UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission File Number: 0-22993

INDUS INTERNATIONAL, INC.

(770) 952-8444
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

As of November 3, 2004, the Registrant had outstanding 57,286,492 shares of Common Stock, $.001 par value.

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDUS INTERNATIONAL, INC.

See accompanying notes.

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INDUS INTERNATIONAL, INC.

See accompanying notes.

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INDUS INTERNATIONAL, INC.

See accompanying notes.

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INDUS INTERNATIONAL, INC.

The accompanying unaudited condensed consolidated financial information has been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission’s (“SEC”) rules and regulations. In the opinion of management, these condensed consolidated financial statements contain all normal adjustments considered necessary for a fair presentation of the financial position at September 30, 2004, the results of operations for the three and six-month periods ended September 30, 2004 and 2003 and changes in cash flows for the six-month periods ended September 30, 2004 and 2003. The condensed, consolidated balance sheet at March 31, 2004 has been derived from the audited consolidated financial statements at that date. Certain prior period amounts have been reclassified to conform to current period classifications.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended March 31, 2004 that are included in the Company’s 2004 Annual Report on Form 10-K as filed with the SEC. The consolidated results of operations for the three and six months ended September 30, 2004 are not necessarily indicative of the results to be expected for any subsequent quarter or period, or for the entire fiscal year ending March 31, 2005.

The Company recorded restructuring costs of $1.9 million and $12.4 million for the three and six months ended September 30, 2004, respectively.

In the six months ended September 30, 2004, the Company recorded restructuring charges of $12.4 million for revisions to accounting estimates from prior business restructurings and for additional restructuring charges related to office and business consolidations and employee severance. A revision to the Company’s expected sublease income for two unoccupied floors in San Francisco comprised $1.4 million of this expense. Further consolidation of office space in San Francisco and Atlanta resulted in $7.8 million in additional restructuring charges for the six months ended September 30, 2004. This consolidation included vacating three floors in Atlanta and one additional floor in San Francisco. The remaining $3.2 million in restructuring expense is associated with the elimination of approximately 140 positions, including the transfer of certain functions to the company-owned office buildings in Columbia, SC and the outsourcing of some development functions to India. Of these amounts, $1.9 million in severance-related restructuring expenses were recorded in the three months ended September 30, 2004. These restructuring charges have been recorded in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” and SFAS No. 112, “Employer’s Accounting for Postemployment Benefits.”

In October 2004, the Company negotiated a sublease arrangement for two previously vacated floors of its San Francisco office. In accordance with SFAS No. 146, the Company anticipates a beneficial revision to its restructuring accrual estimates by approximately $1.0 million in the three-month period ending December 31, 2004 as a result of this sublease arrangement.

Between January 1, 2000 and March 31, 2004, the Company recorded restructuring charges totaling $22.7 million. Restructuring costs of $2.1 million and $10.2 million were recorded for fiscal years 2000 and 2001, respectively, in connection with the relocation of the Company’s headquarters and certain administrative functions to Atlanta, GA, severance payments related to the elimination of more than 50 positions, and charges representing the estimated excess lease costs associated with subleasing redundant San Francisco office space. In fiscal year 2002, the Company recorded restructuring costs of approximately $8.2 million, of which $3.4 million related to the suspension of the United Kingdom Ministry of Defense (“MoD”) project and the Company’s subsequent demobilization and reduction in workforce and required support office facilities and $4.8 million related to changes in the Company’s estimates of excess lease costs associated with subleasing redundant office space in San Francisco, Dallas and Pittsburgh. In the three-month transition period ended March 31, 2003, the

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Company recorded restructuring expenses of $2.2 million related to further space consolidation in the Company’s San Francisco office.

The restructuring accruals remaining as of September 30, 2004 are included in the Condensed Consolidated Financial Statements in “Accrued liabilities” for amounts due within one year and “Other liabilities” for amounts due after one year. The following is a summary of activity in the restructuring accruals for the six months ended September 30, 2004 (in thousands):

Company headquarters relocation:

MoD project suspension:

Office and business consolidation:

Basic loss per share is computed using net loss and the weighted average number of common shares outstanding during each period. Diluted loss per share is computed using net loss and the weighted average number of outstanding common shares and dilutive common stock equivalents during each period.

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The Company has excluded all outstanding stock options and warrants to purchase common stock from the calculation of diluted net loss per share because all securities are antidilutive for the periods presented. As of September 30, 2004 and 2003, stock options and warrants to purchase an aggregate of 10.9 million and 9.4 million shares, respectively, were outstanding. The warrants expired in June 2004. The 8% Convertible Notes issued to fund the acquisition of Indus Utility Systems, Inc. (“IUS”), formerly SCT Utility Systems, Inc., were converted into 9,751,859 shares of common stock in July 2003.

The weighted average numbers of shares outstanding used in the calculations of basic and fully-diluted loss per share for the three and six months ended September 30, 2004 are 57,233,665 shares and 57,149,200 shares, respectively. The weighted average numbers of shares outstanding used in the calculations of basic and fully-diluted loss per share for the three and six months ended September 30, 2003 are 48,922,215 shares and 45,519,106 shares, respectively.

Comprehensive loss includes net loss, foreign currency translation adjustments and unrealized gains and losses on securities investments that are excluded from net loss and reflected in stockholders’ equity.

The following table sets forth the calculation of comprehensive loss for the three and six months ended September 30, 2004 and 2003, respectively (in thousands):

As permitted under SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, the Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and accordingly recognizes no compensation expense for the stock option grants as long as the exercise price is equal to or greater than the fair value of the shares at the date of grant.

For purposes of pro forma disclosures, as required by SFAS No. 123, which also requires that the pro forma information be determined as if the Company had accounted for its employee stock option grants under the fair value method required by SFAS No. 123, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma net loss including pro forma compensation expense, net of tax for the three and six months ended September 30, 2004 and 2003, respectively, is as follows (in thousands, except per share amounts):

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In January 2003, the FASB issued and subsequently revised in December 2003, FIN No. 46, “Consolidation of Variable Interest Entities”, which clarifies the consolidation accounting guidance of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties. Such entities are known as variable interest entities (“VIE”). The Company’s adoption of FIN 46 had no impact on the Company’s financial position and results of operations as a result of such adoption. The Company had no VIEs during the six months ended September 30, 2004.

The provisions for income taxes for the three and six months ended September 30, 2004 and 2003 are attributable to the withholding of income taxes on revenues generated from foreign countries. At September 30, 2004, the Company had net operating losses, totaling approximately $59.1 million, inclusive of losses for the six months ended September 30, 2004, to carry forward which, subject to certain limitations, may be used to offset future income through 2025.

The Company had restricted cash of approximately $6.5 million at September 30, 2004 and $5.6 million at March 31, 2004, of which $5.9 million at September 30, 2004 and $5.0 million at March 31, 2004 su