amswa-20210731

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

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 July 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 0-12456

_________________

AMERICAN SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

_________________

Georgia

58-1098795

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification Number)

470 East Paces Ferry Road, N.E.

Atlanta

Georgia

30305

(Address of principal executive offices)

(Zip Code)

(404) 261-4381

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	AMSWA	NASDAQ Global Select Market

_________________

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “emerging growth company” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange act. ☐

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 August 31, 2021
Class A Common Stock, $.10 par value						31,466,672 Shares
Class B Common Stock, $.10 par value						1,821,587 Shares

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AMERICAN SOFTWARE, INC. AND SUBSIDIARIES

Form 10-Q

Quarter ended July 31, 2021

Index


Page No
Part I—Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of July 31, 2021 and April 30, 2021	3

	Condensed Consolidated Statements of Operations for the Three Months ended July 31, 2021 and 2020	4

	Condensed Consolidated Statements of Stockholders' Equity for the Three Months ended July 31, 2021 and 2020	5

	Condensed Consolidated Statements of Cash Flows for the Three Months ended July 31, 2021 and 2020	6

	Notes to Condensed Consolidated Financial Statements – Unaudited	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

Part II—Other Information

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

Signatures		34

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

American Software, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)


	July 31, 2021		April 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	91,854	$	88,658
Investments	16,280		16,006
Trade accounts receivable, less allowance for doubtful accounts of $458 at July 31, 2021 and $430 at April 30, 2021:
Billed	22,872		24,438
Unbilled	2,001		2,201
Prepaid expenses and other current assets	6,957		5,320
Total current assets	139,964		136,623

Property and equipment, net of accumulated depreciation of $30,757 at July 31, 2021 and $30,582 at April 30, 2021	3,556		3,428
Capitalized software, net of accumulated amortization of $39,729 at July 31, 2021 and $38,826 at April 30, 2021	3,864		4,767
Goodwill	25,888		25,888
Other intangibles, net of accumulated amortization of $13,069 at July 31, 2021 and $13,015 at April 30, 2021	307		360
Lease right of use assets	1,271		1,454
Deferred sales commissions—noncurrent	2,335		2,474

Other assets	2,271		2,163
Total assets	$	179,456	$	177,157
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,028	$	1,732
Accrued compensation and related costs	4,121		6,129
Dividends payable	3,651		3,615
Operating lease obligations	693		739
Other current liabilities	1,718		1,307
Deferred revenue	36,921		37,142
Total current liabilities	49,132		50,664
Deferred income taxes	2,602		2,627
Long-term operating lease obligations	674		821

Other long-term liabilities	514		654
Total liabilities	52,922		54,766
Shareholders’ equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000 shares: 36,028,566 (31,439,934, net) shares issued and outstanding respectively at July 31, 2021 and 35,629,566 (31,040,934, net) shares issued and outstanding respectively at April 30, 2021	3,603		3,563
Class B, $.10 par value. Authorized 10,000,000 shares: 1,821,587 shares issued and outstanding at July 31, 2021 and April 30, 2021; convertible into Class A Common Shares on a one-for-one basis	182		182
Additional paid-in capital	164,299		159,492
Retained deficit	(15,991)		(15,287)
Class A treasury stock, 4,588,632 shares at July 31, 2021 and April 30, 2021, at cost	(25,559)		(25,559)
Total shareholders’ equity	126,534		122,391
Commitments and contingencies
Total liabilities and shareholders’ equity	$	179,456	$	177,157

See accompanying notes to condensed consolidated financial statements—unaudited.

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American Software, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)


	Three Months Ended July 31,
	2021		2020
Revenue:
Subscription fees	$	9,788	$	6,363
License	492		787
Professional services and other	9,529		9,814
Maintenance	9,462		10,314
Total revenue	29,271		27,278
Cost of revenue:
Subscription fees	3,224		2,759
License	159		675
Professional services and other	7,010		7,830
Maintenance	1,974		1,773
Total cost of revenue	12,367		13,037
Gross margin	16,904		14,241
Research and development	4,424		4,095
Sales and marketing	6,120		4,744
General and administrative	4,534		4,464
Amortization of acquisition-related intangibles	53		53
Total operating expenses	15,131		13,356
Operating income	1,773		885
Other income:
Interest income	93		126
Other, net	344		1,206
Earnings before income taxes	2,210		2,217
Income tax (benefit)\expense	(737)		183
Net earnings	$	2,947	$	2,034
Earnings per common share (a):
Basic	$	0.09	$	0.06
Diluted	$	0.09	$	0.06
Cash dividends declared per common share	$	0.11	$	0.11
Shares used in the calculation of earnings per common share:
Basic	33,053		32,339
Diluted	33,946		32,932

______________

(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 $0.09 and $0.06 for the three months ended July 31, 2021 and 2020. See Note D to the Condensed Consolidated Financial Statements.

See accompanying notes to condensed consolidated financial statements—unaudited.

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American Software, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands, except share data)


	Common stock				Additional paid-in capital	Retained deficit	Treasury stock	Total shareholders’ equity
	Class A		Class B
For the Three Months Ended July 31, 2020	Shares	Amount	Shares	Amount

Balance at April 30, 2020	35,000,649	3,500	1,821,587	182	150,312	(9,013)	(25,559)	119,422
Proceeds from stock options exercised	230,747	23	—	—	2,360	—	—	2,383
Stock-based compensation	—	—	—	—	546	—	—	546
Net earnings	—	—	—	—	—	2,034	—	2,034
Dividends declared*	—	—	—	—	—	(3,571)	—	(3,571)
Balance at July 31, 2020	35,231,396	3,523	1,821,587	182	153,218	(10,550)	(25,559)	120,814
For the Three Months Ended July 31, 2021
Balance at April 30, 2021	35,629,566	3,563	1,821,587	182	159,492	(15,287)	(25,559)	122,391
Proceeds from stock options exercised*	399,000	40	—	—	4,032	—	—	4,072
Stock-based compensation	—	—	—	—	775	—	—	775
Net earnings	—	—	—	—	—	2,947	—	2,947
Dividends declared	—	—	—	—	—	(3,651)	—	(3,651)
Balance at July 31, 2021	36,028,566	3,603	1,821,587	182	164,299	(15,991)	(25,559)	126,534

*Amounts adjusted for rounding

See accompanying notes to condensed consolidated financial statements—unaudited.

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American Software, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Three Months Ended July 31,
	2021		2020
Cash flows from operating activities:
Net earnings	$	2,947	$	2,034
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	1,131		1,680
Stock-based compensation expense	775		546
Net gain on investments	(376)		(875)
Deferred income taxes	(25)		61
Changes in operating assets and liabilities:
Purchases of trading securities	(63)		(261)
Proceeds from maturities and sales of trading securities	165		2,745
Accounts receivable, net	1,766		(1,455)

Prepaid expenses and other assets	(1,606)		521
Accounts payable and other liabilities	(1,459)		(1,778)
Deferred revenue	(221)		(1,739)
Net cash provided by operating activities	3,034		1,479
Cash flows from investing activities:
Capitalized computer software development costs	—		(245)
Purchases of property and equipment, net of disposals	(302)		(118)

Net cash used in investing activities	(302)		(363)
Cash flows from financing activities:
Proceeds from exercise of stock options	4,072		2,383
Dividends paid	(3,608)		(3,547)
Net cash provided by\(used in) financing activities	464		(1,164)
Net change in cash and cash equivalents	3,196		(48)
Cash and cash equivalents at beginning of period	88,658		79,814
Cash and cash equivalents at end of period	$	91,854	$	79,766

Supplemental disclosure of cash flow information:


Supplemental disclosures of noncash operating, investing and financing activities:
Accrual of dividends payable	$	3,651	$	3,571

See accompanying notes to condensed consolidated financial statements—unaudited.

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AMERICAN SOFTWARE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements—Unaudited

July 31, 2021

A. Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete consolidated 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 July 31, 2021, results of operations for the three months ended July 31, 2021 and 2020, consolidated statements of shareholders’ equity for the three months ended July 31, 2021 and 2020 and cash flows for the three months ended July 31, 2021 and 2020. The Company’s results for the three months ended July 31, 2021 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 (the “Annual Report”) for the fiscal year ended April 30, 2021. The terms “fiscal 2022” and “fiscal 2021” refer to our fiscal years ending April 30, 2022 and 2021, respectively.

The preparation of these Condensed Consolidated 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 Condensed Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Note 1 in the Notes to the Consolidated Financial Statements for fiscal 2021 contained in the Annual Report describes the significant accounting policies that we have used in preparing our consolidated financial statements. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to revenue/reserves and allowances. 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 unaudited Condensed Consolidated Financial Statements include the accounts of American Software, Inc. (“American Software”) and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

Recent Accounting Pronouncements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating taxes for each quarter and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and changes in tax laws or rates, as well as clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 was effective for the Company beginning May 1, 2021 and would require us to recognize a cumulative effect adjustment to the opening balance of reinvested earnings, if applicable. The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements.

B. Revenue Recognition

We recognize revenue when we transfer control of the promised goods or services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We derive our revenue from software licenses; maintenance services; consulting, implementation and training services; and Software-as-a-Service (“SaaS”), which includes a subscription to our software as well as maintenance, hosting and managed services.

The Company determines revenue recognition through the following steps:

Step 1 – Identification of the Contract with the Customer

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Step 2 – Identification of Promised Goods and Services and Evaluation of Whether the Promised Goods and Services are Distinct Performance Obligations

Step 3 – Determination of the Transaction Price

Step 4 – Allocation of the Transaction Price to Distinct Performance Obligations

Step 5 – Attribution of Revenue for Each Distinct Performance Obligation

Nature of Products and Services.

Subscription Fees. Subscription fees include SaaS revenue for the right to use the software for a limited period of time in an environment hosted by the Company or by a third party. 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 right to take delivery of the software without incurring a significant penalty. The underlying arrangements typically include a single fee for the service that is billed monthly, quarterly or annually. The Company’s SaaS solutions represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. Revenue from a SaaS solution is generally recognized ratably over the term of the arrangement.

Licenses. Our software licenses provide the customer with a right to use the software as it exists at the time of purchase. We recognize revenue for distinct software licenses once the license period has begun and we have made the software available to the customer.

Our software licenses are sold with maintenance under which we provide customers with telephone consulting, product updates on a when and if available basis, and releases of new versions of products previously purchased by the customer, as well as error reporting and correction services.

Professional Services and Other. Our services revenue consists of fees generated from consulting, implementation and training services, including reimbursements of out-pocket expenses in connection with our services. Services are typically optional to our customers, and are distinct from our software. Fees for our services are separately priced and are generally billed on an hourly basis, and revenue is recognized over time as the services are performed. We believe the output method of hours worked provides the best depiction of the transfer of our services since the customer is receiving the benefit from our services as the work is performed. The total amount of expense reimbursement included in professional services and other revenue was approximately $29,000 and $4,000 for the three months ended July 31, 2021 and 2020, respectively.

Maintenance. Revenue is derived from maintenance under which we provide customers with telephone consulting, product updates on a when and if available basis, and releases of new versions of products previously purchased by the customer, as well as error reporting and correction services. Maintenance for licenses is renewable, generally on an annual basis, at the option of the customer. Maintenance terms typically range from one to three years. Revenue related to maintenance is generally paid in advance and recognized ratably over the term of the agreement since the Company is standing ready to provide a series of maintenance services that are substantially the same each period over the term; therefore, time is the best measure of progress.

Indirect Channel Revenue. We record revenue from sales made through the indirect sales channels on a gross basis, because we control the goods or services and act as the principal in the transaction. In reaching this determination, we evaluated sales through our indirect channel on a case-by-case basis and considered a number of factors including indicators of control such as the party having the primary responsibility to provide specified goods or services and the party having discretion in establishing prices.

Sales Taxes. We account for sales taxes collected from customers on a net basis.

Significant Judgments. Many of our contracts include multiple performance obligations. Our products and services generally do not require a significant amount of integration or interdependency; therefore, our products and services are generally not combined. We allocate the transaction price for each contract to each performance obligation based on the relative standalone selling price (SSP) for each performance obligation within each contract.

We use judgment in determining the SSP for products and services. For substantially all performance obligations except on-premise licenses, we are able to establish SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. We typically establish an SSP range for our products and services which is reassessed on a periodic basis or when facts and circumstances change. Historically our on-premise licenses have not been sold on a standalone basis, as the vast majority of all customers elect to purchase on-premise license maintenance and support contracts at the time of an on-premise license purchase. We are unable to establish the SSP for our on-premise licenses based on observable prices, as the same products are sold for a broad range of prices (that is, the selling price is highly variable) and a

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representative SSP is not discernible from past transactions or other observable evidence. As a result, the SSP for an on-premise license included in a contract with multiple performance obligations is determined by applying a residual approach whereby all other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective SSPs, with any residual amount of transaction price allocated to on-premise license revenue. Maintenance and support contracts are generally priced as a percentage of the net fees paid by the customer to access the on-premise license.

Contract Balances. Timing of invoicing to customers may differ from timing of revenue recognition and these timing differences result in unbilled accounts receivables or contract liabilities (deferred revenue) on the Company’s condensed consolidated balance sheets. Fees for our software licenses are generally due within 30 days of contract execution. We have an established history of collecting under the terms of our software license contracts without providing refunds or concessions to our customers. SaaS solutions and maintenance are typically billed in advance on a monthly, quarterly, or annual basis. Services are typically billed as performed. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not include significant financing component. The primary purpose of our invoicing terms is to provide customers with predictable ways to purchase our software and services, not to provide or receive financing. Additionally, we are applying the practical expedient to exclude any financing component from consideration for any contracts with payment terms of one year or less since we rarely offer terms extending beyond one year. The consideration in our customer contracts is fixed.

We have an unconditional right to consideration for all goods and services transferred to our customers. That unconditional right to consideration is reflected in billed and unbilled accounts receivable in the accompanying condensed consolidated balance sheets in accordance with ASC Topic 606.

Deferred revenue consists of amounts collected prior to having completed the performance of maintenance, SaaS, hosting, and managed services. We typically invoice customers for cloud subscription and support fees in advance on a monthly, quarterly or annual basis, with payment due at the start of the cloud subscription or support term. During the three months ended July 31, 2021, we recognized $16.3 million of revenue that was included in the deferred revenue balance as of April 30, 2021.


	July 31, 2021		April 30, 2021
	(in thousands)





Deferred revenue, current	36,921		37,142
Deferred revenue, long-term*	395		540
Total deferred revenue	$	37,316	$	37,682

*included in other long-term liabilities on the accompanying condensed consolidated balance sheet

Remaining Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract. Remaining performance obligations represent the transaction price of orders for which products have not been delivered or services have not been performed. As of July 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $122 million. The Company expects to recognize revenue on approximately 45% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

Disaggregated Revenue. The Company disaggregates revenue from contracts with customers by geography, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The Company’s revenue by geography is as follows:

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	Three Months Ended July 31,
	2021		2020
	(in thousands)
Revenue:
Domestic	$	24,427	$	23,140
International	4,844		4,138
	$	29,271	$	27,278

Contract Costs. The Company capitalizes the incremental costs of obtaining a contract with a customer if the Company expects to recover those costs. The incremental costs of obtaining a contract are those that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission). The Company capitalizes the costs incurred to fulfill a contract only if those costs meet all of the following criteria:

a. The costs relate directly to a contract or to an anticipated contract that the Company can specifically identify.

b. The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.

c. The costs are expected to be recovered.

Certain sales commissions incurred by the Company were determined to be incremental costs to obtain the related contracts, which are deferred and amortized ratably over the economic benefit period. These deferred commission costs are classified as current or non-current based on the timing of when the Company expects to recognize the expense. The current and non-current portions of deferred commissions are included in prepaid expenses and other current assets and deferred sales commissions—noncurrent, respectively, in the Company’s Condensed Consolidated Balance Sheets. Total deferred commissions at July 31, 2021 and April 30, 2021 were $3.7 million and $3.9 million, respectively. Amortization of sales commissions was $0.5 million and $0.4 million for the three months ended July 31, 2021 and 2020, respectively, which is included in "Sales and marketing" expense in the accompanying Condensed Consolidated Statements of Operations. No impairment losses were recognized during the periods.

C. Declaration of Dividend Payable

On May 27, 2021, 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 August 27, 2021 to Class A and Class B shareholders of record at the close of business on August 13, 2021.

D. Earnings Per Common Share

The Company has two classes of common stock. Class B common shares are convertible into Class A common shares at any time, on a one-for-one basis. Under the Company’s Articles of Incorporation, if dividends are declared, 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, the Company has computed the earnings per share in compliance with the Earnings Per Share Topic of the FASB ASC, which requires companies that have multiple classes of equity securities to use the “two-class” method in computing earnings per share.

For the Company’s basic earnings per share calculation, the Company uses 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 shares to Class A shares. If Class B shares convert to Class A shares during the period, the distributed net earnings for Class B shares is calculated using the weighted average common shares outstanding during the period.

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Diluted earnings per share is calculated similarly to basic earnings per share, except that the calculation includes the dilutive effect of the assumed exercise of options issuable under the Company’s stock incentive plans. For the Company’s diluted earnings per share calculation for Class A shares, the Company uses the “if-converted” method. This calculation assumes that all Class B common shares are converted into Class A common shares and, as a result, assumes there are no holders of Class B common shares to participate in undistributed earnings.

For the Company’s diluted earnings per share calculation for Class B shares, the Company uses 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 of Class A stock options were converted to Class A shares and the undistributed earnings are allocated evenly to both Class A and B shares including Class A 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 shares into Class A 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 July 31, 2021				Three Months Ended July 31, 2020
	Class A Common Shares		Class B Common Shares		Class A Common Shares		Class B Common Shares
Distributed earnings	$	0.11	$	0.11	$	0.11	$	0.11
Undistributed losses	(0.02)		(0.02)		(0.05)		(0.05)
Total	$	0.09	$	0.09	$	0.06	$	0.06
Distributed earnings	$	3,457	$	202	$	3,370	$	201
Undistributed losses	(673)		(39)		(1,450)		(87)
Total	$	2,784	$	163	$	1,920	$	114
Basic weighted average common shares outstanding	31,231		1,822		30,517		1,822

Diluted EPS for Class A Common Shares Using the If-Converted Method

Three Months Ended July 31, 2021


	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	2,784	31,231	$	0.09
Common Stock Equivalents	—		893	—
	2,784		32,124	0.09
Class B Common Share Conversion	163		1,822	—
Diluted EPS for Class A Common Shares	$	2,947	33,946	$	0.09

Three Months Ended July 31, 2020

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	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	1,920	30,517	$	0.06
Common Stock Equivalents	—		593	—
	1,920		31,110	0.06
Class B Common Share Conversion	114		1,822	—
Diluted EPS for Class A Common Shares	$	2,034	32,932	$	0.06

Diluted EPS for Class B Common Shares Using the Two-Class Method

Three Months Ended July 31, 2021


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares	EPS*
Per Basic	$	163	1,822	$	0.09
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	1		—	—
Diluted EPS for Class B Common Shares	$	164	1,822	$	0.09

Three Months Ended July 31, 2020


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares	EPS*
Per Basic	$	114	1,822	$	0.06
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	2		—	—

SEC Form 10-Q filed by American Software, Inc.