SofTech Provides Update, Announces Fiscal Year 2011 Operating Results and Completion of Audit
LOWELL, Mass. –September 28, 2011 – SofTech, Inc. (PK: SOFT), a proven provider of Product Lifecycle Management (“PLM”) solutions, announced the following update on its corporate activities since its last announcement on June 13, 2011. The Company previously announced a recapitalization transaction in March 2011 (the “Recapitalization Transaction”).“I am very pleased to announce that we have filed an amended Registration Statement with the Securities and Exchange Commission (“SEC”) and included therein audited financial statements for fiscal year 2011,” said Joe Mullaney, the CEO since March 11, 2011. “The audit completion and the filing represent a major step forward towards again becoming a fully reporting public company.”
The full year operating results and condensed balance sheet information presented below include the impact of the Recapitalization Transaction and the previously announced sale of the Company’s AMT product line for approximately $413,000. The results of the AMT product line have been reflected as discontinued operations in the financial statements.
The Recapitalization Transaction resulted in two unusual Q4 entries:
- the Company’s former lender accepted $2.75 million in cash and a note for $250,000 in full satisfaction of approximately $10.6 million then due resulting in debt forgiveness of approximately $7.6 million. Given the former lender’s 44% ownership of the Company prior to the Recapitalization Transaction, this debt forgiveness was recorded as an additional contribution of capital rather than income; and
- the Company’s former lender paid bonuses of $540,000 to the CFO and the former CEO upon completion of the Recapitalization Transaction under a contractual arrangement entered into in July 2010 directly between those parties. Given the lender’s financial interest in the Company these payments were recorded as Company expenses and as an additional capital contribution by the lender.
- $365,000 of professional and advisory fees between June 2010 and December 2010 exploring various alternatives to resolve the debt default with the former lender; and
- $142,000 of professional and advisory fees from December 2010 to March 2011 that culminated in the Recapitalization Transaction.
“The Recapitalization Transaction represents a significant event in the 40-year history of SofTech. It was expensive, time consuming and complex. With that event now behind us and the audit for fiscal year 2011 completed we can move forward to focus on profitable growth and creation of shareholder value,” Mullaney added.
The Registration Statement referred to above relates to the Company’s private placement in March 2011 as part of the Recapitalization Transaction. Pursuant to the registration rights agreement with the investors in the private placement, the Company is obligated to register the possible resale, from time to time, of the shares so purchased by the investors. Such resales cannot occur until after the Registration Statement is declared effective by the SEC. The investors in the private placement have selected a fixed offering price of $5.00 per share by which to offer their shares for sale under this Registration Statement until such time as the SofTech shares are listed on the Over the Counter Bulletin Board or an exchange. The Company will not receive any proceeds from any sales by the selling stockholders. In connection with the effectiveness of the Form S-1 Registration Statement, the Company expects to file a Form 8-A with the SEC registering its common stock under Securities Exchange Act of 1934 (the “Exchange Act”) and, at that point, will again be required to file periodic and other reports under the Exchange Act.
Fiscal Year Ended May 31, 2011 Operating Results & Financial Position
Mullaney continued:
“The combination of the non-recurring expenses related to evaluating the various alternatives following the debt default, the transaction related expenses related to the Recapitalization Transaction, the reclassification of the financial statements to present the results of the AMT product line as discontinued operations and the disruption caused by the aforementioned activities have made the fiscal year 2011 operating results very difficult to understand. A few key measures of improvement are:
- Improved working capital position by more than $10 million;
- Reduced annual debt service from $2.5 million to $1.1 million for FY 2012;
- Reduced FY 2012 interest expense from approximately $600,000 to approximately $240,000;
- May 31, 2011 cash on hand of $1.6 million; and
- Ended the fiscal year with stockholders’ equity of $1.1 million, the first time in a decade the stockholders’ equity has not been in a deficit.
The comparative Statement of Operations and Balance Sheets are presented below.
Statements of Operations (in thousands, except per share data)
| Fiscal Years | ||
| Ended May 31, | ||
| 2011 | 2010 | |
| Product revenue | $ 1,120 | $ 1,052 |
| Service revenue | 5,747 | 6,161 |
| Total revenue | 6,867 | 7,213 |
| Cost of sales | 1,408 | 1,471 |
| Gross margin | 5,459 | 5,742 |
| Gross margin % | 79.5% | 79.6% |
| | ||
| Research and development expenses | 1,614 | 1,631 |
| Selling, general and administrative expenses | 3,956 | 2,923 |
| Operating income (loss) | (111) | 1,188 |
| Interest expense | 520 | 589 |
| Other (income) expense | (67) | 71 |
| Income from continuing operations before income taxes | (564) | 528 |
| Provision for income taxes | 18 | 16 |
| Income (loss) from continuing operations | (582) | 512 |
| | ||
| Discontinued operations: | ||
| Income from discontinued operations | 209 | 161 |
| Gain on disposal of discontinued operations | 151 | - |
| Net income from discontinued operations | 360 | 161 |
| | ||
| Net income (loss) | $ (222) | $ 673 |
Reconciliation of Net Income to Adjusted EBITDA
The Company defines Adjusted EBITDA as Net Income (loss) before Interest, Taxes, Depreciation and Amortization, certain costs associated with the Recapitalization Transaction and non-cash expenses. Adjusted EBITDA is a non-GAAP financial measure. The Company’s credit facilities with One Conant Capital, LLC contain a number of covenants, one of the most important financial performance measures is Adjusted EBITDA. Therefore this non-GAAP financial measure is a very important metric to the management of the Company. Adjusted EBITDA is not intended to represent cash flow from operations as defined by U.S. GAAP and should not be used as an alternative to net income (loss) as an indicator of operating performance or to cash flow as a measure of liquidity. Because not all companies use identical calculations, these presentations of Adjusted EBITDA may not be comparable to other similarly-titled measures used by other companies. The Company’s calculation of Adjusted EBITDA below is consistent with the covenant requirements of its credit facilities with One Conant Capital, LLC. Adjusted EBITDA is calculated as follows (in thousands):
| Fiscal Years | ||
| Ended May 31, | ||
| 2011 | 2010 | |
| Net income (loss) | $ (222) | $ 673 |
| Plus:interest expense | 520 | 589 |
| Plus: tax expense | 18 | 16 |
| Plus:depreciation and amortization | 55 | 156 |
| Plus:non-cash expenses related to sale of AMT product line | 355 | - |
| Plus:transaction bonuses paid by former lender | 540 | - |
| Plus:professional fees related to the Recapitalization Transaction | 507 | - |
| Adjusted EBITDA | $1,773 | $1,434 |
Balance Sheets (in thousands)
| As of May 31, | ||
| 2011 | 2010 | |
| Cash | $ 1,586 | $ 393 |
| Accounts receivable | 907 | 927 |
| Other current assets | 521 | 361 |
| Total current assets | 3,014 | 1,681 |
| | ||
| Property and equipment, net | 58 | 82 |
| Goodwill | 4,256 | 4,245 |
| Other non-current assets | 448 | 492 |
| Total assets | $ 7,776 | $ 6,500 |
| | ||
| Accounts payable | $ 239 | $ 264 |
| Accrued expenses | 838 | 521 |
| Deferred maintenance revenue | 2,301 | 2,618 |
| Current portion of long term debt | 720 | 9,808 |
| Other current liabilities | 173 | 316 |
| Total current liabilities | 4,271 | 13,527 |
| | ||
| Other non-current liabilities | 144 | 41 |
| Long term debt | 2,250 | - |
| Total liabilities | 6,665 | 13,568 |
| Stockholders' equity (deficit) | 1,111 | (7,068) |
| Total liabilities and stockholders' equity (deficit) | $ 7,776 | $ 6,500 |
About SofTech
SofTech, Inc. (PK: SOFT) is a proven provider of product lifecycle management (PLM) solutions, including its ProductCenter® PLM solution and its computer-aided design product CADRA®. As of the date hereof, SofTech, Inc.’s common stock is quoted on the Pink Sheets and the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended.
The Company’s shareholders approved a 1-for-20 reverse stock split that was effective on June 7, 2011.
SofTech’s solutions accelerate products and profitability by fostering innovation, extended enterprise collaboration, product quality improvements, and compressed time-to-market cycles. SofTech excels in its sensible approach to delivering enterprise PLM solutions, with comprehensive out-of-the-box capabilities, to meet the needs of manufacturers of all sizes quickly and cost-effectively.
Over 100,000 users benefit from SofTech software solutions, including General Electric Company, Goodrich, Honeywell, Siemens, Sikorsky Aircraft and the U.S. Army. Headquartered in Lowell, Massachusetts, SofTech (www.softech.com) has locations and distribution partners in North America, Europe, and Asia.
SofTech, CADRA and ProductCenter are registered trademarks of SofTech, Inc. All other products or company references are the property of their respective holders.
Forward Looking Statements
Any statements made herein with respect to our outlook for fiscal year 2012 and beyond represent “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 and are subject to a number of risks and uncertainties, including but not limited to our ability to:
- generate sufficient cash flow from our operations or other sources to fund our working capital needs and growth initiatives
- maintain good relationships with our lender
- comply with the covenant requirements of the loan agreement
- successfully introduce and attain market acceptance of any new products and/or enhancements of existing products
- attract and retain qualified personnel
- prevent obsolescence of our technologies
- maintain agreements with our critical software vendors
- secure renewals of existing software maintenance contracts, as well as contracts with new maintenance customers
- secure new business, both from existing and new customers
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this press release. Except as otherwise required by law, SofTech expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. SofTech qualifies all forward-looking statements by these cautionary statements.
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