may be licensed do not protect
our software products and intellectual property rights to the same extent as
the laws of the United States. Defending our rights could be costly.
Third parties may assert infringement claims against us. These assertions
could distract management, require us to enter into royalty arrangements, and
could result in costly and time consuming litigation, including damage awards.
We May Experience Liability Claims Arising Out of Licensing Our Software and
Providing Our Services.
Our agreements normally contain provisions designed to limit our exposure to
potential liability claims. However, these provisions could be invalidated by
unfavorable judicial decisions or by federal, state, local or
24
foreign laws or ordinances. For example, we may not be able to avoid or limit
liability for disputes relating to product performance or the provision of
services. If a claim against us were to be successful, we may be required to
incur significant expense and pay substantial damages. Even if we prevailed,
the accompanying publicity could adversely impact the demand for our software.
Concerns That Our Products Do Not Adequately Protect the Privacy of Consumers
Could Inhibit Sales of Our Products.
One of the features of our customer management software applications is the
ability to develop and maintain profiles of customers for use by businesses.
Typically, these products capture profile information when customers and
employees visit an Internet web-site and volunteer information in response to
survey questions concerning their backgrounds, interests and preferences. Our
products augment these profiles over time by collecting usage data. Although
our customer management products are designed to operate with applications that
protect user privacy, privacy concerns may nevertheless cause visitors to
resist providing the personal data necessary to support this profiling
capability. If we cannot adequately address customers' privacy concerns, these
concerns could seriously harm our business, financial condition and operating
results.
Increased Rate of Growth in Our Operations Could Increase Demands on Our
Managerial and Operational Resources.
If the rate of growth in the scope of our operating and financial systems
and the geographic distribution of our operations and customers increases
dramatically, it may increase demands on our management and operations. Our
officers and other key employees will need to implement and improve our
operational, customer support and financial control systems and effectively
expand, train and manage our employee base. Further, we may be required to
manage an increasing number of relationships with various customers and other
third parties. We may not be able to manage future expansion successfully, and
our inability to do so could harm our business, operating results and financial
condition.
Our Stock Price Is Volatile and There Is a Risk of Litigation.
The trading price of our common stock has in the past and may in the future
be subject to wide fluctuations in response to factors such as the following:
. revenue or results of operations in any quarter failing to meet the
expectations, published or otherwise, of the investment community;
. announcements of technological innovations by us or our competitors;
. new products or the acquisition of significant customers by us or our
competitors;
. developments with respect to our patents, copyrights or other proprietary
rights or those of our competitors;
. changes in recommendations or financial estimates by securities analysts;
. changes in management;
. conditions and trends in the software industry generally;
. the announcement of acquisitions or other significant transactions by us
or our competitors;
. adoption of new accounting standards affecting the software industry; and
. general market conditions and other factors.
Fluctuations in the price of our common stock may expose us to the risk of
securities class action lawsuits. Although no such lawsuits are currently
pending against us and we are not aware that any such lawsuit is
25
threatened to be filed in the future, there is no assurance that we will not be
sued based on fluctuations in the price of our common stock.
Item 2. Facilities
We maintain our headquarters in Atlanta, Georgia. Some of our offices are
occupied pursuant to the Facilities Agreement with American Software, the terms
of which are summarized in "Part III, Item 13--Certain Relationships and
Related Transactions," below. We also lease approximately 30,175 square feet of
office space in the United Kingdom. We believe our existing facilities are
adequate for our current needs and that suitable additional or substitute space
will be available as needed on commercially reasonable terms.
Item 3. Legal Proceedings
We are not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of shareholders during the fourth
quarter of our recently completed fiscal year.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Logility's Common Shares are listed on the NASDAQ Stock Market--National
Market under the symbol LGTY. As of July 12, 2001, there were 2,384
shareholders that hold their stock in nominee or "street" names through various
brokerage firms. The table below presents the quarterly high and low sales for
Logility, Inc.'s common stock as reported by NASDAQ, for our last two fiscal
years:
Fiscal Year 2001 High Low
---------------- ------ -----
First Quarter................................................... $ 7.88 $3.56
Second Quarter.................................................. $ 4.91 $2.63
Third Quarter................................................... $ 4.25 $1.13
Fourth Quarter.................................................. $ 4.38 $2.34
Fiscal Year 2000 High Low
---------------- ------ -----
First Quarter................................................... $ 5.75 $3.88
Second Quarter.................................................. $ 4.88 $2.75
Third Quarter................................................... $23.63 $3.00
Fourth Quarter.................................................. $20.63 $5.88
Dividends
We have not paid any dividends since our initial public offering. The
payment of future dividends will be at the sole discretion of the Board of
Directors and will depend on our profitability, financial condition, cash
requirements, future prospects and other factors deemed relevant by the Board
of Directors.
Transfer Agent
First Union National Bank
Equity Services Group
1525 West W.T. Harris Blvd, 3C3
Charlotte, NC 28288
Phone: (800) 829-8432
www.firstunion.com/corptrust
26
Inquiries regarding stock transfers, lost certificates or address changes
should be directed to the above address.
Market Makers
The following firms make a market in the common shares of Logility:
Gruntal & Co., Incorporated
Herzog, Heine, Geduld, Inc.
Jefferies & Company, Inc.
Knight Securities L.P.
REDIBook ECN LLC.
Schwab Capital Markets
Sherwood Securities Corp.
Spear, Leeds & Kellogg
Wachovia Securities, Inc.
27
Item 6. Selected Combined Financial Data
The selected combined financial data presented below for the fiscal years
ended April 30, 2001, 2000, 1999, 1998, and 1997 are derived from the audited
combined financial statements of Logility.
Years Ended April 30,
-----------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(in thousands)
Combined Statements of Operations
Data:
Revenues:
Licenses.......................... $ 8,587 $13,501 $11,384 $20,138 $12,359
Maintenance....................... 10,491 9,418 7,967 7,167 5,051
Services.......................... 9,128 9,370 7,666 7,357 4,414
------- ------- ------- ------- -------
Total revenues.................. 28,206 32,289 27,017 34,662 21,824
------- ------- ------- ------- -------
Cost of Revenues:
Licenses.......................... 3,985 3,218 4,433 5,299 3,970
Maintenance....................... 1,645 1,775 2,194 1,582 1,219
Services.......................... 6,227 5,144 3,468 3,683 1,969
------- ------- ------- ------- -------
Total cost of revenues.......... 11,857 10,137 10,095 10,564 7,158
------- ------- ------- ------- -------
Gross margin........................ 16,349 22,152 16,922 24,098 14,666
Operating expenses:
Research and development.......... 5,211 4,949 6,165 5,592 3,484
Sales and marketing............... 13,618 12,898 14,507 13,676 10,628
General and administrative........ 3,954 3,054 4,302 3,111 2,508
Charge for restructuring/asset
impairment....................... 476 -- 1,230 -- --
------- ------- ------- ------- -------
Total operating expenses........ 23,259 20,901 26,204 22,379 16,620
------- ------- ------- ------- -------
Operating income (loss)............. (6,910) 1,251 (9,282) 1,719 (1,954)
Other income, net................... 1,218 1,137 1,274 863 --
------- ------- ------- ------- -------
Income (loss) before income taxes... (5,692) 2,388 (8,008) 2,582 (1,954)
Income tax expense.................. -- -- 100 -- --
------- ------- ------- ------- -------
Net income (loss)................... $(5,692) $ 2,388 $(8,108) $ 2,582 $(1,954)
======= ======= ======= ======= =======
Net income (loss) per common share--
Basic.............................. $ (0.43) $ 0.18 $ (0.60) $ 0.20 $ (0.17)
======= ======= ======= ======= =======
Diluted......................... $ (0.43) $ 0.17 $ (0.60) $ 0.20 $ (0.17)
======= ======= ======= ======= =======
Weighted average common shares--
Basic.............................. 13,289 13,333 13,486 12,671 11,300
======= ======= ======= ======= =======
Diluted......................... 13,289 13,698 13,486 12,676 11,300
======= ======= ======= ======= =======
As of April 30,
---------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(in thousands)
Combined Balance Sheet Data:
Cash and cash equivalents............. $ 5,376 $ 3,524 $ 9,695 $ 1,006 $ 732
Investments, short-term............... 10,420 14,425 14,024 29,559 --
Working capital....................... 14,469 17,307 22,814 33,006 557
Total assets.......................... 40,841 44,534 40,678 50,830 16,367
Total shareholders' equity............ 26,788 31,213 29,468 39,237 6,668
28
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussion and analysis below contains forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, that involve risks and uncertainties,
such as statements of our plan, objectives, expectations and intentions. Such
forward-looking statements generally are accompanied by words such as "plan,"
"estimate," "expect," "believe," "should," "would," "could," "anticipate,"
"may" or other words that convey uncertainty of future events or outcomes. The
forward-looking statements in this discussion and analysis are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The section above entitled "Risk Factors" sets forth certain factors that
could cause our actual future results to differ materially from those
statements.
We recognize 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, provided 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. Maintenance fees are generally billed annually in advance
and the resulting revenues are recognized ratably over the term of the
maintenance agreement. Revenues derived from services primarily include
consulting, implementation, and training. Fees are billed under both time and
materials and fixed fee arrangements and are recognized as services are
performed. Deferred revenues represent advance payments or billings for
software licenses, services, and maintenance billed in advance of the time
revenues are recognized.
The following table sets forth certain revenue and expense items as a
percentage of total revenues for the three years ended April 30, 2001 and the
percentage increases and decreases in those items for the years ended April 30,
2001 and 2000:
Years Ended April 30, 2001, 2000, and 1999:
2001 vs 2000 vs
Percentage of total revenues 2001 2000 1999 2000 1999
- ---------------------------- ---- ---- ---- ------- -------
Revenues:
License fees..................................... 31% 42% 42% (36)% 19%
Maintenance...................................... 37 29 30 11 18
Services......................................... 32 29 28 (3) 22
--- --- --- --- ---
Total revenues................................. 100 100 100 (13) 20
--- --- --- --- ---
Cost of revenues:
License fees..................................... 14 10 16 24 (27)
Maintenance...................................... 6 5 8 (7) (19)
Services......................................... 22 16 13 21 48
--- --- --- --- ---
Total cost of revenues......................... 42 31 37 17 --
--- --- --- --- ---
Gross margin....................................... 58 69 63 (26) 31
Operating expenses
Research and development, net................... 18 15 23 5 (20)
Sales and marketing.............................. 48 40 54 6 (11)
General and administrative....................... 14 10 16 29 (29)
Charge for restructuring/asset impairment........ 2 -- 5 nm nm
--- --- --- --- ---
Total operating expenses....................... 82 65 98 11 (20)
--- --- --- --- ---
Operating income (loss)............................ (24) 4 (35) nm nm
Other income, net.................................. 4 3 5 7 (11)
--- --- --- --- ---
Income (loss) before income taxes.................. (20) 7 (30) nm nm
Income tax expense................................. -- -- -- nm nm
--- --- --- --- ---
Net income (loss).................................. (20)% 7% (30)% nm nm
=== === === === ===
- --------
nm-not meaningful
29
Revenues:
Our total revenues decreased 13% to $28.2 million from $32.3 million for the
prior year. This was primarily the result of decreased license fees compared to
the prior year, partially offset by an increase in maintenance revenues.
Licenses. License fee revenues decreased 36% from a year ago, to $8.6
million. This decrease was primarily the result of the reorganization of our
sales management team, which was completed in fiscal 2001, as well as slower
general economic conditions. Our direct sales channel provided approximately
70% of the license fee revenues for fiscal 2001, compared to 81% for the prior
year. Our indirect sales channel is principally through American Software. To
date, sales of software licenses have been derived principally from direct
sales to customers. Although we believe that direct sales will continue to
account for a majority of software license revenues, our strategy is to
increase the level of indirect sales activities. We expect that sales of our
software products through sales alliances, distributors, resellers, and other
indirect channels will increase as a percentage of license fee revenues.
However, our efforts to expand indirect sales may not be successful, or these
relationships may not continue in the future.
Maintenance. Maintenance revenues increased 11% to $10.5 million from a year
ago, due to an increase in the installed base of customers, from license sales
in prior periods. Maintenance revenues are directly related to license fee
revenues, since new licenses are the potential source of new maintenance
customers.
Services. Services revenues decreased 3% to $9.1 million from a year ago as
a result of slightly lower utilization of our implementation, training, and
consulting services. Services revenues as a percentage of total revenue have
fluctuated, and are expected to continue to fluctuate, on a period-to-period
basis based upon the demand for implementation, training, and consulting
services.
Concentration of Revenues. In fiscal year 2001, no single customer accounted
for more than 10% of our total revenues. In fiscal 2000, one customer, ConAgra
Inc., accounted for approximately 13% of total revenues. We generally derive a
significant portion of our software license revenues in each quarter from a
small number of relatively large sales. While we believe that the loss of any
one of these customers would not seriously harm our business, operating results
or financial condition, our inability to consummate one or more substantial
license sales in any future period could seriously harm our operating results
for that period.
International Revenues. We recognized approximately $4.0 million of
international revenues in fiscal 2001, representing approximately 14% of total
revenues, and approximately $3.7 million in fiscal 2000, representing
approximately 11% of total revenues. The increase in revenues from
international sources as a percentage of total revenues was due primarily to
lower overall levels of total revenues. We believe that continued growth and
profitability may require further expansion in international markets. To
increase the level of international sales, we have utilized and may continue to
utilize substantial resources to expand existing international operations and
establish additional international operations. We cannot be certain that our
investments in international operations will produce desired levels of revenues
or profitability.
Gross Margin:
Total gross margin in 2001 was 58% compared to 69% a year ago, due primarily
to decreases in gross margins on license fees and service revenues. The gross
margin on license fees decreased to 54% from 76% a year ago, due to the
combination of lower license fees and relatively fixed amortization of
capitalized software expense. Maintenance gross margin increased to 84% from
81% a year ago, primarily as a result of increased maintenance revenue.
Services gross margin decreased to 32% from 45% a year ago, due primarily to
higher staffing and infrastructure costs incurred in anticipation of higher
levels of license fees.
30
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:
Years Ended
------------------------
April April
30, Percent 30,
2001 Change 2000
------- ------- -------
(in thousands)
Gross product development costs....................... $ 8,177 (2%) $ 8,322
Percentage of total revenues........................ 29% 26%
Less: capitalized development......................... $(2,966) (12%) $(3,373)
Percentage of gross product development costs....... 36% 41%
Product development expenses.......................... $ 5,211 5% $ 4,949
Percentage of total revenues........................ 18% 15%
Gross product development costs decreased 2% in 2001 compared to a year ago
as a result of continued cost containment efforts. Fiscal 2001's expense of 29%
of total revenues is within our normal historical rate of approximately 25%-30%
of total revenues. Capitalized development decreased as well, declining 12%
from a