<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549
 
                               ----------------
 
                                   FORM 10-K
 
(MARK ONE)
 
   [X]
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
                            OF 1934 [FEE REQUIRED]
 
                   FOR THE FISCAL YEAR ENDED APRIL 30, 1998
 
                                      OR
 
   [_]
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                         ACT OF 1934 [NO FEE REQUIRED]
 
                 FOR THE TRANSITION PERIOD FROM       TO
 
                        COMMISSION FILE NUMBER 0-23057
 
                                LOGILITY, INC.
 
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                GEORGIA                    470 EAST PACES FERRY ROAD, N.E.
                                                  ATLANTA, GEORGIA
    (STATE OR OTHER JURISDICTION OF        (ADDRESS OF PRINCIPAL EXECUTIVE
    INCORPORATION OR ORGANIZATION)                    OFFICES)
 
              58-2281338                                30305
                                                     (ZIP CODE)
   (IRS EMPLOYER IDENTIFICATION NO.)
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (404) 261-9777
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
          TITLE OF EACH CLASS         NAME OF EACH EXCHANGE ON WHICH REGISTERED
                                                        None
                 None
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
                          COMMON SHARES, NO PAR VALUE
                               (TITLE OF CLASS)
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X. No  .
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
 
  At July 20, 1998, 13,491,700 Common Shares of the registrant were
outstanding. The aggregate market value (based upon the closing price of
Common Shares as quoted on the NASDAQ National Market System at July 20, 1998)
of the shares held by nonaffiliates was approximately $18.7 million.
 
          DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-K
 
1. 1998 Proxy Statement into Part III.
2. Form S-1 Registration Statement No. 333-33385 into Part IV.
3. Form S-8 Registration Statement No. 333-47023 into Part IV.

<PAGE>
 
                                    PART I
 
ITEM 1. BUSINESS
 
  In addition to the historical information contained herein, the discussion
in this Form 10-K contains certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that involve risks and uncertainties, such as
statements concerning: growth and future operating results; future customer
benefits attributable to the Company's products; developments in the Company's
markets and strategic focus; new products and product enhancements; potential
acquisitions and the integration of acquired businesses, products and
technologies; strategic relationships; and future economic, business and
regulatory conditions. The cautionary statements made in this Form 10-K should
be read as being applicable to all related forward-looking statements whenever
they appear in this Form 10-K. The Company's actual results could differ
materially from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are
not limited to, those discussed under the section captioned "Risk Factors" in
Item 1 of this Form 10-K as well as the cautionary statements and other
factors set forth elsewhere herein.
 
COMPANY OVERVIEW
 
  Logility, Inc. ("Logility" or the "Company") was incorporated as a Georgia
corporation in July 1996. Logility develops, markets and supports software
applications that optimize the operating efficiencies of manufacturers,
suppliers, distributors, retailers and other organizations along the value
chain. The Company's Logility Value Chain Solutions(TM) consists of an
integrated software suite that provides advanced collaborative planning and
integrated logistics capabilities that are designed to reduce inventory costs,
improve forecast accuracy, decrease order cycle times, optimize production
scheduling, streamline logistics operations, reduce transportation costs and
improve customer service. The Company's software solution is modular and
scaleable to meet the management requirements of complex processes involving
tens of thousands of products across multiple sites. In addition, it can be
integrated with existing software systems and a variety of client-server
operating environments and platforms.
 
  The Company has licensed one or more modules of Logility Value Chain
Solutions to more than 300 companies worldwide, including CITGO Oil, Eastman
Chemical Company, FINA, Heineken USA, Magneti Marelli, Newell, Pharmacia &
Upjohn, Pfizer International, Reynolds Metals, Sony Electronics and VF
Corporation. The Company sells its products through direct and indirect
channels in the United States and Canada and primarily through indirect
channels outside North America. The Company derived approximately 9% of its
revenues in fiscal year ended April 30, 1998 from international sales.
 
INDUSTRY BACKGROUND
 
 The Traditional Industry Approach
 
  Companies have traditionally applied information technology to supply chain
management through Manufacturing Resource Planning ("MRP") systems, which
provide limited flexibility to address rapidly changing business conditions
and customer needs. In order to respond to an increasingly competitive
business environment and related complex supply chain issues, many companies
have adopted Enterprise Resource Planning ("ERP") systems, which integrate MRP
solutions with other enterprise management applications such as financial,
accounting and human resources. Although ERP systems provide substantial
benefits primarily by integrating financial and other controls with multi-
plant manufacturing coordination, the supply chain decision support
capabilities of many ERP systems remain limited by the planning and scheduling
methodologies utilized in their MRP modules. Various ERP vendors are
mitigating these limitations by internally developing, or by acquiring or
partnering with independent developers of, advanced planning and scheduling
software.
 
  Some of the significant limitations of traditional MRP systems and the MRP
modules of ERP systems are as follows:
 
    Limited Decision Support. Traditional solutions collect and report large
  amounts of transactional data, rather than provide sophisticated analysis
  of relevant information to support critical business decisions in
 
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<PAGE>
 
  real-time. While these solutions help customers unify disparate information
  resources within the enterprise and contribute to business process
  reengineering efforts, the Company believes that they are not well suited
  to enable customers to make rapid, highly complex business decisions.
 
    Limited Representation of Supply Chain. The Company believes that
  traditional solutions often employ fixed assumptions regarding critical
  operating constraints such as available production capacity and supplier
  lead times. Since this approach cannot adequately capture complex real-
  world constraints and interdependencies, it may result in the development
  of infeasible or suboptimal plans. In addition, traditional solutions
  calculate plans and schedules for individual, local segments of the
  production and supply process, without considering the consequences to the
  entire process. For example, an increase in customer demand might result in
  the purchase of additional raw materials without determining whether
  manufacturing capacity is available to process those materials.
 
    Sequential Planning. Traditional planning methodologies model the supply
  chain as a sequence of discrete steps. For example, traditional solutions
  begin by developing a demand forecast from which a distribution plan is
  developed to determine the distribution center, warehouse or factory
  source, which will be used to manufacture/distribute the products without
  regard to transportation or manufacturing constraints. A transportation
  plan is then generated to determine the optimal transportation methods to
  be used to ship the products without addressing the constraints of the
  remaining parts of the supply chain. A master production schedule is then
  generated which is used to develop a materials requirement plan, which in
  turn is used to arrive at a capacity requirement plan. Because the process
  does not address all constraints simultaneously, the initial planning cycle
  is rarely optimal and often requires numerous manual iterations to develop
  a feasible solution. This time-consuming sequential planning process limits
  a manager's ability to rapidly evaluate subsequent changes, such as
  material shortages and revisions in customer orders. Accordingly, a
  manager's ability to respond to changes and to take corrective action may
  be delayed.
 
    Limited Integration and Functionality. Traditional solutions generally do
  not provide integrated functionality across the entire supply chain,
  including demand forecasting, manufacturing planning, plant scheduling,
  distribution and transportation. For example, several ERP vendors have
  acquired planning products that address specific supply chain challenges,
  but fail to provide global visibility and optimization across the entire
  supply chain. In addition, traditional solutions often offer only limited
  functionality within these areas. For example, MRP and ERP systems often
  provide limited "available-to-promise" functionality by simply processing
  orders on a "first-come, first-served" basis, without considering other
  constraints or business objectives. Furthermore, traditional solutions
  typically assume complete independence of supply and demand. Often,
  however, the overabundance or scarcity of a certain product can directly or
  indirectly impact demand for that product and related products. Complex
  interrelationships and interdependencies are not adequately accounted for
  in traditional planning methodologies, leading to potentially inaccurate
  conclusions and recommendations.
 
    Lengthy Implementation Cycles. Due to the broad scope, complexity and
  associated re-engineering requirements of ERP systems, many companies have
  found the implementation of such systems to be costly and time consuming.
  Such factors often delay or limit the realization of benefits associated
  with the implementation of ERP systems.
 
THE CHANGING INDUSTRY OUTLOOK
 
  In response to global competitive pressures, companies are continually
seeking new ways to enhance the productivity of their enterprise business
systems and processes. Significant competitive advantages in the form of lower
costs and greater customer responsiveness can be realized by those companies
that effectively communicate, collaborate and integrate with their suppliers,
distributors, retailers, consumers and other parties within the "value chain."
Value chain management refers to the process of managing the complex network
of relationships that organizations maintain with trading partners to source,
manufacture and deliver goods and services to the customer. Value chain
management involves both the activities related to supplying products or
services as well as the sales and marketing activities that impact the demand
for goods and services, such as promotions, pricing and forecasting.
 
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<PAGE>
 
  Today several market trends are driving organizations to expand
collaboration with trading partners along the value chain. A general shift in
market power has forced manufacturers and distributors to become more
responsive to retailers and consumers, which has created a need for improved
planning capabilities. At the same time, competitive pressures are forcing
manufacturers to reduce costs, decrease order cycle times and improve
operating efficiencies. As a result, manufacturers are increasingly under
pressure to better manage the value chain as they seek to improve
manufacturing efficiency and logistics operations while maintaining
flexibility and responsiveness to changing market conditions and customer
demands. These pressures are compounded by the increasing complexity and
globalization of the interactions among suppliers, manufacturers,
distributors, retailers and consumers.
 
  Advances in communications and computing technology have enhanced the
ability of organizations along the value chain to integrate their processes
through collaborative information sharing and planning and to improve internal
operations through refined workflow management. These technology developments
include the proliferation of the client-server computing environment, the
introduction of data collection technology such as point of sale and radio
frequency devices, the growth of the wide area network infrastructure and the
emergence of the Internet and corporate intranets. In addition, businesses are
beginning to extend their corporate intranets to establish dedicated links, or
extranets, with suppliers and customers. Corporations are increasingly taking
advantage of this technology and the general availability of more powerful
software applications to improve the effectiveness of their information
gathering and analysis processes, which in turn is leading to improved
decision-making capabilities.
 
  To manage and facilitate enhanced collaboration among the various
participants in the value chain, organizations are increasingly deploying
value chain management software solutions to address their planning and
execution requirements. The planning function involves the proactive use of
information to facilitate the delivery of the right products on time to the
correct location and at the lowest cost. The planning process focuses on
demand forecasting, inventory simulation, distribution, transportation and
manufacturing planning and scheduling. Planning software is designed to
improve forecast accuracy, optimize production scheduling, reduce inventory
costs, decrease order cycle times, reduce transportation costs, and improve
customer service. The execution function addresses procuring, manufacturing
and distributing products throughout the value chain. Within the execution
function, increasing focus is being placed by organizations on the effective
management of warehouse and transportation operations and the need for their
integration with planning systems and other enterprise software applications.
 
  The market for value chain management solutions is relatively new and is
experiencing rapid growth. AMR Research, a leading industry research firm,
estimates that the supply chain planning and execution software market was
$1.8 billion in 1997, and is projected to grow at a compound annual growth
rate of more than 50% to $13.6 billion by 2002.
 
  Organizations increasingly are recognizing that an integrated value chain
management solution has a measurable impact on productivity and is critical in
addressing changing market requirements. An important element of managing the
value chain is the ability to incorporate the requirements of a diverse group
of constituents both within and outside the organization to create an
integrated, accurate consensus plan that can be synchronized with the
manufacturing, distribution, transportation and warehousing processes. In
general, existing value chain management solutions do not provide robust,
integrated, end-to-end solutions that address the needs of the entire value
chain and do not synchronize demand opportunities with supply constraints and
logistics operations.
 
  In order to effectively manage and coordinate value chain activities,
companies require planning and execution software that provides for integrated
communication and collaboration among the various constituents along the value
chain. This enhanced collaboration synchronizes production plans with demand
forecasts, thereby minimizing bottlenecks that lead to production delays and
excess inventory. In addition, companies seek integrated planning and
execution systems that further optimize the flow of products to the customer
through
 
                                       3
<PAGE>
 
enhanced transportation and warehouse management capabilities. Organizations
are also demanding solutions that are modular and scaleable to fit the
changing needs of the organization and that can be rapidly deployed.
 
LOGILITY VALUE CHAIN SOLUTIONS
 
  The Company's integrated product line, Logility Value Chain Solutions, is a
value chain management software suite that enables manufacturers, distributors
and retailers to more effectively manage the activities along their respective
value chains.
 
  The key benefits of the Company's software solution include the following:
 
    Integrated End-to-End Value Chain Solution. The Company's Logility Value
  Chain Solutions provides functionality that addresses both the flow of
  information and the flow of products throughout the value chain. By
  synchronizing its comprehensive planning software products with its
  transportation and warehouse management software solutions, the Company's
  product suite can more efficiently and accurately coordinate the delivery
  of products to the customer. This end-to-end approach allows maximum
  synchronization of activities along the value chain.
 
    Comprehensive Planning Solution. The Company's planning solution is
  comprised of demand, inventory, manufacturing, replenishment and
  transportation planning modules that balance demand opportunities with
  supply constraints through the synchronization of information gathered from
  value chain participants. A key component of the Company's planning
  solution is its emphasis on addressing the full range of complex demand
  planning requirements of its customers, including comprehensive forecasting
  capabilities that take into account each user's unique perspective of the
  value chain.
 
    Advanced Collaborative Planning Functionality. The Company's products
  allow for collaboration among the various levels within an organization and
  among external constituents throughout the value chain. The architecture of
  Logility Value Chain Solutions enables key constituents to participate in
  the planning process, including marketing, sales, manufacturing,
  procurement, logistics and transportation personnel, so that the
  requirements of all groups are factored in to create one consensus plan.
  The Company's collaborative planning functionality is further enhanced with
  the Company's Demand Chain Voyager(TM) and Supply Chain Voyager(TM)
  modules, which leverage Internet technology to facilitate information
  sharing directly with trading partners and within an organization.
 
    Robust Warehouse Management Solution. The Company's integrated
  WarehousePRO(R) solution is designed to optimize operations within the
  warehouse by improving inventory turnover, increasing inventory accuracy
  and customer service and reducing inventory levels. The solution's object-
  oriented design and user-configurable architecture allows for flexible and
  rapid implementation. In addition, the solution features a comprehensive
  library of industry best-practice workflows that can be configured by the
  customer, thereby minimizing the need for custom programming.
 
    Rapid Deployment. The Company's products utilize a modular design,
  thereby streamlining implementation and allowing deployment in a relatively
  short time frame. The comprehensive functionality of each module generally
  permits customers to implement the solutions with nominal modifications. In
  addition, the Company's software combines sophisticated techniques and
  tools with an intuitive, Windows-based interface to reduce training
  requirements and implementation tasks.
 
    Open, Scaleable, Client-Server Architecture. Logility's software has been
  designed to integrate with existing in-house and third-party software
  applications and a variety of operating environments and platforms. The
  software is scaleable to manage complex processes involving tens of
  thousands of products across multiple sites.
 
STRATEGY
 
  The Company's objective is to become the leading provider of value chain
management software solutions that are designed to enhance collaboration among
participants along the value chain and optimize the operations
 
                                       4
<PAGE>
 
associated with manufacturing and the distribution of products in select
markets such as consumer packaged goods, pharmaceuticals, oil and gas and
chemicals. The Company's strategy includes the following key elements:
 
    Leverage and Expand Installed Base of Customers. The Company currently
  targets businesses in the process manufacturing industry, including
  consumer packaged goods, chemicals and pharmaceuticals, food and beverage,
  and oil and gas. The Company intends to continue to leverage its installed
  base of more than 300 customers to introduce additional functionality,
  product upgrades and complementary modules. In addition, the Company
  intends to expand sales to new customers in its existing vertical markets
  and to target additional vertical markets over time.
 
    Continue to Expand Sales and Marketing. The Company intends to continue
  to pursue an increased share of the market for value chain management
  software solutions by expanding its sales and marketing activities. The
  Company intends to continue building a direct sales force that is focused
  on selected vertical markets, such as chemicals and pharmaceuticals and
  consumer packaged goods manufacturers.
 
    Maintain Technology Leadership. The Company believes that it is a
  technology leader in the field of value chain management software solutions
  and intends to continue to provide innovative, advanced solutions to this
  market. The Company believes that it was one of the earliest providers of
  value chain planning software solutions on a client-server platform and on
  Windows NT, and the first to introduce a value chain planning software
  solution that operates over the Internet. The Company intends to continue
  to develop and introduce new or enhanced products and keep pace with
  technological developments and emerging industry standards.
 
    Focus on Integrated Planning and Logistics Execution Solution. The
  Company believes it is one of the few providers of integrated value chain
  management software solutions addressing both demand and supply planning as
  well as transportation and warehousing logistics requirements. The Company
  is focusing on providing the most comprehensive planning and execution
  solution aimed at optimizing operations along the value chain. The Company
  intends to continue to focus its development initiatives on enhancing its
  end-to-end solution and introducing additional capabilities that complement
  its integrated solution.
 
    Increase Penetration of International Markets. In fiscal year ended April
  30, 1998, the Company generated 9% of its total revenues from international
  sales and has marketing relationships with a number of international
  distributors. The Company intends to expand its international presence by
  adding additional direct sales personnel to address international markets
  and has created additional relationships with distributors in Europe, Latin
  America and the Asia/Pacific region.
 
    Expand Strategic Relationships. The Company has a number of varying
  marketing and/or product relationships with ERP vendors, systems
  integrators and service organizations, including Arthur Andersen, Andersen
  Consulting, Ernst & Young, INSIGHT, Inc., KPMG Peat Marwick, Oracle, SAP,
  and Ross Systems. In addition, the Company has developed a network of
  international agents who assist in the selling of the Company's products.
  The Company intends to utilize these and future relationships with software
  and service organizations to enhance its sales and marketing position.
 
    Continue to Focus on Providing High Quality Customer Service. Providing
  high quality customer service is a critical element of the Company's
  strategy. The Company intends to continue to invest in technology and
  personnel to accommodate the needs of its growing customer base.
 
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<PAGE>
 
PRODUCTS
 
  Logility Value Chain Solutions(TM) is an integrated suite of value chain
management solutions designed to synchronize demand opportunities with supply
constraints and logistics operations. The suite is comprised of two solution
groups: Logility Planning Solutions(TM) and Logility Execution Solutions(TM),
which in turn are comprised of a series of integrated modules. These modules
can be implemented individually in certain cases, as well as in combinations
or as a full solution suite. Logility Value Chain Solutions(TM) supports
multiple communications protocols and is designed to operate with industry-
standard open technologies, including leading client-server environments, such
as HP9000, IBM RS/6000 and Intel-based servers running Windows NT. The
following table summarizes the Company's product line:
 
<TABLE>
<CAPTION>
SOLUTION GROUP     MODULE                   FEATURES
--------------     ------                   --------
<S>                <C>                      <C>
LOGILITY PLANNING  Demand Planning
 SOLUTIONS(TM)                              . Item and Group forecasting
                                            . Self-selecting forecast models
                                            . Personalized data views
                                            . Item stratification
                                            . Product life cycle management with
                                              simulation
                                            . Drag and drop data manipulation
--------------------------------------------------------------------------------
                   Inventory Planning       . Time-phased view of inventory
                                            . Graphical simulations of inventory
                                              trade-off
                                            . Views of dependent and independent
                                              demand
                                            . Inventory management variables
--------------------------------------------------------------------------------
                   Event Planning           . Promotion planning
                                            . Self-learning capabilities using
                                              artificial intelligence
                                            . Causal-based forecasting
                                            . Promotion profitability
                                              simulations
--------------------------------------------------------------------------------
                   Demand Chain Voyager(TM) . Forecast retrieval and
                                              modifications via the Internet and
                                              Corporate Intranets
                                            . Tight integration with Demand
                                              Planning
                                            . Promotion planning calendars
                                            . Comprehensive security features
                                            . Collaborative planning with
                                              trading partners
--------------------------------------------------------------------------------
                   Manufacturing Planning   . Enterprise-wide capacity planning
                                            . Plant-level scheduling
                                            . Supports activity-based costing
                                            . Optimizes sourcing decisions'
                                              actual costs
                                            . Interactive simulation
                                            . Real-time, in memory model
--------------------------------------------------------------------------------
                   Replenishment Planning   . Supports continuous replenishment
                                              strategies
                                            . Constrained, time-phased
                                              distribution requirements planning
                                            . Proactive action messages
                                            . EDI integration
                                            . Available-to-promise methodologies
                                            . Multi-site sourcing and allocation
--------------------------------------------------------------------------------
</TABLE>
 
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<PAGE>
 
<TABLE>
<CAPTION>
SOLUTION GROUP      MODULE                    FEATURES
--------------      ------                    --------
<S>                 <C>                       <C>
                    Transportation Planning   . Load Control Center
                                              . Shipment planning and
                                                consolidation
                                              . Freight rating and routing
                                              . Carrier selection
---------------------------------------------------------------------------------
                    Supply Chain Voyager(TM)  . Replenishment ordering via the
                                                Internet
                                              . Tight integration with
                                                Replenishment Planning
                                              . Remote analysis of orders
                                              . Comprehensive security features
                                              . Collaborative planning with
                                                trading partners
---------------------------------------------------------------------------------
                    Value Chain Designer      . Strategic distribution network
                                                optimization
                                              . Customer assignment
                                              . Facility location
                                              . Balancing customer service levels
                                                and cost
                                              . Sourcing selection and capacity
                                                planning
---------------------------------------------------------------------------------
LOGILITY EXECUTION  Transportation Management
 SOLUTIONS(TM)                                . Load tendering
                                              . Shipment confirmation
                                              . Freight audit and payment control
                                              . Shipment documentation and
                                                tracking
---------------------------------------------------------------------------------
                    Warehouse PRO(R)          . Object oriented architecture
                                              . User configurable options
                                              . Advanced workflow technology
                                              . Dynamic label and report printing
                                              . Integrated graphical user
                                                interface
---------------------------------------------------------------------------------
</TABLE>
 
LOGILITY PLANNING SOLUTIONS
 
  Logility Planning Solutions is designed to optimize demand opportunities
with supply constraints. The solution enables users to generate and analyze
information to effectively manage demand and respond to changes in the
marketplace while optimizing the utilization of production, distribution and
transportation assets. Demand Chain Voyager and Supply Chain Voyager enhance
the functionality of Logility Planning Solutions by utilizing the Internet to
extend planning capabilities to remote users and trading partners.
 
    Demand Planning. The Demand Planning module reconciles demand history,
  existing customer orders, point-of-sale data, market forecasts and other
  information to generate a graphical representation of demand by item,
  location, customer and/or group. Demand Planning has an automatic self-
  correcting, self-selecting modeling process that utilizes a number of
  advanced forecasting models to generate sales, marketing, logistics and
  other forecasts. The system allows for user-override of certain modeling
  parameters, such as quantities or percentages, to account for promotions,
  supply constraints and other "what-if" scenarios.
 
    Inventory Planning. The Inventory Planning module is designed to
  determine the optimal balance between inventory and service levels. With
  extensive simulation capabilities, Inventory Planning helps manufacturers
  and distributors reduce inventory costs while meeting customer service
  requirements at the individual stock keeping unit ("SKU") level. Built
  around industry best practices, Inventory Planning can enhance planning and
  scheduling of inventory while taking into consideration replenishment
  frequency and order size, seasonal build and manufacturing plans. Service
  level targets and policies can be applied individually to every product
  within an enterprise or uniformly throughout the various product lines.
 
                                       7
<PAGE>
 
    Event Planning. The Company has recently made generally available an
  Event Planning module, a causal-based forecasting solution designed to
  facilitate product life-cycle management and promotion planning, and
  provide forecasting capabilities to help determine the impact of
  promotions, price changes or other events, enabling manufacturers to adjust
  production to match changing demand. Event Planning utilizes advanced
  algorithms based on neural network techniques that allow the system to
  refine forecasting by incorporating the results of ongoing promotions and
  other activities.
 
    Demand Chain Voyager. Through the use of the Internet, the Demand Chain
  Voyager module extends the reach of Demand Planning by allowing remote
  users to view corporate forecasts and to input demand data in real-time.
  Demand Chain Voyager provides an online, updated schedule of events
  including promotions, product launches and holidays. In addition, it allows
  for the revision of inventory goals and objectives such as service levels
  and turns.
 
    Manufacturing Planning. The Manufacturing Planning module is designed as
  a constraint-based planning solution that balances manufacturing processes
  and resources with demand priorities and corporate objectives.
  Manufacturing Planning models the operations of a business by capturing
  capacity constraints such as equipment capabilities, intermediate storage
  limitations, shop floor calendars and raw material availability and
  production constraints such as synchronization of multi-step operations,
  product sequencing, production changeovers and inventory policies.
  Manufacturing Planning enables collaborative decision-making by comparing
  the feasibility and cost effectiveness of various scheduling strategies
  through the use of simulation.
 
    Replenishment Planning. The Replenishment Planning module addresses the
  planning needs of an organization to determine the optimal balance between
  customer service levels and inventory. Replenishment Planning takes into
  account manufacturing constraints, inventory investment, desired service
  levels, and current orders and commitments. Features of Replenishment
  Planning include automatic detailed item planning to balance delivery loads
  and orders, filtered order review, SKU change simulation and constrained
  distribution requirements planning. The benefits of Replenishment Planning
  include, among others, faster inventory turns, optimized inventory levels
  and the ability to allocate customer orders based on user-defined
  priorities. Replenishment Planning provides support for continuous
  replenishment strategies, such as Vendor Managed Inventory, Quick Response
  and Efficient Consumer Response.
 
    Transportation Planning. The Transportation Planning module synchronizes
  transportation plans with demand, inventory, manufacturing and
  replenishment strategies. Transportation Planning consolidates shipments
  and determines the optimal transportation mode and carrier while providing
  a list of alternatives. The solution includes a Load Control Center that
  reviews all inbound, outbound and inter-facility shipments and provides an
  integrated view of all orders requiring shipping decisions. The product is
  designed to reduce freight costs, improve customer service levels and
  increase responsiveness to customer requirements.
 
    Supply Chain Voyager. The Supply Chain Voyager module operates over the
  Internet and provides trading partners with enhanced functionality for
  consumption monitoring and order review, approval and tracking. Consumption
  monitoring facilitates the process of tracking inventory consumption at the
  point of demand and comparing real-time inventory levels to inventory
  targets. Order review, approval and tracking automatically generates
  proposed replenishment orders and allows trading partners to track the
  status of orders.
 
    Value Chain Designer. The Value Chain Designer module provides a
  strategic view of the Supply Chain Network. Companies can optimize location
  decisions, resource allocation, customer assignment and transportation
  strategies to minimize costs or maximize profitability.
 
LOGILITY EXECUTION SOLUTIONS
 
  Logility Execution Solutions is designed to enable users to effectively and
efficiently manage the flow of products through distribution centers and
warehouses and helps ensure that products are delivered to the right location
using the best transportation alternatives available. Integrated analysis
reporting is included to allow
 
                                       8
<PAGE>
 
users to analyze cost and productivity across the value chain, enabling
companies to make real-time decisions about the operations of their warehouses
and the transport of products.
 
    Transportation Management. Transportation Management facilitates the
  timely execution of the optimized shipping plan developed by the
  Transportation Planning module. Load tendering and shipment tracking are
  included via Electronic Data Interchange ("EDI"), E-mail or automatic fax.
  The freight audit and payment capabilities enable flexible reporting of
  landed cost by shipment, customer or product group. The module is designed
  to reduce freight costs, improve carrier utilization and provide
  comprehensive freight management reporting.
 
    WarehousePRO. WarehousePRO incorporates advanced workflow technology,
  industry-specific best practices and radio frequency data collection
  terminals to optimize warehouse operations. The software's object-oriented
  design allows users to define the properties of specific items, locations,
  or processes, thereby reducing the need for custom programming. The
  solution is highly flexible and can be reconfigured by the user to adapt to
  changing business requirements. WarehousePRO features an extensive workflow
  library of user-selected templates incorporating industry-specific best-
  practice warehousing techniques. With built-in standard interfaces to major
  radio frequency data collection systems, the software delivers more
  accurate inventory accountability and improved warehouse efficiency.
  WarehousePROs performance analysis tools generate graphical reports that
  illustrate productivity gains, warehouse efficiency and inventory controls,
  enabling users to make real-time management decisions. A Windows NT version
  of WarehousePRO was made generally available in the fourth quarter of the
  Company's fiscal year 1998.
 
  The price for the Company's products typically is determined based upon the
number of modules licensed and the number of servers, users and/or sites for
which the solution is designed. During fiscal year ended April 30, 1998,
license fees for a new customer ranged from $200,000 to $1,500,000.
 
CUSTOMERS
 
  The Company primarily targets businesses in the consumer-packaged goods,
chemicals and pharmaceuticals and other manufacturing industries. No single
customer accounted for 10% or greater of the Company's revenues in the three
years ended April 30, 1998. A sample of companies which have purchased one or
more of the Company's products is as follows:
 
<TABLE>
<CAPTION>
          CONSUMER          CHEMICALS, OIL & GAS,
       PACKAGED GOODS          PHARMACEUTICALS       MANUFACTURING AND OTHERS
       --------------       ---------------------   --------------------------
   <S>                      <C>                     <C>
   Bausch & Lomb            CITGO Oil               Appleton Paper
   Goody (a division of     Eastman Chemical Co.    British Telecommunications
    Newell Company)         FINA Inc.               Magneti Marelli
   Heineken USA             Pfizer International    Mercury Marine
   Nestle France            Pharmacia & Upjohn      Reynolds Metals
   Sara Lee Knit Products   Rhone-Poulenc           Siecor (joint venture
   S.C. Johnson & Sons      Sigma-Aldrich Corp.      between Siemens & Corning)
   Seagram                                          Sony Electronics
   ICI Glidden                                      Subaru of America, Inc.
   Tiffany's                                        Union Camp
   VDK Frozen Foods
   VF Corporation
</TABLE>
 
SALES AND MARKETING
 
  The Company markets its products through direct and indirect sales channels
in the United States and Canada and primarily through indirect channels
outside North America. The Company conducts its principal sales and marketing
activities from corporate headquarters in Atlanta, Georgia, and has sales
and/or support offices in Boston, Chicago, Columbus, Dallas, Detroit,
Minneapolis, Newport Beach, Philadelphia, Raleigh, and
 
                                       9
<PAGE>
 
Toronto, Canada. Sales channels outside of North and South America are managed
from Logility's international offices in the United Kingdom.
 
  The Company has a number of varying marketing and/or product relationships
with ERP vendors, systems integrators and service organizations, including
Arthur Andersen, Andersen Consulting, Ernst & Young, INSIGHT, Inc., KPMG Peat
Marwick, Oracle, SAP and Ross Systems. In addition, the company has developed
a network of International Agents who assist in the selling of the Company's
products. The Company intends to utilize these and future relationships with
software and service organizations to enhance its sales and marketing
position.
 
  The Company has arrangements with independent distributors and resellers
throughout Europe and the Asia/Pacific region, which distribute the Company's
product line in foreign countries. These vendors typically sell their own
consulting and systems integration services in conjunction with the licensing
of the Company's products.
 
  To support its direct sales force, the Company conducts marketing programs
that include public relations, direct mail, advertising campaigns, trade
shows, product seminars, user group conferences and ongoing customer
communication programs.
 
CUSTOMER SERVICE AND SUPPORT
 
  The Company provides the following services and support to its customers:
 
    Implementation; Training Services. The Company offers its customers post-
  delivery professional services consisting primarily of implementation and
  training services, for which the Company charges separately on either an
  hourly or daily basis. Customers that choose to purchase implementation
  services receive assistance in integrating the Company's solution with
  existing software applications and databases. Implementation of Logility
  Value Chain Solutions typically requires three to twelve months, depending
  on the complexity of a customer's existing system, the number of modules
  purchased, and the training requirements.
 
    Product Maintenance and Updates; Support Services. The Company provides
  its customers with ongoing product support services. Support or maintenance
  contracts typically are sold to customers for one to three year terms at
  the time of the initial product license and may be renewed for additional
  periods. Under these contracts, the Company provides telephone consulting,
  product updates and releases of new versions of products previously
  purchased by the customer, as well as error reporting and correction
  services. The Company provides ongoing support and maintenance services on
  a seven-day-a-week, 24-hours-a-day basis through telephone and electronic
  mail, using a call logging and tracking system for quality assurance.
 
RESEARCH AND PRODUCT DEVELOPMENT
 
  The Company believes that its future success depends in part upon its
ability to continue to enhance existing products, respond to changing customer
requirements, develop and introduce new or enhanced products and keep pace
with technological developments and emerging industry standards. The Company's
development efforts are focused on, but are not limited to, enhancing
operability of its products across distributed and changing heterogeneous
hardware platforms, operating systems and relational databases and the
addition of new functionality to existing products.
 
  The current release of Logility Value Chain Solutions is version 5.0. This
version is based on an integrated object-oriented architecture for maximum
scalability and messaging functionality that supports the increasingly
distributed nature of value chain planning. The product incorporates advanced
Microsoft technology, including ActiveX and DCOM. The Company has developed
interfaces with leading ERP vendors such as SAP, Oracle and PeopleSoft's
manufacturing application.
 
                                      10
<PAGE>
 
COMPETITION
 
  The Company's products are targeted at emerging markets within the
application software market, which is intensely competitive and characterized
by rapid technological change. The Company's competitors are diverse and offer
a variety of solutions directed at various aspects of the value chain, as well
as the enterprise as a whole. The Company's existing competitors include
application software vendors, such as i2 Technologies, Manugistics and
Numetrix. In addition, the Company faces potential competition for the
Logility Value Chain Solutions from (i) enterprise resource application
software vendors such as SAP, PeopleSoft, Oracle and Baan, each of which
currently offers sophisticated ERP solutions that currently or may in the
future incorporate supply chain management modules or advanced planning and
scheduling software; (ii) internal development efforts by corporate
information technology departments; (iii) smaller independent companies that
have developed, or are attempting to develop, value chain management software
that compete with the Company's software solution; and (iv) other business
application software vendors that may broaden their product offerings by
internally developing, or by acquiring or partnering with independent
developers of value chain management software.
 
  In addition, the Company may face competition from other application
software vendors, including ERP vendors that from time to time jointly market
the Company's products as a complement to their own systems. To the extent
such vendors develop or acquire systems with functionality comparable or
superior to the Company's products, their significant installed customer base,
long-standing customer relationships and ability to offer a broad solution
could provide a significant competitive advantage over the Company.
 
  The Company also expects to face additional competition as other established
and emerging companies enter the market for value chain management software
and new products and technologies are introduced. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Increased competition could result in price reductions, fewer customer
orders, reduced gross margins and loss of market share.
 
  Many of the Company's competitors and potential competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources, greater name recognition and a larger installed base of
customers than the Company. In order to be successful in the future, the
Company must continue to respond promptly and effectively to technological
change and competitors' innovations. The Company's competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and
sale of their products than the Company. The principal competitive factors
affecting the market for the Company's products include vendor and product
reputation; product architecture, functionality and features; costs; ease and
speed of implementation; return on investment; product quality; price and
performance; and level of support.
 
PROPRIETARY RIGHTS AND LICENSES
 
  The Company's success and ability to compete is dependent in part upon its
proprietary technology. To protect its proprietary technology, the Company
relies on a combination of copyright and trade secret laws, confidentiality
procedures and contractual provisions, which may afford only limited
protection. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. Although the Company
relies on the limited protection afforded by such confidential and contractual
procedures and intellectual property laws, it also believes that factors such
as the technological and creative skills of its personnel, new product
developments, frequent product enhancements and reliable maintenance are
essential to establishing and maintaining a technology leadership position.
The Company presently has no patents or patent applications pending. The
source code for the Company's proprietary software is protected both as a
trade secret and as a copyrighted work. The Company generally enters into
confidentiality or license agreements with its employees, consultants and
customers, and generally controls access to and distribution of its software,
documentation and other proprietary information.
 
                                      11
<PAGE>
 
  The Company provides its software products to customers under non-exclusive
license agreements. As is customary in the software industry, in order to
protect its intellectual property rights, the Company does not sell or
transfer title to its products to its customers. Under the Company's current
standard form of license agreement, licensed software may be used solely for
the customer's internal operations. Although the license agreements place
restrictions on the use by the customer of the Company's products, there can
be no assurance that unauthorized use of the Company's products will not
occur. In addition, the Company has licensed the source code for its software
to American Software on a limited basis to enable American Software to perform
warranty, maintenance and support obligations for certain customers, for which
it is responsible under certain license agreements that were not assigned to
the Company in connection with the formation of the Company.
 
  Despite the measures taken by the Company to protect its proprietary rights,
unauthorized parties may attempt to reverse engineer or copy aspects of the
Company's products or to obtain and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult. In addition, litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Companys trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition.
 
  In the future, the Company may increasingly be subject to claims of
intellectual property infringement as the number of products and competitors
in the Company's industry segment grows and the functionality of products in
different industry segments overlaps. Although the Company is not aware that
any of its products infringes upon the proprietary rights of third parties,
there can be no assurance that third parties will not claim infringement by
the Company with respect to current or future products. In addition, the
Company may initiate claims or litigation against third parties for
infringement of the Company's proprietary rights or to establish the validity
of the Company's proprietary rights. Any such claims against the Company, with
or without merit, as well as claims initiated by the Company against third
parties, can be time consuming and expensive to defend, prosecute or resolve.
Moreover, an adverse outcome in litigation or similar adversarial proceedings
could subject the Company to significant liabilities to third parties, require
the expenditure of significant resources to develop non-infringing technology,
require a substantial amount of attention from management, require disputed
rights to be licensed from others or require the Company to cease the
marketing or use of certain products, any of which would have a material
adverse effect on the Company's business, operating results and financial
condition. To the extent the Company desires or is required to obtain licenses
to patents or proprietary rights of others, there can be no assurance that any
such licenses will be made available on terms acceptable to the Company, if at
all.
 
  The Company has relicensed and expects in the future to relicense certain
software that it licenses from third parties for use in connection with the
Company's products. There can be no assurance that these third-party software
licenses will continue to be available to the Company on commercially
reasonable terms, if at all. The termination of any such licenses, or the
failure of the third-party licensors to adequately maintain or update their
products, could result in delay in the Company's ability to ship certain of
its products while it seeks to implement technology offered by alternative
sources. Any required replacement licenses could prove costly. Further, any
such delay, to the extent it becomes extended, could result in a material
adverse effect on the Company's results of operations.
 
EMPLOYEES
 
  As of April 30, 1998, the Company had 214 full-time employees, consisting of
69 in sales and marketing, 65 in product development, 76 in customer support
and implementation services and 4 in administration and finance. In addition,
the Company shares a number of administrative and finance personnel with
American Software. None of the Company's employees is represented by a labor
union or is subject to a collective bargaining agreement. The Company believes
its employee relations are good.
 
                                      12
<PAGE>
 
RISK FACTORS
 
  The Company operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The following section and the
preceding sections list some, but not all, of the risks and uncertainties,
that may have a material adverse effect on the Company's business, operating
results or financial condition. This section should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the audited Combined Financial Statements and Notes thereto
for the three years ended April 30, 1998, 1997 and 1996 and the "Forward
Looking Statements" section contained elsewhere in this Annual Report on Form
10-K.
 
  CONTINUING RELIANCE ON AMERICAN SOFTWARE. Because the Company has
historically operated as a division of American Software, until 1997 it
received substantially all of its financial, accounting, marketing and
management services from American Software. The Company and American Software
have entered into an agreement whereby American Software has agreed to act as
a sales and marketing agent for the Company. The Company expects that it will
rely on this continuing sales and marketing relationship with American
Software as well as the financial, accounting and management services provided
by American Software. The Company's business, operating results and financial
condition may be adversely affected by a reduction or discontinuation of
services from American Software.
 
  POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY. The Company's
quarterly operating results have varied in the past and are expected to vary
substantially in the future because of factors such as business conditions or
the general economy, the timely availability and acceptance of the Company's
products, technological change, the effect of competitive products and
pricing, changes in Company strategy, the mix of direct and indirect sales,
changes in operating expenses, personnel changes and foreign currency exchange
rate fluctuations. The Company typically ships software products shortly after
license agreements are signed and, therefore, does not maintain any material
contract backlog. Furthermore, the Company typically has recognized a
substantial portion of its revenues in the last month of a quarter. As a
result, software products revenues in any quarter are substantially dependent
on orders booked and shipped in that quarter, and the Company cannot predict
software products revenues for any future quarter with any significant degree
of certainty.
 
  The Company's software products revenues are also difficult to forecast
because the market for business application software products is rapidly
evolving, and the Company's sales cycles vary substantially from customer to
customer. Because the licensing of the Company's products generally involves a
significant capital expenditure by the customer, the Company's sales process
is subject to the delays and lengthy approval processes that are typically
involved in such expenditures. For these and other reasons, the sales cycle
associated with the licensing of the Company's products varies substantially
from customer to customer and typically lasts between four and nine months.
During that time the Company might devote significant time and resources to a
prospective customer, including costs associated with multiple site visits,
product demonstrations and feasibility studies, and might experience a number
of significant delays, over which the Company has no control.
 
  The Company determines its expense levels based, at least in part, on its
expectations as to future revenues. If revenues in a period are below
expectations, operating results are likely to be adversely affected. Net
income might be disproportionately affected by a reduction in revenues because
a proportionately smaller amount of the Company's expenses varies directly
with revenues. As a result of the foregoing factors, it is possible that in
some quarters the Company's operating results will be below the published
expectations of financial research analysts. In that event, the price of the
Company's common stock would likely be materially adversely affected.
 
  MANAGEMENT OF GROWTH. The Company has recently experienced a period of
significant growth in revenues that has placed a significant strain upon its
management systems and resources. The Company's ability to compete effectively
and to manage future growth, if any, will require the Company to continue to
improve its
 
                                      13
<PAGE>
 
financial and management controls, reporting systems and procedures on a
timely basis. The Company has recently hired a significant number of
employees, and in order to maintain its ability to grow in the future, the
Company will be required to significantly increase the total number of
employees and to train and manage its employee work force. There can be no
assurance that the Company will be able to do so successfully. The Company's
failure to do so could have a material adverse effect upon the Company's
business, operating results and financial condition.
 
  EXPANSION OF INDIRECT CHANNELS. The Company is building and hopes to
maintain strong working relationships with ERP system vendors and consulting
firms that the Company believes can play important roles in marketing the
Company's products. The Company is currently investing, and intends to
continue to invest, significant resources to develop these relationships,
which could adversely affect the Company's operating margins. There can be no
assurance that the Company will be able to attract organizations that will be
able to market the Company's products effectively or that will be qualified to
provide timely and cost-effective customer support and service. In addition,
the Company's arrangements with these organizations are not exclusive and, in
many cases, may be terminated by either party without cause. In addition, many
of these organizations have marketing and other relationships with competitors
of the Company. Therefore, there can be no assurance that any organization
that sells or markets the Company's products will continue its involvement
with the Company and its products, and the loss of important organizations
could materially adversely affect the Company's results of operations. In
addition, if the Company is successful in selling products as a result of
these relationships, any material increase in the Company's indirect sales as
a percentage of total revenues would be likely to adversely affect the
Company's average selling prices and gross margins because of the lower unit
prices that the Company receives when selling through indirect channels.
 
  RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS. The market for the Company's
software products is characterized by rapid technological advances, evolving
industry standards in computer hardware and software technology, changes in
customer requirements and frequent new product introductions and enhancements.
The Company's future success will depend upon its ability to continue to
enhance its current product line, to maintain and extend compatibility with
leading ERP systems and with widely used hardware and operating system
platforms, and to develop and introduce new products that keep pace with
technological developments, satisfy increasingly sophisticated customer
requirements and achieve market acceptance. The introduction of products using
new technologies and the emergence of new industry standards could render the
Company's existing products, and products currently under development,
obsolete and unmarketable. In addition, there are special risks associated
with products, such as the Demand Chain Voyager and Supply Chain Voyager
modules, that must comply with rapidly changing Internet standards. There can
be no assurance that the Company will be successful in developing and
marketing, on a timely and cost-effective basis, fully functional product
enhancements or new products that respond to technological advances by others,
or that its new products will achieve market acceptance. The Company's failure
to successfully develop and market product enhancements or new products could
have a material adverse effect on the Company's business, operating results
and financial condition.
 
  As a result of the complexities inherent in client/server computing
environments and the broad functionality and performance demanded by customers
for value chain management products, major new products and product
enhancements can require long development and testing periods. Software
products as complex as those offered by the Company often encounter
development delays and may contain undetected defects when introduced or when
new versions are released.
 
  There can be no assurance that the Company will not encounter product
development delays in the future or that, despite testing by the Company,
errors will not be found in new products or product enhancements after
commencement of commercial shipments, resulting in damage to the Company's
reputation, loss of revenue, loss of market share, delay in market acceptance
or warranty claims, any of which could have a material adverse effect upon the
Company's business, results of operations and financial condition. Although
the Company generally attempts to limit by contract its exposure to incidental
and consequential damages, if a court failed to
 
                                      14
<PAGE>
 
enforce the liability limiting provisions of the Company's contracts for any
reason, or if liabilities arose which were not effectively limited, the
Company's business, results of operations and financial condition could be
materially and adversely affected.
 
  DEPENDENCE ON EMERGING MARKET FOR VALUE CHAIN MANAGEMENT SOFTWARE. The
Company currently derives, and expects to continue to derive, substantially
all of its revenues from licenses and services related to value chain
management software products. Although demand for these products has grown in
recent periods, the market for value chain management software is still
emerging. There can be no assurance that this market will continue to grow or,
even if it does grow, that businesses will purchase the Company's products.
The Company has spent, and intends to continue to spend, considerable
resources educating potential customers generally about value chain management
software solutions and specifically about the Company's products. There can be
no assurance, however, that such expenditures will enable the Company to
achieve any additional degree of market acceptance. If the market for value
chain management software fails to grow or grows more slowly than the Company
currently anticipates, the Company's business, operating results and financial
condition would be materially and adversely affected.
 
  DEPENDENCE UPON SUCCESSFUL EXPANSION OF MARKETING, SALES, SUPPORT AND
SERVICE ORGANIZATIONS. Many of the personnel in the Company's marketing,
sales, support and service organizations have been employed by the Company for
less than two years, particularly those in the sales organization. The
Company's future success depends upon the successful expansion of these
organizations and its ability to establish indirect distribution channels,
including resellers, systems solution vendors, application software vendors
and systems integrators. The Company currently plans to continue to expand its
direct sales force, to develop additional indirect distribution channels and
to expand its customer service and support organizations. Although the Company
believes that such initiatives ultimately will improve the Company's operating
results, to the extent related expenditures are incurred and revenues do not
correspondingly increase the Company's operating results will be materially
and adversely affected. There can be no assurance that these steps will be
successful. Further, competition for experienced and effective sales personnel
in the software industry has increased substantially and continues to
increase, making expansion of a sales organization more difficult and
expensive. If the Company is unable to expand its marketing, sales, support
and service organizations and develop additional distribution channels on a
timely basis, the Company's business, operating results and financial
condition could be materially and adversely affected.
 
  INTERNATIONAL OPERATIONS. The Company derived approximately 9%, 12%, and 20%
of its total revenues from international sales in the fiscal years ended April
30, 1998, 1997 and 1996, respectively. The Company believes that continued
growth and profitability will require increased international sales. The
Company must establish additional foreign operations and hire additional
personnel, as well as expand its indirect sales channels in markets outside
North America. To the extent that the Company is unable to do so in a timely
and effective manner, the Company's growth, if any, in international sales
will be limited, and the Company's business, operating results and financial
condition could be materially adversely affected. In addition, even if
international operations are successfully expanded, there can be no assurance
that the Company will be able to maintain or increase international market
demand for its products or that such operations will be profitable.
 
  The Company's international operations are subject to risks inherent in
international business activities, including, in particular, management and
staffing of an organization spread over various countries, longer accounts
receivable payment cycles in certain countries, compliance with a variety of
foreign laws and regulations, unexpected changes in regulatory requirements,
overlap of different tax structures, foreign currency exchange rate
fluctuations and general economic and political conditions. To date, the
Company's revenues from international operations have primarily been
denominated in United States dollars. Other risks associated with
international operations include import and export licensing requirements,
trade restrictions and changes in tariff rates.
 
  DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company relies on a combination of
trade secrets, copyright and trademark laws, nondisclosure and other
contractual provisions and technical measures to protect
 
                                      15
<PAGE>
 
its proprietary rights in its products. The Company has not sought to patent
its software products and thus does not have the protection that patents might
provide. There can be no assurance that the protections relied upon by the
Company will be adequate to protect its proprietary rights. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties,
including customers, may attempt to reverse engineer or copy aspects of the
Company's products or to obtain and use information that the Company regards
as proprietary. In addition, the laws of certain foreign countries in which
the Company's products are or may be licensed do not protect the Company's
products and intellectual property rights to the same extent as the laws of
the United States. As a result, there can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology.
Although the Company believes that its products, trademarks and other
proprietary rights do not infringe upon the proprietary rights of third
parties, there can be no assurance that third parties will not assert
infringement claims against the Company. Defense of such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all, which could
have a material adverse effect upon the Company's business, results of
operation and financial condition.
 
  Certain software used in the Company's products is licensed by the Company
from third parties. There can be no assurance that the Company will continue
to be able to resell this software under its licenses or, if any licensor
terminates its agreement with the Company, that the Company will be able to
develop or otherwise procure replacement software from another supplier on a
timely basis or on commercially reasonable terms. In addition, such third-
party software may contain errors that would be difficult for the Company to
detect and correct.
 
  YEAR 2000 COMPLIANCE. Both the Company's internal operations and products
use a significant number of computer software programs and operating systems.
Given the information known at this time about the Company's systems and
products, coupled with the Company's ongoing efforts to maintain systems and
products as necessary, the Company does not anticipate that the year 2000
issue or related costs will have a material adverse effect on the Company's
business, results of operations or financial condition; however circumstances
could change, most particularly as a result of the necessary system interfaces
between the Company's products and other systems utilized by the Company's
customers.
 
ITEM 2. FACILITIES
 
  The Company maintains its headquarters in Atlanta, Georgia. Some of the
Company's offices are occupied pursuant to the Facilities Agreement with
American Software, the terms of which are summarized in "Part III, Item 13--
Certain Relationships and Related Transactions," below. The Company believes
its existing facilities are adequate for its current needs and that suitable
additional or substitute space will be available as needed on commercially
reasonable terms.
 
ITEM 3. LEGAL PROCEEDINGS
 
  The Company is not a party to any material legal proceedings.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  There were no matters submitted to a vote of shareholders during the fourth
quarter of the Company's recently completed fiscal year.
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
  The Company's Common Shares are listed on the NASDAQ Stock Market--National
Market under the symbol LGTY. As of July 11, 1998, there were approximately
2,600 shareholders of record of the Company's Common Shares which hold their
stock in nominee or "street" names through various brokerage firms.
 
                                      16
<PAGE>
 
  The table below presents the high and low sales for Logility, Inc. common
stock as reported by NASDAQ, for the Company's last fiscal year:
 
<TABLE>
<CAPTION>
      FISCAL YEAR 1998                                           HIGH      LOW
      ----------------                                         --------- -------
      <S>                                                      <C>       <C>
      Second Quarter.......................................... $17 11/16  $13.00
      Third Quarter........................................... $15 7/8   9 15/16
      Fourth Quarter.......................................... $13 3/4     7 5/8
</TABLE>
 
DIVIDENDS
 
  The Company has not paid any dividends since its initial public offering.
The payment of future dividends will be at the sole discretion of the Board of
Directors and will depend on the Company's profitability, financial condition,
cash requirements, future prospects and other factors deemed relevant by the
Board of Directors.
 
ITEM 6. SELECTED COMBINED FINANCIAL DATA
 
  The selected combined financial data presented below as of and for the years
ended April 30, 1998, 1997, 1996 and 1995 are derived from combined financial
statements of the Company that have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The combined statements of
operations data for the year ended April 30, 1994 and the combined balance
sheet data at April 30, 1994 are derived from unaudited combined financial
statements that include, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information set forth therein.
 
<TABLE>
<CAPTION>
                                                 YEARS ENDED APRIL 30,
                                         -----------------------------------------
                                          1998    1997     1996     1995     1994
                                         ------- -------  -------  -------  ------
                                                     (IN THOUSANDS)
<S>                                      <C>     <C>      <C>      <C>      <C>
COMBINED STATEMENTS OF OPERATIONS DATA:
Revenues:
  Licenses.............................  $20,138 $12,359  $10,700  $ 5,767  $6,967
  Maintenance..........................    7,167   5,051    3,797    2,628   2,040
  Services.............................    7,357   4,414    2,136    1,815   1,232
                                         ------- -------  -------  -------  ------
    Total revenues.....................   34,662  21,824   16,633   10,210  10,239
                                         ------- -------  -------  -------  ------
Cost of revenues:
  Licenses.............................    5,299   3,970    4,016    2,184   2,097
  Maintenance..........................    1,582   1,219      876      624     539
  Services.............................    3,683   1,969    1,131    1,030     744
                                         ------- -------  -------  -------  ------
    Total cost of revenues.............   10,564   7,158    6,023    3,838   3,380
                                         ------- -------  -------  -------  ------
Gross margin...........................   24,098  14,666   10,610    6,372   6,859
                                         ------- -------  -------  -------  ------
Operating expenses:
  Research and development.............    5,592   3,484    1,452    1,168   1,389
  Sales and marketing..................   13,676  10,628    9,892    6,295   4,249
  General and administrative...........    3,111   2,508    2,140    2,155   1,529
                                         ------- -------  -------  -------  ------
    Total operating expenses...........   22,379  16,620   13,484    9,618   7,147
                                         ------- -------  -------  -------  ------
  Operating income (loss)..............    1,719  (1,954)  (2,874)  (3,246)   (288)
  Other income.........................      863     --       --       --      --
                                         ------- -------  -------  -------  ------
  Income (loss) before income taxes....    2,582  (1,954)  (2,874)  (3,246)   (288)
  Income taxes.........................      --      --       --       --      --
                                         ------- -------  -------  -------  ------
  Net income (loss)....................  $ 2,582 $(1,954) $(2,874) $(3,246) $ (288)
                                         ======= =======  =======  =======  ======
Net income (loss) per common share.....  $  0.20 $ (0.17) $ (0.25) $ (0.29) $(0.03)
                                         ======= =======  =======  =======  ======
Weighted-average common shares out-
 standing..............................   12,676  11,300   11,300   11,300  11,300
                                         ======= =======  =======  =======  ======
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents..............  $ 1,006 $   732  $    13  $    66  $   38
Investments............................   29,559     --       --       --      --
Working capital........................   33,007     557    1,223   (1,705)  2,023
Total assets...........................   50,830  16,367   14,170   10,081  10,455
Total stockholders' equity.............   39,237   6,668    7,224    6,302   7,319
</TABLE>
 
                                      17

<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
  Logility, Inc. ("Logility" or the "Company") develops, markets and supports
software applications that optimize the operating efficiencies of
manufacturers, suppliers, distributors, retailers and other organizations
along the "value chain." The value chain refers to the complex network of
relationships that organizations maintain with trading partners to source,
manufacture and deliver products to the customer. The Company's solution,
Logility Value Chain Solutions, consists of an integrated client-server
software suite that provides advanced collaborative planning and integrated
logistics capabilities that are designed to reduce inventory costs, improve
forecast accuracy, decrease order cycle times, optimize production scheduling,
streamline logistics operations, reduce transportation costs and improve
customer service. The Company markets its solution worldwide, primarily to
large enterprises that require a comprehensive planning and execution
solution. Sales are made through a dedicated sales force and through
relationships with third-party vendors (including American Software) and
service providers.
 
  Until recently, the Company conducted its business and operations as three
separate business units of American Software: a supply chain planning software
group, a warehouse management software group and a transportation management
software group. Effective January 1997, American Software transferred
substantially all of the business, operations (including research and
development), assets and associated liabilities of its Supply Chain Planning
division to the Company. Effective August 1997, American Software transferred
to the Company the WarehousePRO software and substantially all associated
operations, assets and liabilities. Effective August 1997, American Software's
wholly owned subsidiary, Distribution Sciences, Inc., was merged into the
Company, transferring its business, operations, assets and liabilities,
including the Transportation Planning and Transportation Management software,
to the Company. The Company's financial statements included herein present the
combined assets, liabilities and results of operations for the three business
units for all periods.
 
  Prior to August 1, 1997 (except for the Tax Sharing Agreement which was
effective January 23, 1997), American Software provided marketing services,
employees, and office space to the Company, allowed the Company to participate
in insurance coverage and benefit plans, and provided certain other
administrative services to the Company. The combined statements of operations
include the allocation of these expenses incurred by American Software to the
Company based on percentage of license fees, specific identification, direct
labor hours, head count, product license fees to total license fees, and
square footage of leased properties. Management believes the methods of
allocation are reasonable. Effective August 1, 1997 (except for the Tax
Sharing Agreement which was effective January 23, 1997), the Company entered
into certain contractual arrangements with American Software.
 
  The Company's revenues are derived primarily from three sources: software
licenses, maintenance and services. Software licenses generally are based upon
the number of modules, servers, users and/or sites licensed. License fee
revenues are recognized at the time of product delivery, provided no
significant future obligation exists and collection is deemed probable.
Maintenance agreements typically are for a one- to three-year term and usually
are entered into at the time of the initial product license. Maintenance
revenues are recognized ratably over the term of the maintenance agreement.
Services revenues consist primarily of fees from software implementation,
training, consulting and customization services and are recognized as the
services are rendered.
 
                                      18
<PAGE>
 
  The following table sets forth certain revenue and expense items as a
percentage of total revenues for the three years ended April 30, 1998 and the
percentage increases and decreases in those items for the years ended April
30, 1998 and 1997:
 
<TABLE>
<CAPTION>
   PERCENTAGE OF TOTAL REVENUES      1998  1997   1996   1998 VS 1997 1997 VS 1996
   ----------------------------      ----  ----   ----   ------------ ------------
   <S>                               <C>   <C>    <C>    <C>          <C>
   Revenues:
     License fees..................   58%   57%    64%        63%          16%
     Maintenance...................   21    23     23         42           33
     Services......................   21    20     13         67          107
                                     ---   ---    ---        ---          ---
   Total revenues..................  100   100    100         59           31
                                     ---   ---    ---        ---          ---
   Cost of revenues:
     License fees..................   15    18     24         33           (1)
     Maintenance...................    4     6      5         30           39
     Services......................   11     9      7         87           74
                                     ---   ---    ---        ---          ---
   Total cost of revenues..........   30    33     36         48           19
                                     ---   ---    ---        ---          ---
   Gross Margin....................   70    67     64         64           38
                                     ---   ---    ---        ---          ---
   Operating expenses
     Research and development,
      net..........................   16    16      9         61          140
     Sales and marketing...........   40    49     59         29            7
     General and administrative....    9    11     13         24           17
                                     ---   ---    ---        ---          ---
   Total operating expenses........   65    76     81         35           23
   Operating income (loss).........    5    (9)   (17)        nm           32
   Other income, net...............    2   --     --          nm           nm
   Income (loss) before income tax-
    es.............................    7    (9)   (17)        nm           nm
                                     ---   ---    ---        ---          ---
     Income taxes..................  --    --     --          nm           nm
                                     ---   ---    ---        ---          ---
   Net Income (loss)...............    7%   (9)%  (17)%       nm           nm
                                     ===   ===    ===        ===          ===
</TABLE>
  --------
  nm-not meaningful
 
YEARS ENDED APRIL 30, 1998 AND 1997:
 
REVENUES:
 
  The Company's total revenues increased 59% to $34.7 million from $21.8
million for the prior year. This increase was largely due to the rise in the
Company's product sales as well as a significant increase in implementation
and training services. International revenues represented approximately 9% of
total revenues in the year ended April 30, 1998 compared to 12% in 1997.
 
  LICENSES. License fee revenues increased 63% to $20.1 million from a year
ago, primarily as a result of successful sales efforts by the Company's direct
sales force. The direct sales channel provided approximately 65% of the
license fee revenues for the year. The Company's indirect sales channel is
principally through American Software. During the year ended April 30, 1998,
the Company recognized $530,000 of revenue upon the delivery of software
totaling this amount relating to the Company's satisfaction of an American
Software obligation to a customer. American Software paid the Company $530,000
for the satisfaction of American Software's obligation.
 
  MAINTENANCE. Maintenance revenues increased 42% to $7.2 million from a year
ago, due to an increase in the installed base of customers. Maintenance
revenues are directly related to license fee revenues, since new licenses are
the potential source of new maintenance customers.
 
  SERVICES. Services revenues increased 67% to $7.4 million from a year ago as
a result of the increased utilization of the Company's implementation and
training services, which in turn resulted from the growth in the Company's
customer base.
 
                                      19
<PAGE>
 
GROSS MARGIN:
 
  Total gross margin in 1998 was 70% compared to 67% a year ago. This increase
was largely due to the expanded margin from license fee revenues, which grew
to 74% from 68% a year ago. The expanded margin was attributable to the
significant rise in license fee revenues which, because of a relatively high
fixed license fees cost component, resulted in a higher incremental gross
margin. The gross margin on maintenance revenues increased slightly to 78%
compared to 76% a year ago. The gross margin on services revenues decreased to
50% compared to 55% in 1997 due to a decrease in the utilization rate of the
service staff particularly in one portion of the Company's business in the
third quarter in 1998. In addition, the Company invested heavily in completing
service implementation work on one large customer in the third and fourth
quarters of 1998 in anticipation of additional service projects for
prospective customers in a similar industry.
 
OPERATING EXPENSES:
 
  RESEARCH AND DEVELOPMENT. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
 
<TABLE>
<CAPTION>
                                                             YEARS ENDED
                                                     ---------------------------
                                                     APRIL 30, PERCENT APRIL 30,
                                                       1998    CHANGE    1997
                                                     --------- ------- ---------
   <S>                                               <C>       <C>     <C>
   Gross product development costs..................  $ 8,761     40%   $ 6,279
   Percentage of total revenues.....................       25%               29%
   Less: capitalized development....................   (3,169)    13%    (2,795)
   Percentage of gross prod. dev. costs.............       36%               45%
   Product development expenses.....................  $ 5,592     61%   $ 3,484
   Percentage of total revenues.....................       16%               16%
</TABLE>
 
  Gross product development costs increased 40% in 1998 compared to a year ago
as a result of the Company's continued investment in new product development.
Capitalized development increased as well, growing 13% from a year ago, while
the rate of capitalized development decreased to 36% from 45% a year ago.
Product development expenses, as a percentage of total revenues, remained
comparable at 16% although the Company's net product development expenses
increased 61% as the Company continued its investment in new product
development.
 
  SALES AND MARKETING. Sales and marketing expenses rose 29% from a year ago
as a result of increased license fees and an increased sales force. As a
percentage of total revenues, sales and marketing expenses were 40% for 1998
compared to 49% for 1997. An increase in the productivity of the Company's
sales force, which was formed approximately 18 months ago to focus exclusively
on the Company's products, was the primary cause of this decrease. Previously,
the Company shared its sales force with American Software. The mix of revenues
generated between the direct and indirect (mainly American Software) sales
channels also contributed to the decrease in the cost of sales and marketing
as a percentage of total revenues. For sales generated from the direct sales
force, the Company generally incurs sales commissions which are substantially
lower than those charged by the indirect channel. As a result, when the
Company increases its revenues generated from its direct sales force, as it
did in 1998, the Company achieves expense leverage.
 
  GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
24% to approximately $3.1 million from a year ago, mainly as a result of the
Company's growth in the number of employees and the resulting growth in
administrative costs. General and administrative expenses as a percentage of
total revenues decreased to 9% from 11% during the same period.
 
OTHER INCOME:
 
  Other income is principally comprised of investment earnings from the net
proceeds of the Company's initial public offering. The Company's investments
are generally short term in nature. Since going public the Company has
generated a yield of approximately 5.5% on its investments.
 
                                      20
<PAGE>
 
INCOME TAXES:
 
  In accordance with FASB Statement No. 109 "Accounting for Income Taxes", the
Company was required to apply a separate company approach in calculating its
income tax provision. As a result, the Company was able to utilize net
operating loss carryforwards previously generated, thereby resulting in no
income tax expense. The Company's Tax Sharing Agreement with American Software
does not allow the Company to utilize its net operating loss carryforwards;
therefore, the Company recorded income taxes owed to American Software of
approximately $1.05 million as a dividend in shareholders' equity for 1998.
 
YEARS ENDED APRIL 30, 1997 AND 1996:
 
REVENUES:
 
  For the year ended April 30, 1997, the Company's total revenues increased
31% to $21.8 million from $16.6 million in the prior year. This increase was
primarily attributable to the increased acceptance of the Company's supply
chain planning software products and associated services and maintenance
revenues generated by new licensees, and the introduction of WarehousePRO, the
Company's object-oriented warehouse management solution. International
revenues decreased 24% to $2.6 million in 1997 from $3.4 million in 1996. As a
percentage of total revenues, international revenues decreased to 12% during
the same period. The decrease resulted primarily from two substantial orders
received in 1996.
 
  LICENSES.  License fee revenues for 1997 increased 16% to $12.4 million from
the prior year. The increase resulted primarily from an increase in revenues
generated by the Company's supply chain planning solution, both from the sale
of a greater number of licenses and from price increases, coupled with the
introduction of WarehousePRO in May 1996.
 
  MAINTENANCE.  Maintenance revenues for 1997, increased 33% to $5.1 million
from the prior year, due to an increase in the installed base of customers.
Maintenance revenues are directly related to license fee revenues, since new
licenses are the potential source of new maintenance customers.
 
  SERVICES.  Services revenues for 1997, increased 107% to $4.4 million from
the prior year, as a result of the increased utilization of the Company's
implementation and training services, which in turn resulted from the growth
in the Company's customer base. In addition, the Company increased the rates
charged for services provided in 1997.
 
GROSS MARGIN:
 
  Total gross margin for 1997, was 67% compared to 64% in the prior year. This
increase was largely due to the expanded margin from license fee revenues,
which grew to 68% from 62% a year ago. The expanded margin was attributable to
the significant rise in license fee revenues which, because of a relatively
high fixed license fees cost component, resulted in a higher incremental gross
margin. The gross margin on maintenance revenues remained relatively flat at
76% compared to 77% in the prior year. The gross margin on services revenues
increased to 55% compared to 47% in the prior year. This increase was mainly
due to a greater portion of revenue generated from higher margin professional
services.
 
                                      21
<PAGE>
 
OPERATING EXPENSES:
 
  RESEARCH AND DEVELOPMENT. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
 
<TABLE>
<CAPTION>
                                                           YEARS ENDED
                                                   ----------------------------
                                                   APRIL 30,  PERCENT APRIL 30,
                                                     1997     CHANGE    1996
                                                   ---------  ------- ---------
   <S>                                             <C>        <C>     <C>
   Gross product development costs................  $ 6,279      24 %  $ 5,063
   Percentage of total revenues...................       29 %               30 %
   Less: capitalized development..................   (2,795)    (23)%   (3,611)
   Percentage of gross prod. dev. costs...........       45 %               71 %
   Product development expenses...................  $ 3,484     140 %  $ 1,452
   Percentage of total revenues...................       16 %                9 %
</TABLE>
 
  Gross product development costs for 1997 increased 24% from the prior year
as a result of the Company's continued investment in new product development
as reflected by an increase in development personnel. Capitalized development
decreased 23% from a year ago, and the rate of capitalized development
decreased to 45% from 71% a year ago. These decreases resulted primarily from
the completion of the development and subsequent commercial release of
WarehousePRO in May 1996. Product development expenses, as a percentage of
total revenues, increased to 16% from 9% a year ago, mainly due to the
substantial decrease in the percentage of capitalized gross product
development costs.
 
  SALES AND MARKETING. For 1997, sales and marketing expenses rose 7% from the
prior year. The increase primarily resulted from costs incurred with the
establishment of a direct sales force in 1997. Sales and marketing expenses as
a percentage of total revenues decreased to 49% from 59% during the same
period. The decrease resulted primarily from the Company incurring direct
commission rates on sales made by American Software personnel in 1997, which
were lower than the amount allocated to the Company by American Software for
sales and marketing in 1996.
 
  GENERAL AND ADMINISTRATIVE. General and administrative expenses for 1997
increased 17% to approximately $2.5 million from a year ago. The increase was
primarily due to decreased costs of allocated personnel and related costs to
support the growing revenue base. General and administrative expenses as a
percentage of total revenues decreased to 11% from 13% during the same period.
 
INCOME TAXES:
 
  The Company is included in the consolidated Federal income tax return filed
by American Software. As a result of the operating losses incurred since the
Company's inception, the Company has not recorded any income taxes in 1997 or
1996.
 
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION:
 
  On October 10, 1997, the Company completed its initial public offering, in
which the Company received net proceeds of approximately $28.8 million after
deducting underwriting discounts and offering expenses. On November 6, 1997,
the Company sold 330,000 shares of Common Stock as part of the underwriters'
over-allotment from the initial public offering for $4.8 million less issuance
costs of approximately $407,000. The balance of the net proceeds will be
utilized for research and development, sales and marketing, working capital
and other general corporate purposes and possible acquisitions.
 
  The Company's operating activities provided cash of approximately $3.6
million in the year ended April 30, 1998, compared to approximately $2.7
million in the same period of the prior year. The cash provided by operations
during the year ended April 30, 1998, was primarily attributable to net income
of $2.6 million, non-cash depreciation and amortization expense of $4.7
million, an increase in deferred revenues of approximately
 
                                      22
<PAGE>
 
$271,000 and an increase in accounts payable, accrued costs and other current
liabilities of $950,000, which were partially offset by an increase in
accounts receivable of $4.2 million and an increase in other assets of
approximately $613,000. The cash provided by operations during the prior year
was attributable to non-cash depreciation and amortization expense of $3.3
million, an increase in deferred revenues of approximately $933,000 and an
increase in accounts payable, accrued costs and other current liabilities of
approximately $1.8 million. This was partially offset by a net loss from
operations of $2.0 million and an increase in accounts receivable of
approximately $1.2 million.
 
  Cash used in investing activities was approximately $34.1 million and $3.4
million for the years ended April 30, 1998 and 1997, respectively. The
majority of the cash was used for investments and computer software
development costs.
 
  Cash provided by financing activities for the year ended April 30, 1998 was
approximately $30.8 million, due primarily to the net proceeds received from
the issuance of common stock in the initial public offering. In addition, the
Company repurchased 205,300 shares of its common stock for approximately $1.9
million. In 1997, cash provided for financing activities was nearly entirely
derived from contributions from American Software.
 
  Days sales outstanding in accounts receivable were 94 days as of April 30,
1998, compared to 98 days as of April 30, 1997.
 
  The Company's current ratio on April 30, 1998, was 4.6 to 1 and the Company
has no long-term debt. The Company believes that its sources of liquidity and
capital resources will be sufficient to satisfy its cash requirements for at
least the next twelve months. To the extent that such amounts are insufficient
to finance the Company's capital requirements, the Company will be required to
raise additional funds through equity or debt financing. The Company does not
currently have a bank line of credit. No assurance can be given that bank
lines of credit or other financing will be available on terms acceptable to
the Company. If available, such financing may result in further dilution to
the Company's shareholders and higher interest expense.
 
  On December 15, 1997, Logility, Inc.'s board of directors approved a
resolution authorizing the Company to repurchase up to 350,000 shares of the
Company's common stock. This repurchase will be through open market purchases
at prevailing market prices. The timing of any repurchases will depend on
market conditions, the market price of Logility's common stock and
management's assessment of the Company's liquidity and cash flow needs. Since
this resolution, the Company has repurchased 205,300 shares of common stock at
a cost of approximately $1.9 million as of April 30, 1998.
 
RECENT ACCOUNTING PRONOUNCEMENTS:
 
  In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income". SFAS 130 requires companies to display, with
the same prominence as other financial statements, the components of other
comprehensive income. SFAS 130 requires that an enterprise classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet. SFAS 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
 
  The Company's financial statements will include the disclosure of other
comprehensive income in accordance with the provisions of SFAS 130 beginning
in the first quarter of fiscal year ended April 30, 1999.
 
  In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS
131 requires that an enterprise disclose certain information about operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. The Company will evaluate the need for such
disclosures at that time.
 
                                      23
<PAGE>
 
  In October 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2, "Software Revenue Recognition"("SOP 97-2"). SOP
97-2 is effective for financial statements for fiscal years beginning after
December 15, 1997 (commencing May 1, 1998 for the Company). The Company does
not expect that adoption of SOP 97-2 will significantly affect its results of
operations.
 
FORWARD-LOOKING STATEMENTS:
 
  It should be noted that this discussion contains forward-looking statements,
which are subject to substantial risks and uncertainties. There are a number
of factors, which could cause actual results to differ materially from those
anticipated by statements made herein. The timing of releases of the Company's
software products can be affected by client needs, marketplace demands and
technological advances. Development plans frequently change, and it is
difficult to predict with accuracy the release dates for products in
development. In addition, other factors include changes in general economic
conditions, the growth rate of the market for the Company's products and
services, the timely availability and market acceptance of these products and
services, the effect of competitive products and pricing, and the irregular
pattern of revenues, as well as a number of other risk factors which could
affect the future performance of the Company.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
  Not yet applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
  The information required by this item is included in Part IV Item 14 (a) (1)
and (2).
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
  None.
 
                                   PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
 
  The information relating to the members of the Board of Directors of the
Company is set forth in the Caption "Election of Directors and Information
Regarding Directors" in the Company's 1998 Proxy Statement (the "Proxy
Statement"), which information is incorporated herein by reference.
 
  The executive officers of the Company are as follows:
 
<TABLE>
<CAPTION>
   NAME                    AGE                     POSITION
   ----                    --- -------------------------------------------------
   <S>                     <C> <C>
   J. Michael Edenfield..   40 Chief Executive Officer, President and Director
   James M. Modak........   41 Chief Financial Officer and Senior Vice President
   Larry R. Olin.........   46 Vice President--Sales, The Americas
   Donald L. Thomas......   51 Vice President--Customer Service
   Andrew G. White.......   33 Vice President--Research and Development
</TABLE>
 
  J. Michael Edenfield has served as a Director and as President and Chief
Executive Officer of the Company since January 1997. He also serves as
Executive Vice President of American Software, Inc., a position he has held
since June 1994. From June 1994 to October 1997, Mr. Edenfield served as Chief
Operating Officer of American Software, Inc., and American Software USA, Inc.
Prior to June 1994, Mr. Edenfield served in the following positions with
American Software USA, Inc.: Senior Vice President of North American Sales and
Marketing from July 1993 to June 1994, Senior Vice President of North American
Sales from August 1992 to July 1993, Group Vice President from May 1991 to
August 1992 and Regional Vice President from May 1987
 
                                      24
<PAGE>
 
to May 1991. Mr. Edenfield holds a Bachelor of Industrial Management degree
from the Georgia Institute of Technology. Mr. Edenfield is the son of James C.
Edenfield, Chairman of the Board of Directors of the Company.
 
  James M. Modak has served as Chief Financial Officer and Senior Vice
President of the Company since August 1997. From January 1996 to July 1997,
Mr. Modak served as Senior Vice President--Finance of Total System Services,
Inc., a New York Stock Exchange-listed credit card processing company. From
September 1993 to January 1996, Mr. Modak served as Senior Vice President--
Financial Analysis of First Financial Management Corp., a financial services
processing company. From February 1993 to August 1993 he was Chief Financial
Officer of Shop N Chek, a quality service provider for the retail industry.
From July 1991 to February 1993, Mr. Modak was Senior Vice President--
Controller of DF Southeastern, Inc., a savings bank holding company. From 1979
to 1991 he was a CPA with KPMG Peat Marwick. Mr. Modak is a Certified Public
Accountant with a Bachelor of Business Administration degree from the
University of Notre Dame.
 
  Larry R. Olin has served as Vice President, Sales, The Americas of the
Company since January 1997. From November 1996 to January 1997, Mr. Olin
served as Vice President of Sales of the Supply Chain Planning division of
American Software USA, Inc. From August 1992 to November 1996, he was Group
Vice President of American Software USA, Inc. He holds a B.S. degree in
Business Administration from Lake Superior State University and an M.B.A. in
Finance from Central Michigan University.
 
  Donald L. Thomas has served as Vice President, Customer Service of the
Company since January 1997. From October 1976 to January 1997, he served in a
variety of position with American Software, most recently as Vice President,
Customer Service of the Supply Chain Planning division of American Software
USA, Inc. He holds a degree in Industrial Engineering from Auburn University.
 
  Andrew G. White has served as Vice President, Research and Development of
the Company from January 1997 until March 1998 at which time he was named Vice
President of Product Strategy. From March 1992 to January 1997, Mr. White was
employed by American Software (UK) Ltd. and American Software USA, Inc., most
recently as the Vice President of Research and Development of American
Software USA, Inc. He holds a Bachelor of Arts (Honors) degree in Economics
from The Open University in the United Kingdom.
 
ITEM 11. EXECUTIVE COMPENSATION
 
  This information is set forth under the caption "Certain Information
Regarding Executive Officers and Directors" in the Company's 1998 Proxy
Statement, which information is incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  This information is set forth under the caption "Voting Securities--Security
Ownership" in the Proxy Statement, which information is incorporated herein by
reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
RELATIONSHIP WITH AMERICAN SOFTWARE, INC. AND CERTAIN TRANSACTIONS
 
  In November, 1997, the Company completed an initial public offering of
2,530,000 shares of common stock. Prior to that time, the Company was a wholly
owned subsidiary of American Software, Inc. (American Software--Nasdaq--AMSWA)
operating as the supply chain planning software group, warehouse management
software group and transportation management group. In anticipation of such
offering, the Company and American Software entered into a number of
agreements for the purpose of defining certain relationships between the
parties (the "Intercompany Agreements"). The more significant of the
Intercompany Agreements are summarized below. As a result of American
Software's ownership interest in the Company, the terms of such agreements
were not the result of arms-length negotiation. Copies of the Intercompany
Agreements, including those described below, have been filed as exhibits to
Registration No. 333-33385 filed by the Company with the Securities and
Exchange Commission.
 
                                      25
<PAGE>
 
SERVICES AGREEMENT
 
  The Company and American Software have entered into a Services Agreement
(the "Services Agreement") with respect to certain services to be provided by
American Software (or subsidiaries of American Software) to the Company. The
Services Agreement provides that such services are provided in exchange for
fees which management of American Software believes would not exceed fees that
would be paid if such services were provided by independent third parties. The
services initially provided by American Software to the Company under the
Services Agreement include, among other things, certain accounting, cash
management, corporate development, employee benefit plan administration, human
resources and compensation, general and administration services, and risk
management and tax services. In addition to these services, American Software
has agreed to allow eligible employees of the Company to participate in
certain of American Software's employee benefit plans.
 
  The Company has agreed to reimburse American Software for American
Software's costs (including any contributions and premium costs and including
third-party expenses and allocations of certain personnel expenses), generally
in accordance with past practice, relating to the participation by the
Company's employees in any of American Software's benefit plans.
 
  The Services Agreement has an initial term of three years and is renewed
automatically thereafter for successive one-year terms unless either the
Company or American Software elects not to renew its term by giving proper
notice. The Company will indemnify American Software against any damages that
American Software may incur in connection with its performance of services
under the Services Agreement (other than those arising from American
Software's gross negligence or willful misconduct), and American Software will
indemnify the Company against any damages arising out of American Software's
gross negligence or willful misconduct in connection with its rendering of
services under the Services Agreement.
 
FACILITIES AGREEMENT
 
  American Software and the Company have entered into a Facilities Agreement
(the "Facilities Agreement"), which provides that the Company may occupy space
located in certain facilities owned or leased by American Software (or
subsidiaries of American Software). The Facilities Agreement has an initial
term of two years and is renewed automatically thereafter for successive one-
year terms unless either American Software or the Company elects not to renew
its term. The Facilities Agreement may be terminated by the Company for any
reason with respect to any particular facility upon thirty days' written
notice. The Company's lease of space at any facility under the Facilities
Agreement is limited by the term of the underlying lease between American
Software and a landlord with respect to any facility leased by American
Software and by the disposition by American Software of any facility owned by
American Software.
 
TAX SHARING AGREEMENT
 
  The Company is included in American Software's federal consolidated income
tax group, and the Company's federal income tax liability will be included in
the consolidated federal income tax liability of American Software and its
subsidiaries. The Company and American Software have entered into a Tax
Sharing Agreement (the "Tax Sharing Agreement") pursuant to which American
Software, Inc. and the Company will make payments between them such that the
amount of taxes to be paid by the Company, subject to certain adjustments,
will be determined as though the Company were to file separate federal, state,
and local income tax returns, rather than as a consolidated subsidiary of
American Software. Pursuant to the Tax Sharing Agreement, under certain
circumstances, the Company will be reimbursed for tax attributes that it
generates after deconsolidation of Logility from the consolidated tax group of
American Software Inc., such as net operating losses and loss carryforwards.
Deconsolidation is effective if and when American Software's ownership of
Logility falls below 80%. No such deconsolidation is in process currently.
Such reimbursement, if any, will be made for utilization of the Company's
losses only after such losses are utilized by American Software. For that
purpose, all losses of American Software and its consolidated income tax group
will be deemed utilized in the order in which they are recognized. The Company
will pay American Software a fee intended to reimburse
 
                                      26
<PAGE>
 
American Software for all direct and indirect costs and expenses incurred with
respect to American Software share of the overall costs and expense incurred
by American Software with respect to tax related services.
 
TECHNOLOGY LICENSE AGREEMENT
 
  American Software and the Company have entered into a Technology License
Agreement (the "Technology License Agreement") pursuant to which the Company
has granted American Software a non-exclusive, worldwide license to use,
execute, reproduce, display, modify, and prepare derivatives of the Logility
Value Chain Solutions product line, provided such license is limited to
maintaining and supporting users that have licensed Logility Value Chain
Solutions products from American Software. Pursuant to the Technology License
Agreement, American Software and the Company are required to disclose to one
another any and all enhancements and improvements which they may make or
acquire in relation to a Logility Value Chain Solutions product, subject to
confidentiality requirements imposed by third parties. The term of the
Technology License Agreement is indefinite, although the Company may terminate
the Technology License Agreement for cause, and American Software may
terminate the Technology License Agreement at any time upon sixty (60) days'
prior written notice to the Company. Upon termination of the Technology
License Agreement, all rights to Logility Value Chain Solutions products
licensed by the Company to American Software revert to the Company, while all
rights to enhancements and improvements made by American Software to Logility
Value Chain Solutions products revert to American Software.
 
MARKETING LICENSE AGREEMENT
 
  American Software USA, Inc. ("USA"), a wholly-owned subsidiary of American
Software and the Company, have entered into a Marketing License Agreement (the
"Marketing License Agreement") pursuant to which USA has agreed to act as a
non-exclusive marketing representative of the Company for the solicitation of
license agreements relating to the Logility Value Chain Solutions product
line. The Marketing License Agreement provides for the payment to USA of a
commission equal to 30% (or 50% for affiliates of USA located in the United
Kingdom and France if they carry out installation and provide first-line
support services) of the net license revenue collected by the Company under
license agreements for the Logility Value Chain Solutions product line with
certain end-users who are also licensees of software products of American
Software which are secured and forwarded to the Company by USA and accepted by
the Company. The Marketing License Agreement has a five-year term, although
the Company may terminate the Marketing License Agreement for cause, and
either party may terminate the Marketing License Agreement at any time upon
twelve (12) months' prior written notice to the other party.
 
  During the year ended April 30, 1998, the Company recognized $530,000 of
revenue upon the delivery of software totaling this amount relating to the
Company's satisfaction of an American Software obligation to a customer.
American Software paid the Company $530,000 for the satisfaction of American
Software's obligation.
 
  See also the information set forth under the caption "Certain Information
Regarding Executive Officers and Directors--Certain Transactions; Compensation
Committee and Relationship to Company" in the Company's 1998 Proxy Statement,
which information is incorporated herein by reference.
 
                                      27
<PAGE>
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
  (a) The following documents are filed as part of this Form 10-K:
 
  1. The following combined financial statements of Logility, Inc. are filed
  as part of this form 10-K on the pages indicated:
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
   <S>                                                                    <C>
   Combined Balance Sheets as of April 30, 1998 and 1997.................  31
   Combined Statements of Operations for the Years ended April 30, 1998,
    1997, and 1996.......................................................  32
   Combined Statements of Stockholders' Equity for the Years ended April
    30, 1998, 1997, and 1996.............................................  33
   Combined Statements of Cash Flows for the Years ended April 30, 1998,
    1997, and 1996.......................................................  34
   Notes to the Combined Financial Statements............................  35
   Independent Auditors' Report..........................................  45
</TABLE>
 
  2. Financial statement schedule included in Part IV of this Form:
 
<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
   <S>                                                                   <C>
   Schedule I--Combined Valuation Accounts--for the three years ended
    April 30, 1998......................................................  46
</TABLE>
 
  All other financial statements and schedules not listed above are omitted as
the required information is not applicable or the information is presented in
the financial statements or related notes.
 
  3. Exhibits
 
  The following exhibits are filed herewith or incorporated herein by
reference:
 
<TABLE>
   <C>  <S>
    3.1 The Company's Amended and Restated Articles of Incorporation, and
        amendments included as Exhibit 3.1 to the Company's Registration
        Statement No. 333-33385 on Form S-1 (the "S-1 Registration Statement")
        and incorporated herein by this reference.
    3.2 The Company's Amended and Restated By-Laws, included as Exhibit 3.1 to
        the S-1 Registration Statement and incorporated herein by this
        reference.
   10.1 1997 Stock Plan, Amended and Restated as of October 22, 1997, included
        as Exhibit 4.1 to the Company's Form S-8 Registration Statement No.
        333-47023 and incorporated herein by this reference.
   10.2 Subsidiary Formation Agreement among the Company, American Software,
        and certain subsidiaries of American Software, as amended, included as
        Exhibit 10.3 to the S-1 Registration Statement, and incorporated herein
        by this reference.
   10.3 Merger Agreement between the Company and Distribution Sciences, Inc.,
        included as Exhibit 10.4 to the S-1 Registration Statement, and
        incorporated herein by this reference.
   10.4 Services Agreement between the Company and American Software, included
        as Exhibit 10.5 to the S-1 Registration Statement, and incorporated
        herein by this reference.
   10.5 Facilities Agreement between the Company and American Software,
        included as Exhibit 10.6 to the S-1 Registration Statement, and
        incorporated herein by this reference
   10.6 Tax Sharing Agreement between the Company and American Software,
        included as Exhibit 10.7 to the S-1 Registration Statement, and
        incorporated herein by this reference.
   10.7 Stock Option Agreement between the Company and American Software,
        included as Exhibit 10.8 to the S-1 Registration Statement, and
        incorporated herein by this reference.
</TABLE>
 
                                      28
<PAGE>
 
<TABLE>
   <C>   <S>
   10.8  Technology License Agreement between the Company and American
         Software, as amended, included as Exhibit 10.9 to the S-1 Registration
         Statement, and incorporated herein by this reference.
   10.9  Marketing License Agreement between the Company and American Software,
         as amended, included as Exhibit 10.10 to the S-1 Registration
         Statement, and incorporated herein by this reference.
   10.10 Employment Agreement and Officer Letter from the Company to James M.
         Modak, included as Exhibit 10.11 to the S-1 Registration Statement,
         and incoporated herein by this reference.
   11.1  Statement re: Computation of Per Share Earnings (Loss).
   23.1  Independent Auditors' Consent.
   27.1  Financial Data Schedule
</TABLE>
 
  (a) Reports on Form 8-K
 
  The Company did not file a report on Form 8-K during the fourth quarter of
the recently completed fiscal year.
 
                                      29
<PAGE>
 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS AMENDED REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
 
                                          Logility, Inc.
 
                                                  /s/ J. Michael Edenfield
                                          By: _________________________________
                                                    J. MICHAEL EDENFIELD
                                                 PRESIDENT, CHIEF EXECUTIVE
                                                          OFFICER
 
  DATE:
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
 
<TABLE>
<CAPTION>
              SIGNATURE                          TITLE                   DATE
              ---------                          -----                   ----
 
<S>                                    <C>                        <C>
       /s/ J. Michael Edenfield        President, Chief Executive
By: __________________________________  Officer
         J. MICHAEL EDENFIELD
 
        /s/ James C. Edenfield         Chairman of the Board of
By: __________________________________  Directors
          JAMES C. EDENFIELD
 
          /s/ C. Tycho Howle           Director
By: __________________________________
            C. TYCHO HOWLE
 
         /s/ Parker H. Petit           Director
By: __________________________________
           PARKER H. PETIT
 
          /s/ John A. White            Director
By: __________________________________
            JOHN A. WHITE
 
          /s/ James M. Modak           Principal Accounting
By: __________________________________  Officer and Acting
            JAMES M. MODAK              Principal Financial
                                        Officer
 
</TABLE>
 
                                      30

<PAGE>
 
                            COMBINED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                            APRIL 30, APRIL 30,
                                                              1998      1997
                                                            --------- ---------
<S>                                                         <C>       <C>
                          ASSETS
Current assets:
  Cash and cash equivalents................................  $ 1,006      732
  Investments..............................................   29,559      --
  Trade accounts receivable, less allowance for doubtful
   accounts of $421 at April 30, 1998 and 1997:
    Billed.................................................    7,754    3,843
    Unbilled...............................................    3,040    2,737
  Prepaid expenses and other current assets................      731      147
                                                             -------   ------
      Total current assets.................................   42,090    7,459
Furniture and equipment, less accumulated depreciation.....    1,583      876
Intangible assets, less accumulated amortization...........    6,865    7,732
Other assets, net..........................................      292      300
                                                             -------   ------
                                                             $50,830   16,367
                                                             =======   ======
           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.........................................  $ 1,144    1,266
  Accrued compensation and related costs...................    1,436    1,305
  Other current liabilities................................    1,386      445
  Due to American Software, Inc............................      961      --
  Deferred revenues........................................    4,157    3,886
                                                             -------   ------
      Total current liabilities............................    9,084    6,902
  Deferred income taxes....................................    2,509    2,797
                                                             -------   ------
      Total liabilities....................................   11,593    9,699
                                                             -------   ------
Stockholders' equity:
  Preferred stock; 2,000,000 shares authorized; no shares
   issued..................................................      --       --
  Common stock, no par value; 20,000,000 shares authorized;
   13,830,000 and 11,300,500 shares issued as of April 30,
   1998 and 1997, respectively.............................      --       --
  Additional paid-in capital...............................   43,187    7,919
  Divisional equity........................................      --     1,871
  Accumulated deficit......................................   (2,068)  (3,122)
  Treasury stock, at cost: 205,300 shares as of April 30,
   1998                                                       (1,882)     --
                                                             -------   ------
      Total stockholders' equity...........................   39,237    6,668
Commitments and contingencies..............................      --       --
                                                             -------   ------
                                                             $50,830   16,367
                                                             =======   ======
</TABLE>
 
            See accompanying notes to combined financial statements.
 
                                       31
<PAGE>
 
                       COMBINED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                       YEARS ENDED APRIL 30,
                                                       ----------------------
                                                        1998    1997    1996
                                                       ------- ------  ------
<S>                                                    <C>     <C>     <C>
Revenues:
  License............................................. $20,138 12,359  10,700
  Maintenance.........................................   7,167  5,051   3,797
  Services............................................   7,357  4,414   2,136
                                                       ------- ------  ------
    Total revenues....................................  34,662 21,824  16,633
                                                       ------- ------  ------
Cost of revenues:
  License.............................................   5,299  3,970   4,016
  Maintenance.........................................   1,582  1,219     876
  Services............................................   3,683  1,969   1,131
                                                       ------- ------  ------
    Total cost of revenues............................  10,564  7,158   6,023
                                                       ------- ------  ------
    Gross margin......................................  24,098 14,666  10,610
                                                       ------- ------  ------
Operating expenses:
  Research and development............................   5,592  3,484   1,452
  Sales and marketing.................................  13,676 10,628   9,892
  General and administrative..........................   3,111  2,508   2,140
                                                       ------- ------  ------
    Total operating expenses..........................  22,379 16,620  13,484
                                                       ------- ------  ------
    Operating income (loss)...........................   1,719 (1,954) (2,874)
Other income, net.....................................     863    --      --
                                                       ------- ------  ------
  Income (loss) before income taxes...................   2,582 (1,954) (2,874)
Income taxes..........................................     --     --      --
                                                       ------- ------  ------
  Net income (loss)................................... $ 2,582 (1,954) (2,874)
                                                       ======= ======  ======
Basic and diluted net earnings (loss) per common
 share................................................ $  0.20  (0.17)  (0.25)
                                                       ======= ======  ======
Shares used in the calculation of net earnings (loss)
 per common share:
  Basic...............................................  12,671 11,300  11,300
                                                       ======= ======  ======
  Diluted.............................................  12,676 11,300  11,300
                                                       ======= ======  ======
</TABLE>
 
 
            See accompanying notes to combined financial statements.
 
                                       32
<PAGE>
 
                  COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                              YEARS ENDED APRIL 30, 1998, 1997, 1996
                           ----------------------------------------------------------------------------
                                               ADDITIONAL                                     TOTAL
                           COMMON STOCK         PAID-IN   DIVISIONAL ACCUMULATED TREASURY STOCKHOLDERS'
                              SHARES    AMOUNT  CAPITAL     EQUITY     DEFICIT    STOCK      EQUITY
                           ------------ ------ ---------- ---------- ----------- -------- -------------
<S>                        <C>          <C>    <C>        <C>        <C>         <C>      <C>
Balance at April 30,
 1995....................        --      $--      3,908      3,864     (1,470)       --       6,302
  Contribution from
   (dividend to) American
   Software, Inc.........        --       --       (244)     4,040        --         --       3,796
Net loss.................        --       --        --      (1,206)    (1,668)       --      (2,874)
                              ------     ----    ------     ------     ------     ------     ------
Balance at April 30,
 1996....................        --       --      3,664      6,698     (3,138)       --       7,224
Contribution from
 (dividend to) American
 Software, Inc...........        --       --       (798)     2,196        --         --       1,398
Issuance of common stock
 in connection with
 formation...............     11,300      --      5,053     (5,053)       --         --         --
Net loss.................        --       --        --      (1,970)        16        --      (1,954)
                              ------     ----    ------     ------     ------     ------     ------
Balance at April 30,
 1997....................     11,300      --      7,919      1,871     (3,122)       --       6,668
Contribution from
 (dividend to) American
 Software, Inc...........        --       --        115       (346)       --         --        (231)
Proceeds from initial
 public offering.........      2,530      --     33,152        --         --         --      33,152
Divisional equity
 contribution............        --       --      2,001     (2,001)       --         --         --
Repurchase of 205,300
 common shares...........        --       --        --         --         --      (1,882)    (1,882)
Distribution to American
 Software, Inc. under Tax
 Sharing Agreement.......        --       --        --         --      (1,052)       --      (1,052)
Net income...............        --       --        --         476      2,106        --       2,582
                              ------     ----    ------     ------     ------     ------     ------
Balance at April 30,
 1998....................     13,830     $--     43,187        --      (2,068)    (1,882)    39,237
                              ======     ====    ======     ======     ======     ======     ======
</TABLE>
 
 
            See accompanying notes to combined financial statements.
 
                                       33
<PAGE>
 
                       COMBINED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
 
<TABLE>
<CAPTION>
                                                       YEARS ENDED APRIL 30,
                                                       -----------------------
                                                        1998     1997    1996
                                                       -------  ------  ------
<S>                                                    <C>      <C>     <C>
Cash flows from operating activities:
  Net income (loss)................................... $ 2,582  (1,954) (2,874)
  Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities:
  Depreciation and amortization.......................   4,737   3,258   2,394
  Write-off of purchased computer software costs......     --      --    1,154
  (Increase) decrease in assets:
    Accounts receivable...............................  (4,214) (1,248) (2,794)
      Other assets....................................    (613)   (111)   (289)
  Increase (decrease) in liabilities:
    Accounts payable, accrued costs, and other........     950   1,812     491
    Deferred revenues.................................     271     933   1,721
    Due to American Software, Inc.....................     (91)    --      --
                                                       -------  ------  ------
      Net cash provided by (used in) operating
       activities.....................................   3,622   2,690    (197)
                                                       -------  ------  ------
Cash flows from investing activities:
  Additions to capitalized computer software
   development costs..................................  (3,169) (2,795) (3,611)
  Additions to purchased computer software costs......    (235)    (36)   (574)
  Purchases of furniture and equipment................  (1,136)   (545)   (422)
  Purchases of investments, net....................... (29,559)    --      --
                                                       -------  ------  ------
      Net cash used in investing activities........... (34,099) (3,376) (4,607)
                                                       -------  ------  ------
Cash flows from financing activities:
  Deferred income taxes resulting from Tax Sharing
   Agreement..........................................    (288)      7     955
  Contributions from (dividends to) American Software,
   Inc................................................    (231)  1,398   3,796
  Proceeds from initial public offering...............  33,152     --      --
  Treasury share repurchases..........................  (1,882)    --      --
                                                       -------  ------  ------
      Net cash provided by financing activities.......  30,751   1,405   4,751
                                                       -------  ------  ------
  Net change in cash..................................     274     719     (53)
Cash and cash equivalents at beginning of year........     732      13      66
                                                       -------  ------  ------
Cash and cash equivalents at end of year.............. $ 1,006     732      13
                                                       =======  ======  ======
</TABLE>
 
            See accompanying notes to combined financial statements.
 
                                       34
<PAGE>
 
                             LOGILITY INCORPORATED
 
                    NOTES TO COMBINED FINANCIAL STATEMENTS
 
(1) PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Business and Presentation
 
  Logility, Inc. (the "Company") develops, markets, and supports an integrated
suite of client-server value chain management software products. This suite of
products is designed to manage the flow of information and products along the
entire value chain of an enterprise, from raw materials, manufacturing, and
warehousing to final consumption. The Company's products and services are used
by customers within the United States and certain international markets.
 
  The Company is headquartered in Atlanta, Georgia, and is approximately an
83%-owned subsidiary of American Software, Inc. ("ASI"). Prior to the
contribution of the following operations by ASI to the Company, the Company's
operations consisted of the following divisions and subsidiary of ASI which
were derived from ASI's consolidated financial statements: Supply Chain
Planning and WarehousePRO divisions of ASI; and Distribution Sciences Inc., a
wholly owned subsidiary of ASI. Effective January 23, 1997, in connection with
the purchase of 11,300,000 shares of the common stock of the Company, ASI
formally contributed its Supply Chain Planning division to the Company.
Accordingly, divisional equity was reduced by $5,053,000 and that same amount
was transferred to additional paid-in capital to reflect the contribution of
the Supply Chain Planning division to the Company.
 
  Divisional equity reflects each division's net equity and net income (loss)
prior to the division being contributed to the Company inasmuch as the
divisions are not separate legal entities. On January 23, 1997, the Supply
Chain Planning division was contributed to the Company and the Supply Chain
Planning's divisional equity was reclassified to additional paid-in capital.
The net income (loss) for the Supply Chain Planning division since January 23,
1997 has been included in accumulated deficit. The WarehousePro division's net
equity and results of operations are reflected in divisional equity as of
April 30, 1997. Effective August 1, 1997, ASI contributed its WarehousePRO
division to the Company. In conjunction with this contribution, divisional
equity was eliminated and transferred to additional paid-in capital on the
effective date.
 
  Distribution Sciences, Inc. was merged into the Company on August 5, 1997.
This merger was accounted for in a manner similar to a pooling of interests
and, therefore, Distribution Sciences' results of operations are included for
all periods presented and are reflected in accumulated deficit.
 
  The accompanying combined financial statements include the historical cost
of the assets and liabilities and the results of operations of the Company's
constituent businesses as reflected in ASI's consolidated financial
statements. The Supply Chain Planning and WarehousePRO divisions required
certain estimates and allocations which ASI believes approximates costs that
relate to the Company's operations. Balance sheet amounts were generally
derived based upon specific identification of assets and liabilities and
certain allocations relating to the Supply Chain Planning division and
WarehousePRO division. Since Distribution Sciences, Inc. was a separate
business, no allocations were necessary, other than income taxes.
 
 Revenue Recognition
 
  License. License revenues in connection with license agreements for standard
proprietary and tailored software are recognized upon delivery of the
software, providing collection is considered probable and no significant
obligations remain outstanding. Maintenance included in initial license
revenues is deferred and recognized ratably over the term of the agreement.
 
  Maintenance. Maintenance fees are generally billed annually in advance and
the resulting revenues are recognized ratably over the term of the maintenance
agreement.
 
 
                                      35
<PAGE>
 
                             LOGILITY INCORPORATED
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
  Services. Revenues derived from services primarily include consulting,
implementation, and training. Fees are billed under both time and materials
and fixed fee arrangements and are recognized as services are performed.
 
  Deferred Revenues. Deferred revenues represent advance payments or billings
for software licenses, services, and maintenance billed in advance of the time
revenues are recognized.
 
 Cost of Revenues
 
  Cost of revenues for licenses include amortization of capitalized computer
software development costs and purchased computer software costs, salaries and
benefits, and royalties paid to third-party software vendors. Costs for
maintenance and services include the cost of personnel to conduct
implementations and customer support, consulting, and other personnel-related
expenses.
 
 Cash and Cash Equivalents
 
  The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
 
 Investments
 
  Investments at April 30, 1998 consist of money market funds and debt
securities. The Company accounts for its investments under the provisions of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS No. 115"). In accordance with
SFAS No. 115, the Company has classified its investment portfolio as "held-to-
maturity," and has accounted for these investments at amortized cost.
Accordingly, no adjustment for unrealized holding gains or losses has been
reflected in the Company's financial statements.
 
 Furniture and Equipment
 
  Furniture and equipment are recorded at cost, less accumulated depreciation.
Depreciation of leasehold improvements, computer equipment, and office
furniture and equipment is calculated using the straight-line method based
upon an estimated useful life of three to five years.
 
 Intangible Assets
 
  Capitalized Computer Software Development Costs. The Company capitalizes
certain computer software development costs in accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed. Costs incurred internally
to create a computer software product or to develop an enhancement to an
existing product are charged to expense when incurred as research and
development expense until technological feasibility for the respective product
is established. Thereafter, all software development costs are capitalized and
reported at the lower of unamortized cost or net realizable value.
Capitalization ceases when the product or enhancement is available for general
release to customers. The Company makes ongoing evaluations of the
recoverability of its capitalized software projects by comparing the amount
capitalized for each product to the estimated net realizable value of the
product. If such evaluations indicate that the unamortized software
development costs exceed the net realizable value, the Company writes off the
amount by which the unamortized software development costs exceed net
realizable value. Capitalized computer software development costs are being
amortized ratably based on the projected revenue associated with the related
software or on a straight-line basis over three years, whichever method
results in a higher level of amortization.
 
 
                                      36
<PAGE>
 
                             LOGILITY INCORPORATED
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
  Purchased Computer Software Costs. Purchased computer software costs
represent the cost of acquiring computer software. Amortization of purchased
computer software costs is calculated using the straight-line method over
periods of three to five years.
 
  Total Expenditures, Amortization, and Write-offs. Total expenditures for
capitalized computer software development costs, total research and
development expense, total amortization of capitalized computer software
development costs, total amortization of purchased computer software costs and
write-off of purchased computer software costs are as follows:
 
<TABLE>
<CAPTION>
                                                         YEARS ENDED APRIL 30,
                                                         ----------------------
                                                          1998    1997   1996
                                                         ------- --------------
                                                            (IN THOUSANDS)
   <S>                                                   <C>     <C>    <C>
   Total capitalized computer software development
    costs............................................... $ 3,169  2,795  3,611
   Total research and development expense...............   5,592  3,484  1,452
                                                         ------- ------ ------
   Total research and development expense and
    capitalized computer software development costs..... $ 8,761  6,279  5,063
                                                         ======= ====== ======
   Total amortization of capitalized computer software
    development costs................................... $ 4,057  2,828  1,129
                                                         ======= ====== ======
   Total amortization of purchased computer software
    costs............................................... $   251    233  1,159
                                                         ======= ====== ======
   Write-off of purchased computer software costs as a
    result of net realizable value test................. $    --    --   1,154
                                                         ======= ====== ======
</TABLE>
 
 Income Taxes
 
  The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109").
SFAS No. 109 requires an asset and liability method of accounting for income
taxes. Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. The Company's results of operations are
included in the consolidated Federal income tax return filed by ASI.
 
 Use of Estimates
 
  Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these combined financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
 
 Fair Value of Financial Instruments
 
  The Company uses financial instruments in the normal course of its business.
The carrying values of cash equivalents, trade accounts receivable, accounts
payable, accrued compensation costs, and deferred revenues approximate fair
value due to the short-term maturities of these assets and liabilities. See
note 2 for disclosures regarding the fair value of the Company's investments.
 
                                      37
<PAGE>
 
                             LOGILITY INCORPORATED
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Stock Compensation Plans
 
  On May 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"),
which encourages entities to recognize as compensation expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and provide pro forma disclosures for employee stock
option grants made in fiscal year ended April 30, 1996 and future years as if
the fair-value-based method as defined in SFAS No. 123 had been applied. Under
APB Opinion No. 25, compensation expense is recorded on the date of grant if
the current market price of the underlying stock granted exceeds the exercise
price. The Company has elected to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosures under the provisions of SFAS No. 123.
 
 Impairment of Long-Lived Assets
 
  On May 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles held and used by a
company be reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that long-lived assets and certain
identifiable intangibles held for sale, other than those related to
discontinued operations, be reported at the lower of carrying amount or fair
value less cost to sell. The Company's adoption of SFAS No. 121 did not have
an impact on its combined financial statements.
 
 Net Earnings (Loss) Per Common Share
 
  On January 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS No. 128"), which prescribes the
calculation methodology and financial reporting requirements for basic and
diluted earnings per share. Basic earnings (loss) per common share available
to common shareholders are based on the weighted-average number of common
shares outstanding. Diluted earnings (loss) per common share available to
common shareholders are based on the weighted-average number of common shares
outstanding and dilutive potential common shares, such as dilutive stock
options. All prior period net earnings (loss) data presented in these combined
financial statements have been restated to conform to the provisions of SFAS
No. 128.
 
(2) INVESTMENTS
 
  Investments, which are classified as held-to-maturity, consist of the
following at April 30, 1998 (in thousands):
 
<TABLE>
<CAPTION>
                                                    CARRYING  FAIR  UNREALIZED
                                                     VALUE   VALUE     GAIN
                                                    -------- ------ ----------
   <S>                                              <C>      <C>    <C>
   Certificate of deposit.......................... $   500     500    --
   Asset-backed note...............................   1,500   1,500    --
   Commercial paper................................  11,182  11,229     47
   Corporate bonds.................................  16,377  16,520    143
                                                    -------  ------    ---
                                                    $29,559  29,749    190
                                                    =======  ======    ===
</TABLE>
 
  The maturity of all investments as of April 30, 1998 is within one year.
 
                                      38
<PAGE>
 
                             LOGILITY INCORPORATED
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
(3) FURNITURE AND EQUIPMENT
 
  Furniture and equipment consist of the following at April 30, 1998 and 1997
(in thousands):
 
<TABLE>
<CAPTION>
                                                                     1998  1997
                                                                    ------ -----
   <S>                                                              <C>    <C>
   Computer and communications equipment........................... $2,205 1,172
   Furniture and fixtures..........................................    224   121
                                                                    ------ -----
                                                                     2,429 1,293
   Less accumulated depreciation...................................    846   417
                                                                    ------ -----
                                                                    $1,583   876
                                                                    ====== =====
</TABLE>
 
(4) INTANGIBLE ASSETS
 
  Intangible assets consist of the following at April 30, 1998 and 1997 (in
thousands):
 
<TABLE>
<CAPTION>
                                                                   1998    1997
                                                                  ------- ------
   <S>                                                            <C>     <C>
   Capitalized computer software development costs............... $14,949 11,743
   Purchased computer software costs.............................   1,130    895
                                                                  ------- ------
                                                                   16,079 12,638
   Less accumulated amortization.................................   9,214  4,906
                                                                  ------- ------
                                                                  $ 6,865  7,732
                                                                  ======= ======
</TABLE>
 
(5) INCOME TAXES
 
  The Company is included in the consolidated Federal income tax return filed
by ASI; however, the Company has provided for income taxes as if it were
filing a separate income tax return.
 
  The Company has not recorded any income tax expense (benefit) for the years
ended April 30, 1998, 1997, and 1996 because of cumulative operating losses
incurred since inception. The Company's effective tax rate differs from the
"expected" income tax expense (benefit) for those years calculated by applying
the Federal statutory rate of 34% to earnings (loss) before income taxes as
follows:
 
<TABLE>
<CAPTION>
                                                       YEARS ENDED APRIL 30,
                                                       ------------------------
                                                         1998    1997    1996
                                                       --------  --------------
                                                          (IN THOUSANDS)
   <S>                                                 <C>       <C>    <C>
   Computed "expected" income tax expense (benefit)..  $    878   (664)   (977)
   Increase (decrease) in income taxes resulting
    from:
     State income taxes, net of Federal income tax
      effect.........................................       102    (78)   (114)
     Change in the beginning-of-year balance of the
      valuation allowance for deferred tax assets....    (1,045)   719   1,069
     Other, net......................................        65     23      22
                                                       --------  -----  ------
                                                       $    --     --      --
                                                       ========  =====  ======
</TABLE>
 
                                      39
<PAGE>
 
                             LOGILITY INCORPORATED
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The significant components of deferred income tax expense (benefit)
attributable to earnings (loss) before income taxes for the years ended April
30, 1998, 1997, and 1996, are as follows:
 
<TABLE>
<CAPTION>
                                                          YEAR ENDED APRIL
                                                                 30,
                                                         ---------------------
                                                          1998    1997   1996
                                                         -------  ----  ------
                                                           (IN THOUSANDS)
   <S>                                                   <C>      <C>   <C>
   Deferred income tax expense (benefit)................ $ 1,045  (719) (1,069)
   (Decrease) increase in beginning-of-year balance of
    the valuation allowance for deferred tax assets.....  (1,045)  719   1,069
                                                         -------  ----  ------
                                                         $   --    --      --
                                                         =======  ====  ======
</TABLE>
 
  The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
computed on a separate return basis and before consideration of the Company's
Tax Sharing Agreement with ASI at April 30, 1998 and 1997 are presented as
follows:
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED
                                                                  APRIL 30,
                                                                ---------------
                                                                 1998    1997
                                                                ------- -------
                                                                (IN THOUSANDS)
   <S>                                                          <C>     <C>
   Deferred income tax assets:
     Compensated absences and other expenses, due to accrual
      for financial reporting purposes......................... $   292    405
     Accounts receivable, due to allowance for doubtful ac-
      counts...................................................     160    160
     Net operating loss carryforwards..........................   3,983  5,203
                                                                ------- ------
       Total gross deferred income tax assets..................   4,435  5,768
     Less valuation allowance..................................   1,926  2,971
                                                                ------- ------
       Net deferred income tax assets..........................   2,509  2,797
                                                                ------- ------
   Deferred income tax liabilities:
     Capitalized computer software development costs...........   2,461  2,782
     Property and equipment, primarily due to differences in
      depreciation.............................................      48     15
                                                                ------- ------
       Total gross deferred income tax liabilities.............   2,509  2,797
                                                                ------- ------
       Net deferred income tax asset (liability)............... $   --     --
                                                                ======= ======
</TABLE>
 
  In accordance with the Company's Tax Sharing Agreement with ASI, the Company
computes a separate, stand-alone income tax provision and settles balances due
to or from ASI on this basis. All benefits derived from deferred tax assets as
defined in the Tax Sharing Agreement (which include net operating loss and tax
credit carryforwards) that arose prior to the initial public offering were
allocated to ASI. Accordingly, the Company will not receive any benefit from
the $5,768,000 of gross deferred tax assets calculated on a separate return
basis at April 30, 1997. However, deferred tax liabilities were allocated to
the Company (which gave rise to the Company's net deferred tax liability of
$2,509,000 at April 30, 1998 and $2,797,000 at April 30, 1997). After the
initial public offering, to the extent the tax computation produces a tax
benefit for the Company, ASI will be required to pay such amounts to the
Company only if and when realized by ASI by the reduction in income taxes
payable with respect to the current tax period. The Company had net stand-
alone taxable income for 1998, therefore, the corresponding calculated income
taxes due are recorded as a distribution to ASI in the statement of
stockholders' equity. At April 30, 1998, ASI had net operating loss
carryforwards of approximately $14,000,000 which must be utilized by ASI
before the Company would receive payment for any currently generated tax
benefits. Such net operating losses expire in varying amounts through 2012.
 
                                      40
<PAGE>
 
                             LOGILITY INCORPORATED
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
(6) STOCKHOLDERS' EQUITY
 
 Completion of Initial Public Offering
 
  On October 10, 1997, the Company successfully completed its initial public
offering of common stock. The Company sold 2.2 million shares of common stock
in the initial public offering for approximately $31.9 million less issuance
costs of $3.1 million.
 
  On November 6, 1997, the Company sold 330,000 shares of common stock as part
of the underwriters' overallotment from the initial public offering for $4.8
million less issuance costs of approximately $400,000.
 
 Stock Dividend
 
  On August 7, 1997, the Company's Board of Directors approved an 11,300-for-
one stock split effected in the form of a stock dividend. All references to
common stock and stock options in these combined financial statements have
been adjusted to reflect this stock split as if it had occurred prior to May
1, 1995.
 
 Amendments to the Articles of Incorporation
 
  On July 25, 1996, the Company was incorporated as Supply Chain Management,
Inc. with 1,000,000 authorized shares of common stock at no par value,
although no operations were conducted in the Company until January 23, 1997.
Effective November 25, 1996, the Company changed its name to Logility, Inc. On
January 21, 1997, the Company increased its authorized shares of common stock
to 20,000,000. All amounts included in these combined financial statements
have been restated to reflect these changes. On August 8, 1997, the Company
amended its articles of incorporation to authorize 2,000,000 shares of
preferred stock. The terms, rights, and preferences of the preferred stock
will be determined by the Board of Directors.
 
 Stock Compensation
 
  As of April 30, 1997, the Company had not issued any stock options; however,
certain employees of the Company received stock options of ASI. Effective
August 7, 1997, the Company adopted the Logility, Inc. 1997 Stock Plan ("Stock
Plan"). The Stock Plan provides for grants of incentive stock options and
nonqualified stock options to certain key employees and directors of the
Company. The Stock Plan also allows for stock appreciation rights in lieu of
or in addition to stock options. Options to purchase a maximum of 295,000
shares of common stock and a maximum of 300,000 units of Stock Appreciation
Rights ("SARs"), as defined, may be granted under the Stock Plan. The options
and SARs generally vest over a four-year period. The terms of the options
generally are for ten years, and the terms of the SARs generally are for five
years.
 
  A summary of the status of the Company's Stock Plan as of April 30, 1998,
and changes during the year then ended is presented below:
 
<TABLE>
<CAPTION>
                                                                   WEIGHTED-
                                                        SHARES   AVERAGE PRICE
                                                        -------  -------------
   <S>                                                  <C>      <C>
   Outstanding at April 30, 1997.......................     --      $  --
   Granted............................................. 267,890      12.97
   Exercised...........................................     --         --
   Forfeited/canceled..................................  (5,820)     13.67
                                                        -------     ------
   Outstanding at April 30, 1998....................... 262,070      12.96
                                                        -------     ------
   Options exercisable at April 30, 1998...............  16,000      13.22
                                                        -------     ------
   Weighted-average fair value of options granted dur-
    ing the year.......................................             $10.74
                                                                    ======
</TABLE>
 
                                      41
<PAGE>
 
                             LOGILITY INCORPORATED
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table summarizes information about fixed stock options
outstanding at April 30, 1998:
 
<TABLE>
<CAPTION>
                    OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
------------------------------------------------------------- ---------------------------
                                      WEIGHTED-     WEIGHTED-                   WEIGHTED-
                      NUMBER           AVERAGE       AVERAGE       NUMBER        AVERAGE
   RANGE OF         OUTSTANDING       REMAINING     EXERCISE     EXERCISABLE    EXERCISE
EXERCISE PRICES  AT APRIL 30, 1998 CONTRACTUAL LIFE   PRICE   AT APRIL 30, 1998   PRICE
---------------  ----------------- ---------------- --------- ----------------- ---------
<S>              <C>               <C>              <C>       <C>               <C>
$ 8.00-
  12.00               107,985            9.1         $10.73         8,000        $11.31
 12.01-
  15.13               154,085            9.1          14.52         8,000         15.31
                      -------            ---         ------        ------        ------
                      262,070            9.1         $12.96        16,000        $13.22
                      =======            ===         ======        ======        ======
</TABLE>
 
  Under SFAS No. 123, ASI and the Company apply the provisions of APB Opinion
No. 25 and related interpretations in accounting for its stock option plans.
Accordingly, no compensations cost has been recognized for ASI's and the
Company's stock option plans. Had compensation cost for the Company's share of
ASI's stock-based compensation plans and its own stock option plan been
determined consistent with SFAS No. 123, the Company's net income (loss) and
net income (loss) per common share would have been reduced to the pro forma
amounts indicated below:
 
<TABLE>
<CAPTION>
                                               YEARS ENDED APRIL 30,
                                       ---------------------------------------
                                           1998         1997          1996
                                       ------------ ------------  ------------
                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
   <S>                                 <C>          <C>           <C>
   Net income (loss):
     As reported.....................  $      2,582       (1,954)       (2,874)
     Pro forma.......................         1,176       (2,759)       (3,207)
   Diluted net income (loss) per com-
    mon share:
     As reported.....................  $        .20         (.17)         (.25)
     Pro forma.......................           .09         (.24)         (.28)
</TABLE>
 
  The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
 
<TABLE>
<CAPTION>
                                                          1998    1997    1996
                                                         ------- ------- -------
   <S>                                                   <C>     <C>     <C>
   Dividend yield.......................................      0%      0%      0%
   Expected volatility..................................   62.1%  211.9%  211.9%
   Risk-free interest rate..............................    5.6%    6.1%    6.1%
   Expected life........................................ 8 years 8 years 8 years
</TABLE>
 
(7) INTERNATIONAL REVENUES
 
  International revenues were $3,197,000 or 9%, $2,574,000 or 12%, and
$3,366,000 or 20% of combined revenues for the years ended April 30, 1998,
1997, and 1996, respectively, and were derived primarily from customers in
Canada, Europe, Australia, and Asia. Included in international revenues for
1996 were revenues from the United Kingdom of $2,148,000 or 13% of combined
revenues.
 
(8) COMMITMENTS AND CONTINGENCIES
 
 401(k) Profit Sharing Plan
 
  The employees of the Company are offered the opportunity to participate in
the ASI 401(k) Profit Sharing Plan (the "401(k) Plan"), which is intended to
be a tax-qualified defined contribution plan under Section 401(k)
 
                                      42
<PAGE>
 
                             LOGILITY INCORPORATED
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
of the Internal Revenue Code. Under the 401(k) Plan, employees who have
completed one year of service are eligible to participate. Eligible employees
may contribute up to 15% of pretax income to the 401(k) Plan. Subject to
certain limitations, the Company may make a discretionary matching
contribution at an amount determined by the Board of Directors of the Company.
The Company did not make contributions for 1998, 1997, or 1996.
 
 Lease Commitments
 
  The Company occupies its principal office facilities under a facilities
agreement with ASI dated August 1, 1997, that is cancelable upon 90-day notice
by either party (see note 9). Amounts allocated to the Company for rent
expense for these facilities were $342,000 for the year ended April 30, 1998
and $524,000 for each of the years ended April 30, 1997 and 1996. In addition,
the Company has an operating lease for office space that expires in June 2000.
Rent expense under this lease was $190,000, $126,000, and $122,000 for the
years ended April 30, 1998, 1997, and 1996, respectively.
 
  Future minimum lease payments under noncancelable operating leases (excludes
cancelable leases with ASI) are as follows (in thousands):
 
<TABLE>
      <S>                                                                   <C>
      1999................................................................. $121
      2000.................................................................   25
                                                                            ----
                                                                            $146
                                                                            ====
</TABLE>
 
 Contingencies
 
  The Company is 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 the financial position or
results of operations of the Company.
 
(9) AGREEMENTS WITH ASI
 
  Prior to August 1, 1997 (except for the Tax Sharing Agreement which was
effective January 23, 1997), ASI provided marketing services, employees, and
office space to the Company, allowed the Company to participate in insurance
coverage and benefit plans, and provided certain other administrative services
to the Company. The combined statements of operations include the allocation
of these expenses incurred by ASI to the Company based on percentage of
license fees, specific identification, direct labor hours, head count, product
license fees to total license fees, and square footage of leased properties.
Management believes the methods of allocation are reasonable.
 
  Effective August 1, 1997 (except for the Tax Sharing Agreement, which was
effective January 23, 1997), the Company entered into certain contractual
arrangements with ASI related to the following:
 
    Tax Sharing Agreement--The terms and payments under the Tax Sharing
  Agreement are described in note 5.
 
                                      43
<PAGE>
 
                             LOGILITY INCORPORATED
 
              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
 
 
    Services Agreement--Commencing August 1, 1997, the Company began
  purchasing (or selling) various services from (to) ASI based upon various
  cost methodologies as described below:
 
<TABLE>
<CAPTION>
                                                                       AMOUNT PAID
                                                                     OR ACCRUED FROM
                                                                     AUGUST 1, 1997
           SERVICE                      COST METHODOLOGY            TO APRIL 30, 1998
           -------                      ----------------            -----------------
   <S>                       <C>                                    <C>
   . General corporate       Apportioned based on apportionment         $463,000
     services                formula to all ASI subsidiaries
   . Computing and           Actual usage                                 67,000
     communications
   . Professional services   Cost plus billing with the percentage       472,000
     to customers on behalf  of costs and expenses to be negotiated
     of the Company
     (services are
     available unless ASI
     determines it is not
     economic or otherwise
     feasible)
   . Employee benefits       Apportioned based on apportionment           65,000
     services                formula to all ASI subsidiaries
</TABLE>
 
    Facilities Agreement--The Company leases various
  properties from ASI for specified square foot rates.
  The stated term of the agreement is for two years;
  however, they may be terminated by either party after a
  90-day notice.                                                         330,000
 
    Stock Option Agreement--The Company has granted ASI
  an option to purchase Company common stock to enable
  ASI to maintain the necessary ownership percentage
  required to consolidate the Company in ASI's
  consolidated Federal income tax return. The purchase
  price of the option is the average of the closing price
  on each of the five business days immediately preceding
  the date of payment.                                            Not applicable
 
    Technology License Agreement--The Company granted ASI
  a nonexclusive, nontransferable, worldwide perpetual
  right and license to use, execute, reproduce, display,
  etc. its Value Chain Planning and Execution Solutions
  (which ASI had transferred to the Company) so that ASI
  may maintain and support end-users of the software
  products. The license is fully paid and royalty-free.           Not applicable
 
    Marketing License Agreement--The Company utilizes ASI
  as a nonexclusive marketing representative for
  licensing of its products and pays ASI 30% (50% for
  certain international licenses) of net license fees for
  its services. The stated term of the agreement is for
  five years, but may be terminated at either party's
  discretion upon 12 months' notice.                                   1,108,000
 
                                      44
<PAGE>
 
                        REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
Logility, Inc.:
 
  We have audited the accompanying combined balance sheets of Logility, Inc.
as of April 30, 1998 and 1997, and the related combined statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended April 30, 1998. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material mis-statement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Logility, Inc. as
of April 30, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended April 30, 1998, in
conformity with generally accepted accounting principles.
 
                                          KPMG Peat Marwick LLP
 
Atlanta, Georgia
June 19, 1998
 
                                      45
<PAGE>
 
                                                                      SCHEDULE I
 
                                 LOGILITY, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
 
                   YEARS ENDED APRIL 30, 1996, 1997 AND 1998
 
ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
<TABLE>
<CAPTION>
                                  BALANCE AT ADDITIONS                BALANCE AT
                                  BEGINNING   CHARGED                   END OF
                                  OF PERIOD  TO EXPENSE DEDUCTIONS(1)   PERIOD
                                  ---------- ---------- ------------- ----------
<S>                               <C>        <C>        <C>           <C>
Year ended April 30, 1996........    $300       $431        $401         $330
         1997....................     330        302         211          421
         1998....................     421          0           0          421
</TABLE>
--------
(1) Write-off of uncollectible accounts
 
                                       46
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Stockholders
Logility, Inc.:
 
  Under date of June 19, 1998, we reported on the combined balance sheets of
Logility, Inc. as of April 30, 1998 and 1997, and the related combined
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended April 30, 1998, which are included in the
April 30, 1998, annual report on Form 10-K. In connection with our audits of
the aforementioned combined financial statements, we also audited the related
combined financial statement schedule included in the Form 10-K. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
 
  In our opinion, such financial statement schedule, when considered in
relation to the basic combined financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
 
                                          KPMG Peat Marwick LLP
 
Atlanta, Georgia
June 19, 1998
 
                                      47