ˆ200FRHThV0a1tb#J%Š. Donnelley Financial ATL FORM 10-Q (EOL) 0C Page 1 of FRHThV0a1tb#J% adgdoc1

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1 Edgar Submission Flags> Submission Type>10-Q Contact> Name> Solutions Phone Number> Filer> Filer Id> Filer Ccc>xxxxxxxx Sros> Sro Id>NASD Period Of Report> Small Business Flag>false Notifications> Internet Notification Documents> Document> Conformed Document Type>10-Q Description>Form 10-Q Document> Conformed Document Type>EX-31.1 Description>Exhibit 31.1 Document> Conformed Document Type>EX-31.2 Description>Exhibit 31.2 Document> Conformed Document Type>EX-32.1 Description>Exhibit 32.1 Document> Conformed Document Type>EX-101 Description>EX-101 ˆ200FRHThV0a1tb#J%Š 200FRHThV0a1tb#J% adgdoc1 ADG 02-Mar :59 EST Q_2.CTL 10 0C

2 ˆ200FRHThV0STytDs{Š 200FRHThV0STytDs{ GA0113AC ADG davir0at 02-Mar :39 EST TX 1 7* Page 1 of 2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2017 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: AMERICAN SOFTWARE, INC. (Exact name of registrant as specified in its charter) Georgia (State or other jurisdiction of incorporation or organization) (404) (Registrant s telephone number, including area code) (IRS Employer Identification Number) 470 East Paces Ferry Road, N.E., Atlanta, Georgia (Address of principal executive offices) (Zip Code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

3 ˆ200FRHThV0STytDs{Š 200FRHThV0STytDs{ GA0113AC ADG davir0at 02-Mar :39 EST TX 1 7* Page 2 of 2 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No Indicate the number of shares outstanding of each of the issuer s classes of common stock, as of the latest practicable date. Classes Outstanding at February 28, 2017 Class A Common Stock, $.10 par value 27,038,393 Shares Class B Common Stock, $.10 par value 2,432,086 Shares

4 START PAGE ADGP64RS ADG pf_rend ˆ200FRHThT%hCa21s.Š 200FRHThT%hCa21s. 28-Feb :54 EST AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Form 10-Q TX 2 3* Quarter ended January 31, 2017 Index Part I Financial Information Item 1. Financial Statements (unaudited) 2 Page No. Condensed Consolidated Balance Sheets as of January 31, 2017 and April 30, Condensed Consolidated Statements of Operations for the Three and Nine Months ended January 31, 2017 and Condensed Consolidated Statements of Cash Flows for the Nine Months ended January 31, 2017 and Notes to Condensed Consolidated Financial Statements unaudited 6 Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 31 Item 4. Controls and Procedures 32 Part II Other Information Item 1. Legal Proceedings 32 Item 1A. Risk Factors 32 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32 Item 3. Defaults Upon Senior Securities 33 Item 4. Mine Safety Disclosures 33 Item 5. Other Information 33 Item 6. Exhibits 33

5 START PAGE ADGP64RS ADG pf_rend ˆ200FRHThT%hCitdLRŠ 200FRHThT%hCitdLR 28-Feb :55 EST TX 3 4* PART I FINANCIAL INFORMATION Item 1. Financial Statements American Software, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) (in thousands, except share data) See accompanying notes to condensed consolidated financial statements unaudited. 3 January 31, 2017 April 30, 2016 ASSETS Current assets: Cash and cash equivalents $ 55,752 $ 49,004 Investments 20,804 20,957 Trade accounts receivable, less allowance for doubtful accounts of $151 at January 31, 2017 and $178 at April 30, 2016: Billed 14,980 17,104 Unbilled 2,415 3,444 Prepaid expenses and other current assets 4,394 3,586 Total current assets 98,345 94,095 Investments Noncurrent 2,715 7,924 Property and equipment, net of accumulated depreciation of $33,029 at January 31, 2017 and $32,437 at April 30, ,321 3,396 Capitalized software, net of accumulated amortization of $19,460 at January 31, 2017 and $16,173 at April 30, ,324 9,140 Goodwill 19,549 18,749 Other intangibles, net of accumulated amortization of $5,913 at January 31, 2017 and $4,747 at April 30, ,893 1,858 Other assets 826 1,562 Total assets $ 136,973 $136,724 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Accounts payable $ 1,263 $ 1,280 Accrued compensation and related costs 2,600 4,349 Dividends payable 3,261 2,887 Other current liabilities 4,948 2,779 Deferred revenue 28,406 27,999 Total current liabilities 40,478 39,294 Deferred income taxes 1,039 1,319 Long-term deferred revenue Other long-term liabilities Total liabilities 41,900 41,830 Shareholders equity: Common stock: Class A, $.10 par value. Authorized 50,000,000 shares: Issued 31,621,025 shares at January 31, 2017 and 30,972,947 shares at April 30, ,162 3,097 Class B, $.10 par value. Authorized 10,000,000 shares: Issued and outstanding 2,432,086 shares at January 31, 2017 and 2,487,086 shares at April 30, 2016; convertible into Class A shares on a one-for-one basis Additional paid-in capital 119, ,210 Retained (accumulated deficit)/earnings (2,432) 2,897 Class A treasury stock, 4,588,632 shares at January 31, 2017 and April 30, 2016, at cost (25,559) (25,559) Total shareholders equity 95,073 94,894 Commitments and contingencies Total liabilities and shareholders equity $ 136,973 $136,724

6 START PAGE ADGP64RS ADG pf_rend ˆ200FRHThT%hCt6os+Š 200FRHThT%hCt6os+ 28-Feb :55 EST American Software, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (unaudited) (in thousands, except earnings per share data) TX 4 4* Three Months Ended January 31, Nine Months Ended January 31, Revenues: License $ 3,959 $ 5,048 $11,726 $15,487 Services and other 11,815 11,801 36,385 39,109 Maintenance 10,667 10,246 31,909 30,427 Total revenues 26,441 27,095 80,020 85,023 Cost of revenues: License 2,081 1,846 5,510 5,775 Services and other 8,061 9,181 26,159 28,555 Maintenance 2,250 2,461 7,489 6,872 Total cost of revenues 12,392 13,488 39,158 41,202 Gross margin 14,049 13,607 40,862 43,821 Research and development 3,074 3,012 9,343 8,177 Sales and marketing 4,635 5,269 15,307 15,967 General and administrative 3,500 2,740 10,701 9,807 Amortization of acquisition-related intangibles Total operating expenses 11,594 11,089 36,053 34,155 Operating income 2,455 2,518 4,809 9,666 Other income (expense): Interest income ,009 Other, net 738 (546) 637 (767) Earnings before income taxes 3,480 2,324 6,328 9,908 Income tax expense 1, ,985 3,072 Net earnings $ 2,243 $ 2,111 $ 4,343 $ 6,836 Earnings per common share (a) : Basic $ 0.08 $ 0.07 $ 0.15 $ 0.24 Diluted $ 0.08 $ 0.07 $ 0.15 $ 0.24 Cash dividends declared per common share $ 0.11 $ 0.10 $ 0.32 $ 0.30 Shares used in the calculation of earnings per common share: Basic 29,333 28,778 29,136 28,684 Diluted 29,630 29,107 29,447 28,973 (a) Basic per share amounts are the same for Class A and Class B shares. Diluted per share amounts for Class A shares are shown above. Diluted earnings per share for Class B shares under the two-class method are $0.08 and $0.07 for the three months ended January 31, 2017 and 2016, and $0.15 and $0.24 for the nine months ended January 31, 2017 and 2016, respectively. See Note D to the Condensed Consolidated Financial Statements. See accompanying notes to condensed consolidated financial statements unaudited. 4

7 START PAGE GA0113AC ADG davir0at ˆ200FRHThV0SVQd=szŠ 200FRHThV0SVQd=sz 02-Mar :39 EST American Software, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) TX 5 6* Cash flows from operating activities: See accompanying notes to condensed consolidated financial statements unaudited. 5 Nine Months Ended January 31, Net earnings $ 4,343 $ 6,836 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 5,045 4,217 Stock-based compensation expense 1,111 1,212 Net (gain)/loss on investments (170) 1,243 Deferred income taxes (281) (525) Other, net 15 Changes in operating assets and liabilities, net of effects of acquisition: Purchases of trading securities (7,150) (10,158) Proceeds from maturities and sales of trading securities 12,683 8,292 Accounts receivable, net 3,661 (1,127) Prepaid expenses and other assets (5) (1,414) Accounts payable and other liabilities (53) 245 Deferred revenue 78 (371) Net cash provided by operating activities 19,262 8,465 Cash flows from investing activities: Capitalized computer software development costs (2,471) (2,681) Purchases of property and equipment, net of disposals (500) (481) Purchase of business, net of cash acquired (4,441) Net cash used in investing activities (7,412) (3,162) Cash flows from financing activities: Repurchase of common stock (70) Excess tax benefits from stock based compensation 231 Proceeds from exercise of stock options 4,397 1,636 Payment for accrued acquisition consideration (200) (200) Dividends paid (9,299) (8,593) Net cash used in financing activities (5,102) (6,996) Net change in cash and cash equivalents 6,748 (1,693) Cash and cash equivalents at beginning of period 49,004 44,655 Cash and cash equivalents at end of period $55,752 $ 42,962

8 START PAGE GA0113AC ADG davir0at ˆ200FRHThV0SV%Gds&Š 200FRHThV0SV%Gds& 02-Mar :39 EST AMERICAN SOFTWARE, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements Unaudited January 31, TX 6 5* A. Basis of Presentation and Principles of Consolidation Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of our management, these condensed consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company s financial position at January 31, 2017, the results of operations for the three and nine months ended January 31, 2017 and 2016 and cash flows for the nine months ended January 31, 2017 and The Company s results for the three and nine months ended January 31, 2017 are not necessarily indicative of the results expected for the full year. You should read these statements in conjunction with our audited consolidated financial statements and management s discussion and analysis and results of operations included in our Annual Report on Form 10-K for the fiscal year ended April 30, The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including, but not limited to those related to collectability, capitalized software costs, goodwill, intangible asset impairment, income taxes, allocation of fair values in acquisitions and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results could differ materially from these estimates under different assumptions or conditions. Principles of Consolidation The accompanying consolidated financial statements include the accounts of American Software, Inc. and its wholly-owned subsidiaries ( American Software or the Company ). All significant intercompany balances and transactions have been eliminated in consolidation. B. Revenue Recognition We recognize revenue in accordance with the Software Revenue Recognition Topic of the Financial Accounting Standards Board s ( FASB ) Accounting Standards Codification. License. We recognize license revenue in connection with license agreements for standard proprietary software upon delivery of the software, provided we consider collection to be probable, the fee is fixed or determinable, there is evidence of an arrangement, and VSOE exists with respect to any undelivered elements of the arrangement. For multiple-element arrangements, we recognize revenue under the residual method, whereby (1) the total fair value of the undelivered elements, as indicated by VSOE, is deferred and subsequently recognized and (2) the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. We record revenues from sales of third-party products in accordance with Principal Agent Considerations within the Revenue Recognition Topic of the FASB s Accounting Standards Codification. Furthermore, we evaluate sales through our indirect channel on a case-by-case basis to determine whether the transaction should be recorded gross or net, including but not limited to assessing whether or not we: (1) act as principal in the transaction, (2) take title to the products, (3) have risks and rewards of ownership, such as the risk of loss for collection, delivery, or returns, and (4) act as an agent or broker with compensation on a commission or fee basis. Accordingly, in most cases we record our sales through the Demand Management, Inc. ( DMI ) channel on a gross basis. Maintenance. Revenue derived from maintenance contracts primarily includes telephone consulting, product updates, and releases of new versions of products previously purchased by the customer, as well as error reporting and correction services. Maintenance contracts are typically sold for a separate fee with initial contractual periods ranging from one to three years with renewal for additional periods thereafter. Maintenance fees are generally billed annually in advance. We recognize maintenance revenue ratably over the term of the maintenance agreement. In situations where we bundle all or a portion of the maintenance fee with the license fee, VSOE for maintenance is determined based on prices when sold separately. 6

9 ˆ200FRHThT%hDDL3sKŠ 200FRHThT%hDDL3sK ADGP64RS ADG pf_rend 28-Feb :55 EST TX 7 3* Services. Revenue derived from services primarily includes consulting, implementation, and training. We primarily bill fees under time and materials arrangements and recognize them as we perform the services. In accordance with the other presentation matters within the Revenue Recognition Topic of the FASB s Accounting Standards Codification, we recognize amounts received for reimbursement of travel and other out-of-pocket expenses incurred as revenue in the condensed consolidated statements of operations under services and other. These amounts totaled approximately $414,000 and $1.6 million for the three and nine months ended January 31, 2017, respectively, and $555,000 and $1.8 million for the three and nine months ended January 31, 2016, respectively. Software-as-a-Service (SaaS) revenues include fees for the right to use the software for a limited period of time in a hosted environment by the Company or by a third party and the customer accesses and uses the software on an as-needed basis over the Internet or via a dedicated line; however, the customer has no ability to take delivery of the software. The underlying arrangements typically include a single fee for the service that is billed monthly, quarterly or annually. Software-as-a-Service (SaaS) revenues are recognized ratably over the subscription (which is included in Services Revenue) over the committed services period once the services commence. Indirect Channel Revenue. We recognize revenues for sales made through indirect channels principally when the distributor makes the sale to an end-user, the license fee is fixed or determinable, the license fee is nonrefundable, and the sale meets all other conditions for revenue recognition. Deferred Revenue. Deferred revenue represents advance payments or billings for software licenses, services, and maintenance billed in advance of the time revenue is recognized. Sales Taxes. We account for sales taxes collected from customers on a net basis. Unbilled Accounts Receivable. The unbilled receivable balance consists of amounts generated from license fee and services revenues. At January 31, 2017 and April 30, 2016, unbilled license fees were approximately $126,000 and $1.6 million, respectively, and unbilled services revenues were approximately $2.3 million and $1.9 million, respectively. Unbilled license fee accounts receivable represents revenue that has been recognized, but under the terms of the license agreement, which include specified payment terms that are considered normal and customary, certain payments have not yet been invoiced to the customers. Unbilled services revenues primarily occur due to the timing of the respective billings, which occur subsequent to the end of each reporting period. C. Declaration of Dividend Payable On November 15, 2016, our Board of Directors declared a quarterly cash dividend of $0.11 per share of our Class A and Class B Common Stock. The cash dividend is payable on February 24, 2017 to Class A and Class B shareholders of record at the close of business on February 10, D. Earnings Per Common Share We have two classes of common stock, of which Class B Common Shares are convertible into Class A Common Shares at any time, on a one-for-one basis. Under our Articles of Incorporation, if we declare dividends, holders of Class A Common Shares shall receive a $0.05 dividend per share prior to the Class B Common Shares receiving any dividend and holders of Class A Common Shares shall receive a dividend at least equal to Class B Common Shares dividends on a per share basis. As a result, we have computed the earnings per share in accordance with Earnings Per Share within the Presentation Topic of the FASB s Accounting Standards Codification, which requires companies that have multiple classes of equity securities to use the two-class method in computing earnings per share. For our basic earnings per share calculation, we use the two-class method. Basic earnings per share are calculated by dividing net earnings attributable to each class of common stock by the weighted average number of shares outstanding. All undistributed earnings are allocated evenly between Class A and B Common Shares in the earnings per share calculation to the extent that earnings equal or exceed $0.05 per share. This allocation is based on management s judgment after considering the dividend rights of the two classes of common stock, the control of the Class B shareholders and the convertibility rights of the Class B Common shares to Class A Common shares. The calculation of diluted earnings per share is similar to the calculation of basic earnings per share, except that the calculation includes the dilutive effect of the assumed exercise of options issuable under our stock incentive plans. For our diluted earnings per share calculation for Class A Common Shares, we use the if-converted method. This calculation assumes that all Class B Common Shares are converted into Class A Common Shares (if antidilutive) and, as a result, assumes there are no holders of Class B Common Shares to participate in undistributed earnings. 7

10 ˆ200FRHThT%hDNlBs6Š 200FRHThT%hDNlBs6 ADGP64RS ADG pf_rend 28-Feb :55 EST TX 8 4* For our diluted earnings per share calculation for Class B Common Shares, we use the two-class method. This calculation does not assume that all Class B Common Shares are converted into Class A Common Shares. In addition, this method assumes the dilutive effect if Class A stock options were converted to Class A Common Shares and the undistributed earnings are allocated evenly to both Class A and B Common Shares including Class A Common Shares issued pursuant to those converted stock options. This allocation is based on management s judgment after considering the dividend rights of the two classes of common stock, the control of the Class B shareholders and the convertibility rights of the Class B Common Shares into Class A Common Shares. The following tables set forth the computation of basic earnings per common share and diluted earnings per common share (in thousands except for per share amounts): Basic earnings per common share: Three Months Ended January 31, 2017 Nine Months Ended January 31, 2017 Class A Class B Class A Class B Distributed earnings $ 0.11 $ 0.11 $ 0.32 $ 0.32 Undistributed earnings (0.03) (0.03) (0.17) (0.17) Total $ 0.08 $ 0.08 $ 0.15 $ 0.15 Distributed earnings $ 2,943 $ 267 $ 8,583 $ 778 Undistributed earnings (887) (80) (4,596) (422) Total $ 2,056 $ 187 $ 3,987 $ 356 Basic weighted average common shares outstanding 26,901 2,432 26,687 2,448 Three Months Ended January 31, 2016 Nine Months Ended January 31, 2016 Class A Class B Class A Class B Distributed earnings $ 0.10 $ 0.10 $ 0.30 $ 0.30 Undistributed earnings (0.03) (0.03) (0.06) (0.06) Total $ 0.07 $ 0.07 $ 0.24 $ 0.24 Distributed earnings $ 2,626 $ 259 $ 7,841 $ 776 Undistributed earnings (704) (70) (1,620) (161) Total $ 1,922 $ 189 $ 6,221 $ 615 Basic weighted average common shares outstanding 26,191 2,587 26,097 2,587 Diluted EPS for Class A Common Shares Using the If-Converted Method Three Months Ended January 31, Undistributed & Distributed Earnings to Class A Common Class A Common Shares Per Basic $ 2,056 26,901 $0.08 Common Stock Equivalents 297 2,056 27, Class B Conversion 187 2,432 Diluted EPS for Class A Common Shares $ 2,243 29,630 $0.08 EPS*

11 Nine Months Ended January 31, 2017 ˆ200FRHThT%hDV0$shŠ 200FRHThT%hDV0$sh ADGP64RS ADG pf_rend 28-Feb :55 EST TX 9 4* Undistributed & Distributed Earnings to Class A Common Class A Common Shares Per Basic $ 3,987 26,687 $0.15 Common Stock Equivalents 312 3,987 26, Class B Conversion 357 2,448 Diluted EPS for Class A Common Shares $ 4,343 29,447 $0.15 EPS* Three Months Ended January 31, 2016 Undistributed & Distributed Earnings to Class A Common Class A Common Shares Per Basic $ 1,922 26,191 $0.07 Common Stock Equivalents 329 1,922 26, Class B Conversion 189 2,587 Diluted EPS for Class A $ 2,111 29,107 $0.07 EPS Nine Months Ended January 31, Undistributed & Distributed Earnings to Class A Common Class A Common Shares Per Basic $ 6,221 26,097 $0.24 Common Stock Equivalents 289 6,221 26, Class B Conversion 615 2,587 Diluted EPS for Class A $ 6,836 28,973 $0.24 EPS

12 ˆ200FRHThT%hDbjHsCŠ 200FRHThT%hDbjHsC ADGP64RS ADG pf_rend 28-Feb :55 EST TX 10 6* Diluted EPS for Class B Common Shares Using the Two-Class Method Three Months Ended January 31, 2017 Undistributed & Distributed Earnings to Class B Common Class B Common Shares Per Basic $ 187 2,432 $0.08 Reallocation of undistributed earnings to Class A Common Shares from Class B Common Shares 2 Diluted EPS for Class B Common Shares $ 189 2,432 $0.08 EPS* Nine Months Ended January 31, 2017 Undistributed & Distributed Earnings to Class B Common Class B Common Shares Per Basic $ 356 2,448 $0.15 Reallocation of undistributed earnings to Class B Common Shares from Class A Common Shares 6 Diluted EPS for Class B Common Shares $ 362 2,448 $0.15 EPS* Three Months Ended January 31, 2016 Undistributed & Distributed Earnings to Class B Common Class B Common Shares Per Basic $ 189 2,587 $0.07 Reallocation of undistributed loss to Class A shares from Class B shares 1 Diluted EPS for Class B $ 190 2,587 $0.07 EPS Nine Months Ended January 31, 2016 For the three and nine months ended January 31, 2017, we excluded options to purchase 374,439 and 337,500 Class A Common Shares, respectively, and for the three and nine months ended January 31, 2016, we excluded options to purchase 63,435 and 1,346,761 Class A Common Shares, respectively, from the computation of diluted earnings per Class A Common Shares. We excluded these option share amounts because the exercise prices of those options were greater than the average market price of the Class A Common Shares during the applicable period. As of January 31, 2017, we had a total of 3,230,575 options outstanding and, as of January 31, 2016, we had a total of 3,508,719 options outstanding. 10 Undistributed & Distributed Earnings to Class B Common Class B Common Shares Per Basic $ 615 2,587 $0.24 Reallocation of undistributed earnings to Class A shares from Class B shares 2 Diluted EPS for Class B $ 617 2,587 $0.24 * Amounts adjusted for rounding EPS

13 ˆ200FRHThT&lB54os>Š 200FRHThT&lB54os> GA0113AC ADG davir0at 01-Mar :04 EST TX 11 4* E. Acquisitions We account for business combinations using the acquisition method of accounting and accordingly, the identifiable assets acquired and liabilities assumed are recorded based upon management s estimates of current fair values as of the acquisition date. The estimation process includes analyses based on income and market approaches. Goodwill represents the excess purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets. The goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets. Goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues. Identifiable intangible assets with finite lives are amortized over their useful lives. Amortization of current technology is recorded in cost of revenues-license and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are expensed in general and administrative expenses in the periods in which such costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date. Effective August 23, 2016, the Company acquired certain assets of AdapChain, Inc., a privately-held Pennsylvania corporation and a provider of high-quality modular integration technology ( ACI ), pursuant to the terms of an asset purchase agreement, dated as of August 23, 2016 (the Purchase Agreement ). This acquisition will expand and complement the products and services offered by Logility. Under the terms of the Purchase Agreement, the Company acquired the assets for a purchase price of $4,000,000 in cash plus a post-closing working capital adjustment of $385,000 and $102,000 in purchase price adjustments related to the fair value of deferred revenue. Additional consideration is payable at the end of each three month period in the 36-month period following the Closing Date (such 36-month period being the Earnout Period ) from the license fee revenues contracted for and recorded as revenue in accordance with GAAP by either AdapChain or the Company from the sale of AdapChain software during such three month period, up to a maximum aggregate amount of $2.0 million over the Earnout Period. This additional consideration will be accounted for as post-combination services and, therefore, will be expensed as incurred, since one of the previous shareholders of AdapChain must remain employed by the Company in order to receive these earnout payments. The accrued earnout as of January 31, 2017 was $54,000. The Company incurred acquisition costs of approximately $0 and $139,400 during the three and nine months ended January 31, 2017, respectively. The operating results of ACI are not material for pro forma disclosure. We preliminarily allocated $800,000 of the total purchase price to goodwill, which has been assigned to the Supply Chain Management segment and is deductible for income tax purposes. The following preliminary allocation of the total purchase price reflects the fair value of the assets acquired and liabilities assumed as of August 23, 2016 (in thousands): Non-compete agreements, trade names and current technology are being amortized on a straight-line basis over the remaining estimated economic life of the assets, including the period being reported. The fair value of deferred revenues in a business combination is considered to be an assumed liability (which must arise from a legal performance obligation) and, accordingly, is estimated based on the direct cost of fulfilling the obligation plus a normal profit margin, which approximates fair value. Also, in practice, the normal profit margin is limited to the profit margin on the costs to provide the product or service (that is, the fulfillment effort). 11 Useful Life Cash $ 46 Accounts receivable, net 510 Other current assets 66 Property and equipment, net 16 Goodwill 800 Non-compete years Trade name years Current technology 2,900 3 years Total Assets Acquired 4,638 Current liabilities (135) Long-term liabilities (16) Total liabilities assumed (151) Net assets acquired $4,487

14 ˆ200FRHThT%hDqbTLvŠ 200FRHThT%hDqbTLv ADGP64RS ADG pf_rend 28-Feb :55 EST TX 12 3* F. Stock-Based Compensation During the nine months ended January 31, 2017 and 2016, we granted options for 342,000 and 1,076,200 shares of common stock, respectively. We recorded stock option compensation cost of approximately $333,000 and $404,000 and related income tax benefits of approximately $124,000 and $148,000 during the three months ended January 31, 2017 and 2016, respectively. We recorded stock option compensation cost of approximately $1.1 million and $1.2 million and related income tax benefits of approximately $409,000 and $443,000 during the nine months ended January 31, 2017 and 2016, respectively. We recorded stockbased compensation expense on a straight-line basis over the vesting period directly to additional paid-in-capital. The Company adopted ASU No , Compensation Stock Compensation: Improvements to Employee Share-Based Payment Accounting, in fiscal Under the new guidance, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital. Instead, all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement, and additional paid-in capital pools will be eliminated. The guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Prior to the adoption of ASU No , cash flows resulting from the tax benefits generated by tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) were classified as financing cash flows. During the nine months ended January 31, 2016, we realized excess tax benefits of approximately $231,000, which are included as a component of cash flows from financing activities in the accompanying 2016 consolidated statements of cash flows. During the nine months ended January 31, 2017 and 2016, we issued 593,082 and 276,700 shares of common stock, respectively, resulting from the exercise of stock options. The total intrinsic value of options exercised during the nine months ended January 31, 2017 and 2016 based on market value at the exercise dates was approximately $786,000 and $1.1 million, respectively. As of January 31, 2017, unrecognized compensation cost related to unvested stock option awards approximated $2.7 million, which we expect to recognize over a weighted average period of 1.59 years. G. Fair Value of Financial Instruments We measure our investments based on a fair value hierarchy disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. A number of factors affect market price observability, including the type of asset or liability and its characteristics. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 Quoted prices in active markets for identical instruments. Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 3 Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The following is a general description of the valuation methodologies we use for financial assets and liabilities measured at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy. Cash Equivalents Cash equivalents include investments in government obligation based money-market funds, other money market instruments and interest-bearing deposits with initial terms of three months or less. The fair value of cash equivalents approximates its carrying value due to the short-term nature of these instruments. Marketable Securities Marketable securities utilizing Level 1 inputs include active exchange-traded equity securities and equity index funds, and most U.S. Government debt securities, as these securities all have quoted prices in active markets. Marketable securities utilizing Level 2 inputs include municipal bonds. We value these securities using market-corroborated pricing or other models that use observable inputs such as yield curves. 12

15 ADGP64RS ADG pf_rend 28-Feb :55 EST TX 13 3* The following tables present our assets and liabilities that we measured at fair value on a recurring basis as of January 31, 2017 and April 30, 2016, respectively, and indicates the fair value hierarchy of the valuation techniques we used to determine such fair value (in thousands): Quoted Prices in Active Markets for Identical Assets (Level 1) January 31, 2017 Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance Cash equivalents $ 51,818 $ $ $51,818 Marketable securities 8,551 14,949 23,500 Total $ 60,369 $ 14,949 $ $75,318 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) April 30, 2016 Significant Unobservable Inputs (Level 3) Balance Cash equivalents $ 45,977 $ $ $45,977 Marketable securities 7,374 21,487 28,861 Total $ 53,351 $ 21,487 $ $74,838 H. Stock Repurchases On August 19, 2002, our Board of Directors approved a resolution authorizing the repurchase of up to an additional 2.0 million shares of our Class A common stock. We have made and will make these repurchases through open market purchases at prevailing market prices. The timing of any repurchase will depend upon market conditions, the market price of our common stock and management s assessment of our liquidity and cash flow needs. Under this repurchase plan, through January 31, 2017, we have repurchased 1,053,679 shares of common stock at a cost of approximately $6.2 million. As of January 31, 2017, under all repurchase plans previously authorized, including this most recent plan, we have repurchased a total of 4,588,632 shares of common stock at a cost of approximately $25.6 million. I. Comprehensive Income We have not included condensed consolidated statements of comprehensive income in the accompanying unaudited condensed consolidated financial statements since comprehensive income and net earnings presented in the accompanying condensed consolidated statements of operations would be substantially the same. J. Industry Segments We provide our software solutions through three major business segments, which are further broken down into a total of four major product and service groups. The three business segments are (1) Enterprise Resource Planning ( ERP ), (2) Supply Chain Management ( SCM ), and (3) Information Technology ( IT ) Consulting. The ERP segment consists of (i) American Software ERP, which provides purchasing and materials management, customer order processing, financial, e-commerce and traditional manufacturing solutions, and (ii) New Generation Computing ( NGC ), which provides industry-specific business software to both retailers and manufacturers in the apparel, sewn products and furniture industries. The SCM segment, which consists of Logility, a wholly-owned subsidiary, as well as its subsidiary, Demand Management, Inc. ( DMI ), provides collaborative supply chain solutions to streamline and optimize the forecasting, inventory, production, supply, allocation, distribution and management of products between trading partners. The IT Consulting segment consists of The Proven Method, Inc., an IT staffing and consulting services firm. We also provide support for our software products, such as software enhancements, documentation, updates, customer education, consulting, systems integration services, maintenance and support services. Our chief operating decision maker is the President and Chief Executive Officer ( CEO ). While the CEO is apprised of a variety of financial metrics and information, we manage our business primarily on a segment basis, with the CEO evaluating performance based upon segment operating profit or loss that includes an allocation of common expenses, but excludes certain unallocated expenses. 13

16 ˆ200FRHThT%hF9moLLŠ 200FRHThT%hF9moLL ADGP64RS ADG pf_rend 28-Feb :55 EST TX 14 4* In the following table, we have broken down the intersegment transactions applicable to the three and nine months ended January 31, 2017 and 2016: Revenues: Three Months Ended January 31, Nine Months Ended January 31, Enterprise Resource Planning $ 2,884 $ 3,291 $ 8,649 $ 9,875 Collaborative Supply Chain Management 18,449 18,339 55,985 56,179 IT Consulting 5,108 5,465 15,386 18,969 $26,441 $27,095 $80,020 $85,023 Operating income (loss) before intersegment eliminations: Enterprise Resource Planning $ (1,116) $ (1,049) $ (4,146) $ (3,394) Collaborative Supply Chain Management 3,241 3,393 8,257 11,784 IT Consulting ,276 $ 2,455 $ 2,518 $ 4,809 $ 9,666 Intersegment eliminations: Enterprise Resource Planning $ (846) $ (750) $ (2,605) $ (2,185) Collaborative Supply Chain Management ,638 2,096 IT Consulting 29 (33) 89 $ $ $ $ Operating income (loss) after intersegment eliminations: Enterprise Resource Planning $ (1,962) $ (1,799) $ (6,751) $ (5,579) Collaborative Supply Chain Management 4,087 4,114 10,895 13,880 IT Consulting ,365 $ 2,455 $ 2,518 $ 4,809 $ 9,666 Capital expenditures: Enterprise Resource Planning $ 117 $ 188 $ 283 $ 332 Collaborative Supply Chain Management IT Consulting $ 172 $ 240 $ 500 $ 481 Capitalized software: Enterprise Resource Planning* $ $ $ $ Collaborative Supply Chain Management ,471 2,681 IT Consulting $ 865 $ 692 $ 2,471 $ 2,681 Depreciation and amortization: Enterprise Resource Planning $ 92 $ 146 $ 420 $ 445 Collaborative Supply Chain Management 1,906 1,251 4,619 3,765 IT Consulting $ 2,000 $ 1,399 $ 5,045 $ 4,217 Earnings (loss) before income taxes: Enterprise Resource Planning* $ (73) $ (1,105) $ (2,546) $ (2,891) Collaborative Supply Chain Management 3,224 3,255 8,176 11,523 IT Consulting ,276 $ 3,480 $ 2,324 $ 6,328 $ 9,908 * includes certain unallocated expenses. 14

17 ˆ200FRHThT&lBHqNs2Š 200FRHThT&lBHqNs2 GA0113AC ADG davir0at 01-Mar :04 EST TX 15 4* Major Customer No one customer accounted for more than 10% of total revenues for the three and nine months ended January 31, 2017 and K. Contingencies We more often than not indemnify our customers against damages and costs resulting from claims of patent, copyright or trademark infringement associated with use of our products. We have historically not been required to make any payments under such indemnifications. However, we continue to monitor the conditions that are subject to the indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses under the indemnifications when those losses are estimable. In addition, we warrant to our customers that our products operate substantially in accordance with the software products specifications. Historically, we have incurred no costs related to software product warranties and we do not expect to incur such costs in the future, and as such we have made no accruals for software product warranty costs. Additionally, we are involved in various claims arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our financial position or results of operations. L. Subsequent Event On February 14, 2017, our Board of Directors declared a quarterly cash dividend of $0.11 per share of our Class A and Class B Common Stock. The cash dividend is payable on May 26, 2017 to Class A and Class B shareholders of record at the close of business on May 12, On February 23, 2017, the Company divested excess real estate amounting to approximately 40% of our land holdings at $13.4 million. The after-tax net gain of approximately $7.9 million will be recorded in the fourth quarter. 15

18 Item 2. START PAGE ADGP64RS ADG pf_rend ˆ200FRHThT%hFuW6LiŠ 200FRHThT%hFuW6Li 28-Feb :55 EST Management s Discussion and Analysis of Financial Condition and Results of Operations TX 16 3* FORWARD-LOOKING STATEMENTS This report on Form 10-Q contains forward-looking statements relating to our future financial performance, business strategy, financing plans and other future events that involve uncertainties and risks. You can identify these statements by forward-looking words such as anticipate, intend, plan, continue, could, grow, may, potential, predict, strive will, seek, estimate, believe, expect, and similar expressions that convey uncertainty of future events or outcomes. Any forward-looking statements we make herein are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of Forward-looking statements include statements concerning future: results of operations; liquidity, cash flow and capital expenditures; demand for and pricing of our products and services; viability and effectiveness of strategic alliances; industry conditions and market conditions; acquisition activities and the effect of completed acquisitions; and general economic conditions. Although we believe that the goals, plans, expectations, and prospects that our forward-looking statements reflect are reasonable in view of the information currently available to us, those statements are not guarantees of performance. There are many factors that could cause our actual results to differ materially from those anticipated by forward-looking statements made herein. These factors include, but are not limited to, continuing U.S. and global economic uncertainty, the timing and degree of business recovery, unpredictability and the irregular pattern of future revenues, dependence on particular market segments or customers, competitive pressures, delays, product liability and warranty claims and other risks associated with new product development, undetected software errors, market acceptance of our products, technological complexity, the challenges and risks associated with integration of acquired product lines, companies and services, as well as a number of other risk factors that could affect our future performance. All forward-looking statements included in this Form 10-Q are based upon information available to us as of the filing date of this Form 10-Q. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. We discuss certain factors in greater detail in Business Overview below. The terms fiscal 2017 and fiscal 2016 refer to our fiscal years ending April 30, 2017 and 2016, respectively. ECONOMIC OVERVIEW Corporate capital spending trends and commitments are the primary determinants of the size of the market for business software. Corporate capital spending is, in turn, a function of general economic conditions in the U.S. and abroad and in particular may be affected by conditions in global credit markets. On January 16, 2017, the International Monetary Fund ( IMF ) provided an update to the World Economic Outlook ( WEO ) for the 2016 and 2017 world economic growth forecast. The update noted that, Global growth for 2016 is now estimated at 3.1 percent, in line with the October 2016 forecast. Economic activity in both advanced economies and EMDEs is forecast to accelerate in , with global growth projected to be 3.4 percent and 3.6 percent, respectively, again unchanged from the October forecasts. After a lackluster outturn in 2016, economic activity is projected to pick up pace in 2017 and 2018, especially in emerging market and developing economies. However, there is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the U.S. administration and its global ramifications. The assumptions underpinning the forecast should be more specific by the time of the April 2017 World Economic Outlook, as more clarity emerges on U.S. policies and their implications for the global economy. While the first three quarters of fiscal 2017 was a difficult selling environment for the Company due to the slow growth and political uncertainty from the Brexit vote and the US elections, for the remainder of fiscal 2017 and fiscal 2018, we expect the global economy to improve when compared to the prior year based on comments from the IMF, which could result in an improved selling environment. Overall information technology spending continues to be relatively weak as a result of the current global economic environment when compared to the period prior to the last recession. We believe information technology spending will incrementally 16

19 ˆ200FRHThT&lBNnnL-Š 200FRHThT&lBNnnL- GA0113AC ADG davir0at 01-Mar :04 EST TX 17 4* improve over the long term as increased global competition forces companies to improve productivity by upgrading their technology systems. Although this improvement could slow or regress at any time, due in part to concerns in global capital markets and general economic conditions, we believe that our organizational and financial structure will enable us to take advantage of any sustained economic rebound. Customers continue to take long periods to evaluate discretionary software purchases. We believe weak economic conditions may be driving some businesses to focus on achieving more process and efficiency enhancements in their operations and to invest in solutions that improve operating margins, rather than make large infrastructure-type technology purchases. If this trend continues, we believe it may tend to favor solutions such as our Logility supply chain solutions, which are designed to provide a more rapid return on investment and are targeted at some of the largest profit drivers in a customer s business. While the recent slow growth economic environment has had a particularly adverse impact on the weaker companies in our target markets, we believe a large percentage of our customers are seeking to make investments to strengthen their operations, and some are taking advantage of current economic conditions to gain market share. BUSINESS OVERVIEW American Software was incorporated as a Georgia corporation in We develop, market and support a portfolio of software and services that deliver enterprise management and collaborative supply chain solutions to the global marketplace. We have designed our software and services to bring business value to enterprises by supporting their operations over intranets, extranets, client/servers or the Internet. References to the Company, our products, our software, our services and similar references include the appropriate business unit actually providing the product or service. We provide our software solutions through three major business segments, which are further broken down into a total of four major product and service groups. The three business segments are (1) Enterprise Resource Planning ( ERP ), (2) Supply Chain Management ( SCM ) and (3) Information Technology ( IT ) Consulting. The ERP segment consists of (i) American Software ERP, which provides purchasing and materials management, customer order processing, financial, e-commerce and traditional manufacturing solutions, and (ii) New Generation Computing ( NGC ), which provides industry-specific business software to both retailers and manufacturers in the apparel, sewn products and furniture industries. The SCM segment, which consists of Logility, a wholly-owned subsidiary, as well as its subsidiary, Demand Management, Inc. ( DMI ), provides collaborative supply chain solutions to streamline and optimize the forecasting, inventory, production, supply, allocation, distribution and management of products between trading partners. The IT Consulting segment consists of The Proven Method, an IT staffing and consulting services firm. We also provide support for our software products, such as software enhancements, documentation, updated, customer education, consulting, systems integration services, maintenance and support services. We derive revenues primarily from three sources: software licenses, services and maintenance. We generally determine software license fees based on the number of modules, servers, users and/or sites licensed, which are typically recognized up-front in accordance with ASC Services and other revenues consist primarily of fees from software implementation, training, consulting, customization services, SaaS, hosting and managed services, which are typically recognized as incurred or ratably over the respective contractual term of the agreement. We primarily bill under time and materials arrangements and recognize revenues as we perform services. We typically enter into maintenance agreements for a one- to three-year term at the time of the initial product license. We generally bill maintenance fees annually in advance and then recognize the resulting revenues ratably over the term of the maintenance agreement. Deferred revenues represent advance payments or billings for software licenses, services and maintenance billed in advance of the time we recognize the related revenues. Our cost of revenue for licenses includes amortization of capitalized computer software development costs, current intangible technology assets, royalties paid to third-party software vendors, and agent commission expenses related to license revenues generated by the indirect channel, primarily from DMI. Costs for maintenance and services include the cost of personnel to conduct implementations and customer support, consulting, other personnel-related expenses, and agent commission expenses related to maintenance revenues generated by the indirect channel, primarily from DMI. We account for the development costs of software intended for sale in accordance with the Intangibles Goodwill and Other topic of the Financial Accounting Standards Board s ( FASB ) Accounting Standards Codification. We monitor the net realizable value of our capitalized software on a quarterly basis based on an estimate of future product revenues and cost. We currently expect to fully recover the value of the capitalized software asset recorded on our consolidated balance sheet; however, if future product revenues are less than management s current expectations, we may incur a write-down of capitalized software costs. Our selling expenses generally include the salary and commissions paid to our sales professionals, along with marketing, promotional, travel and associated costs. Our general and administrative expenses generally include the salary and benefits paid to executive, corporate and support personnel, as well as facilities-related costs, utilities, communications expenses, and various professional fees. 17