-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O4bMX25Xn7MkOu781WjjLGi4LZNDqzD5apT2WbfGXrq2WgrY8ry47SYwT4xB96ic eo1V4z61TVxGwNPnTGTKQQ== 0000910647-96-000005.txt : 19960117 0000910647-96-000005.hdr.sgml : 19960117 ACCESSION NUMBER: 0000910647-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960116 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOFTECH INC CENTRAL INDEX KEY: 0000354260 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 042453033 STATE OF INCORPORATION: MA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10665 FILM NUMBER: 96503634 BUSINESS ADDRESS: STREET 1: 460 TOTTEN POND RD CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6178906900 MAIL ADDRESS: STREET 1: 460 POND ROAD CITY: WALTHAM STATE: MA ZIP: 02154 10-Q 1 BODY OF 10Q--FOR 2ND QUARTER SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------- For the Quarter Ended Commission File Number November 30, 1995 0-10665 SOFTECH, INC. State of Incorporation IRS Employer Identification Massachusetts 04-2453033 460 TOTTEN POND ROAD, WALTHAM, MASSACHUSETTS 02154 Telephone (617) 890-6900 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 _____ The number of shares outstanding of registrant's common stock at November 30, 1995 was 4,061,776 shares. SOFTECH, INC. _____________ INDEX _____ PART I. Financial Information Page Number ----------- Item 1. Financial Statements Consolidated Condensed Balance Sheets November 30, 1995 and May 31, 1995 3 Consolidated Condensed Statements of Income - Three and Six Months Ended November 30, 1995 and November 30, 1994 4-5 Consolidated Condensed Statements of Cash Flows - Six Months Ended November 30, 1995 and November 30, 1994 6 Notes to Consolidated Condensed Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-11 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 12 PART I. FINANCIAL INFORMATION SOFTECH, INC. AND SUBSIDIARIES ------------------------------ CONSOLIDATED CONDENSED BALANCE SHEETS ------------------------------------- (Unaudited)
November 30, May 31, 1995 1995 ------------ ----------- ASSETS - ------ Cash and cash equivalents $ 1,641,334 $ 2,372,946 Accounts receivable 13,017,942 12,659,017 Unbilled costs and fees 868,066 1,248,361 Inventory 1,967,855 1,819,184 Prepaid expenses and other assets 1,547,589 1,435,919 Deferred and refundable income taxes 978,712 964,560 Net assets (liabilities) of discontinued operations (Note G) (324,995) 1,166,178 ----------- ----------- Total current assets 19,696,503 21,666,165 Property and equipment, net (Note F) 2,263,246 2,338,917 Goodwill 4,078,232 4,621,484 Other assets (Note D) 9,205 118,558 ----------- ----------- TOTAL ASSETS $26,047,186 $28,745,124 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 3,896,814 $ 4,112,334 Accrued expenses 1,919,054 2,112,864 Deferred maintenance revenue 1,436,935 1,734,122 Federal and state income taxes payable 25,977 92,000 ----------- ----------- Total current liabilities 7,278,780 8,051,320 Stockholders' equity (Note F) 18,768,406 20,693,804 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,047,186 $28,745,124 =========== ===========
See accompanying notes to consolidated condensed financial statements. SOFTECH, INC. AND SUBSIDIARIES ------------------------------ CONSOLIDATED CONDENSED STATEMENTS OF INCOME ------------------------------------------- (Unaudited)
Three Months Ended ---------------------------- November 30, November 30, 1995 1994 ------------ ------------ Revenue Products $ 8,429,681 $ 9,867,974 Services 3,886,877 2,901,840 ----------- ----------- Total revenue 12,316,558 12,769,814 Cost of products sold 6,630,404 7,748,980 Cost of services provided 2,677,778 1,612,365 ----------- ---------- Gross margin 3,008,376 3,408,469 Selling, general and administrative 3,518,664 2,979,127 ----------- ---------- Operating income (loss) (510,288) 429,342 Interest income -- 40,169 ----------- ---------- Income (loss) from continuing operations before taxes (510,288) 469,511 Provision for federal and state income taxes 41,000 89,808 ----------- ---------- Income (loss) from continuing operations (551,288) 379,703 Discontinued operations (Notes C and G) Loss from operations (224,318) -- ----------- ---------- Net income (loss) $ (775,606) $ 379,703 =========== =========== Income (loss) from continuing operations per common share $ (0.14) $ 0.10 =========== =========== Net income (loss) per common share $ (0.19) $ 0.10 =========== =========== Weighted average common shares outstanding 4,061,776 3,911,857
See accompanying notes to consolidated financial statements. SOFTECH, INC. AND SUBSIDIARIES ------------------------------ CONSOLIDATED CONDENSED STATEMENTS OF INCOME ------------------------------------------- (Unaudited)
Six Months Ended ---------------- November 30, November 30, 1995 1994 ------------ ------------ Revenue Products $15,869,226 $18,262,370 Services 6,511,214 4,875,895 ----------- ----------- Total revenue 22,380,440 23,138,265 Cost of products sold 12,693,938 14,470,433 Cost of services provided 4,527,496 2,683,154 ----------- ----------- Gross margin 5,159,006 5,984,678 Selling, general and administrative 6,718,640 5,069,985 ----------- ----------- Operating income (loss) (1,559,634) 914,693 Interest income -- 77,929 ----------- ----------- Income (loss) from continuing operations before taxes (1,559,634) 992,622 Provision for federal and state income taxes 86,284 297,786 ----------- ----------- Income (loss) from continuing operations (1,645,918) 694,836 Discontinued operations (Notes C and G) Loss from operations (303,125) -- ----------- ----------- Net income (loss) $(1,949,043) $ 694,836 =========== =========== Income (loss) from continuing operations per common share $ (0.41) $ 0.18 =========== =========== Net income (loss) per common share $ (0.48) $ 0.18 =========== =========== Weighted average common shares outstanding 4,059,241 3,889,827
See accompanying notes to consolidated financial statements. SOFTECH, INC. AND SUBSIDIARIES ------------------------------ CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -----------------------------------------------
Six Months Ended ---------------------------- November 30, November 30, 1995 1994 ------------ ------------ Cash flows from operating activities: Net income (loss) $(1,949,043) $ 694,836 ----------- ----------- Adjustments to reconcile income (loss) to net cash used by operating activities: Depreciation and amortization 1,092,550 690,588 Gain on sale of fixed assets (43,740) -- Current and deferred federal and state taxes (80,175) (138,924) Change in current assets and liabilities net of effects from purchase of CCS and SCI in fiscal year 1995: Accounts receivable (358,925) (2,633,074) Unbilled costs and fees 380,295 -- Inventory (247,516) (424,282) Prepaid expenses and other assets (116,670) (874,413) Accounts payable (215,520) 490,616 Accrued expenses (193,810) (492,778) Deferred maintenance revenue (297,187) (319,823) Net assets from discontinued operations 1,491,173 209,746 ----------- ----------- Total adjustments 1,410,475 (3,492,344) ----------- ----------- Net cash used by operating activities (538,568) (2,797,508) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment, net (408,413) (719,546) Proceeds from sale of property and equipment 147,360 -- Proceeds from sale of marketable securities -- 6,090,448 Acquisition of businesses (36,344) (4,903,620) Other investing activities 104,353 (410,923) ----------- ----------- Net cash provided (used) by investing activities (193,044) 56,359 ----------- ----------- Cash flows from financing activities: Exercise of stock options -- 97,688 ----------- ----------- Net cash provided by financing activities -- 97,688 ----------- ----------- Net decrease in cash and cash equivalents (731,612) (2,643,461) Cash and cash equivalents, beginning of period 2,372,946 3,976,929 ----------- ----------- Cash and cash equivalents, end of period $ 1,641,334 $ 1,333,468 =========== ===========
See accompanying notes to consolidated financial statements. SOFTECH, INC. AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ---------------------------------------------------- (A) The consolidated condensed financial statements have been prepared from the accounts of SofTech, Inc. and its wholly owned subsidiaries (the Company) without audit; however, in the opinion of management, the information presented reflects all adjustments which are of a normal recurring nature and elimination of intercompany transactions which are necessary to present fairly the Company's financial position and results of operations. (B) On July 26, 1995, the Company announced its intention to seek alternative strategies aimed at enhancing shareholder value including, but not limited to, the possible sale of all or part of the business. It is impossible to predict, at this time, the final outcome or even the eventual structure of such a transaction or transactions as the case may be, nor the potential effect on results of operations or financial position. (C) The consolidated financial statements have been restated to reflect the net assets and operating results of the Government Services Division ("GSD") as a discontinued operation (see Note G). The assets and liabilities of the discontinued business have been reclassified in the Consolidated Condensed Balance Sheets as Net assets (liabilities) of discontinued operations. The operating results of the GSD are shown net of taxes in the Consolidated Condensed Statements of Income as Loss from operations. (D) The Company capitalizes internal software development costs in accordance with Statement of Financial Accounting Standards No. 86 (SFAS 86), subsequent to the establishment of technological feasibility for the product. There were no internal software development costs incurred during the first half of FY96. As of November 30, 1994, the Company had capitalized $422,214 of software development costs. During the third quarter of FY95, the Company determined that the recoverability of these costs had become uncertain due to significant delays in the product development effort and wrote off the previously capitalized software development costs incurred to date, along with all subsequent software development costs incurred. (E) The Company adopted the provisions of Statement of Financial Accounting Standards No. 109, (SFAS No. 109) as of June 1, 1993. SFAS No. 109 requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. (F) Details of certain balance sheet captions are as follows:
November 30, May 31, 1995 1995 ------------ ------------ Property and equipment $ 5,520,795 $ 5,221,213 Accumulated depreciation and amortization 3,257,549 2,882,296 ----------- ------------ Property and equipment, net $ 2,263,246 $ 2,338,917 =========== ============ Common stock, $.10 par value $ 450,494 $ 449,571 Capital in excess of par value 16,369,418 16,346,696 Retained earnings 3,430,009 5,379,052 Less treasury stock (1,481,515) (1,481,515) ----------- ------------ Stockholders' equity $18,768,406 $ 20,693,804 =========== ============
(G) Effective December 1, 1993, the Company completed the sale of the GSD to CACI International, Inc. of Arlington, Virginia. CACI paid approximately $4.2 million in cash for substantially all the active GSD contracts and certain defined assets, primarily computer equipment, with a net book value of approximately $900,000. Revenue from discontinued operations for the three and six months ended November 30, 1995 was $7,950 and $45,860, respectively. Revenue from discontinued operations for the comparable periods in fiscal 1995 was $323,221 and $616,568, respectively. At November 30, 1995 and May 31, 1995, the net assets of discontinued operations, which are included in the Consolidated Condensed Balance Sheets, are as follows:
November 30, May 31, 1995 1995 ------------ ------- Receivables $ 237,599 $1,554,178 Accrued expenses and income taxes (562,594) (388,000) --------- ---------- Net assets (liabilities) $(324,995) $1,166,178 ========= ==========
(H) On September 20, 1995, the Company amended its Purchase Agreement with the stockholders of Micro Control, Inc. ("Seller"). In consideration for the Seller waiving their right to receive certain contingent payments that may have been due if certain profit goals were attained (see Note J and Management's Discussion and Analysis to the 1995 Annual Report which detail the potential liabilities) over the next two years, the Company made a cash payment to them totaling $426,497. In addition, the Seller's primary responsibility subsequent to the signing of this amendment is to maximize the sale price of the CAD Division. A commission will be earned for such activity based on the sale price. The payment of $426,497 is composed of three separate items which are as follows: * $281,497 non-recoverable cash payment; * an advance of $70,000 recoverable only against commissions earned through the sale of the CAD Division; and * a $75,000 cash payment for termination of the final two years of the building lease at the Pennsylvania facility owned by a Family Trust of which the Seller is a Trustee. In addition, a twelve (12) month option to buy out the period from November 5, 1998 to November 4, 2000 for an additional cash payment of $75,000 was extended to the Company. The non-recoverable cash payment and the lease buy out which total $356,497 were expensed to operations and included in selling, general and administrative expense in the second quarter of fiscal 1996. The advance will be expensed as part of the sale of the CAD Division. MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Financial Condition - ------------------- During the first six months of fiscal 1996, cash decreased approximately $732,000. Operating activities utilized approximately $539,000, much of that being the nonrecurring cash payment of $426,000 detailed below. The collection of the majority of the remaining GSD receivables provided $1.5 million during the six months ended November 30, 1995. On September 20, 1995, the Company made a nonrecurring cash payment of $426,000 to the stockholders of Micro Control, Inc. in exchange for their waiving all rights to contingent payments that could have been due if certain profit goals were attained over the next two years. The payment was composed of three separate items which are detailed in Note H to this Form 10-Q. Approximately $356,000 of the cash payment was expensed in this quarter and is included in selling, general and administrative expense. The remaining $70,000 is an advance that is recoverable against commissions earned from the sale of the CAD Division. The specific amount of the contingent cash payments that could have been due were dependent on profit goal attainment and future stock price and were detailed in Management's Discussion and Analysis and in Note J to the 1995 Annual Report. These payments could have been material if profit goals were attained and the market price of the Company's stock did not equal or exceed the defined stock price. This amendment was necessitated by the Company's announcement on July 26, 1995 to seek alternatives aimed at enhancing shareholder value, including, but not limited to, the sale of all or part of the business. By fixing a potentially material unknown liability, potential acquirers are better able to determine fair value of the Company in management's opinion. On July 26, 1995, the Company announced its intention to seek alternative strategies aimed at enhancing shareholder value including, but not limited to, the possible sale of all or part of the business. It is impossible to predict, at this time, the final outcome or even the eventual structure of such a transaction or transactions as the case may be, nor the potential effect on results of operations or financial position. Management believes that available cash along with the $10 million available line of credit will be sufficient for meeting operating needs over the next twelve months. Results of Operations - --------------------- Revenue for the three and six month periods ended November 30, 1995 decreased approximately 4% and 3%, respectively, from the same periods in fiscal 1995. The North Carolina locations recorded revenue of $2.2 million and $4.1 million, respectively, for the three and six months ended November 30, 1995 as compared to $4.1 million and $7.5 million, respectively, for the same periods of the previous fiscal year. The decrease in revenue in North Carolina was partially offset by revenue generated by Micro Control, acquired in January 1995, of $1.2 million and $2.4 million, respectively, for the three and six months ended November 30, 1995. Product revenue, which includes hardware and off-the-shelf software, decreased by 14% and 13%, respectively, for the three and six month periods ended November 30, 1995 as compared to the same periods in the prior year. The decrease is due primarily to the reduced revenue at the North Carolina locations. Overall product gross margins for the three and six months ended November 30, 1995 were 21.0% and 19.8%, respectively, as compared to 21.5% and 20.8%, respectively, for the comparable periods in FY95. The decrease is consistent with the gradual margin decay of off-the-shelf hardware and software components as they become more and more available and therefore subject to intense price sensitivity. Service revenue increased by 34% for the three and six months ended November 30, 1995 as compared to the same periods in fiscal 1995. Increased service capability and continued growth in recurring maintenance revenue provided a significant portion of the increased service revenue. Gross margin as a percentage of service revenue was 31% for the first half of fiscal 1996 as compared to 45% for the comparable period in FY95. The decreased margin is due primarily to increased staffing in the technical ranks and a delay in a few relatively large orders with a heavy service revenue mix. Selling, general and administrative cost as a percentage of revenue increased from 21.9% for the first half of fiscal 1995 to 30% for the first half of fiscal 1996. Included in SG&A for the first half of FY96 was the payment of $356,000 to the shareholders of Micro Control, Inc. (see Footnote H), along with approximately $166,000 of costs associated with the now shut down software development group. The costs associated with the software development group were capitalized during the first half of fiscal 1995. The additional increase in SG&A spending is attributable to a combination of increased staffing and overhead costs, including goodwill expense, that resulted from the acquisition of Micro Control in January 1995. The operating loss from continuing operations was approximately $(510,000) and $(1,560,000), respectively, for the three and six months ended November 30, 1995, as compared to operating income of $470,000 and $915,000, respectively, for the same periods in FY95. Along with the slight decrease in revenue for the first half of fiscal 1996, earnings were negatively impacted by decreases in both product and service margins, as well as a $1.6 million increase in selling, general and administrative costs, $356,000 of which is related to the nonrecurring cash payment as outlined above. The loss from discontinued operations of $224,318 and $303,125, respectively, for the three and six months ended November 30, 1995 was primarily due to expenses associated with the collection of approximately $1.3 million of outstanding GSD receivables and resolving most outstanding regulatory issues related to that division. This effort is now concluded and all GSD employees were separated at the end of Q2 FY96. Common equivalent shares arising from shares issued under stock options are the cause of the difference between common shares outstanding and weighted average shares outstanding, for the first half of fiscal 1995. There were no common equivalent shares arising from shares issued under stock options during the first half of fiscal 1996. The Company did not generate any interest income during the first two quarters of fiscal 1996. The Company has utilized its available cash to complete three acquisitions in fiscal 1995 and to fund receivable growth. The Company's tax provision for the first two quarters of fiscal 1996 is comprised of state taxes computed on a basis other than income. The Company's effective tax rate for the first half of fiscal 1995 was about 30%, which is comprised of a federal rate of 24% and an average state tax rate of 6%. PART II. OTHER INFORMATION --------------------------- SOFTECH, INC. AND SUBSIDIARIES ------------------------------ Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibit 27(i) Financial Data Schedule as required to Article 5 of Regulation S-X. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the three months ended November 30, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOFTECH, INC. Date: January 15, 1996 /S/ Joseph P. Mullaney ---------------- ------------------------------- Joseph P. Mullaney Vice President Chief Financial Officer Date: January 15, 1996 /S/ Jan E. Yansak ---------------- ------------------------------- Jan E. Yansak Controller EX-27 2 FINANCIAL DATA SCHEDULE FOR 2ND QUARTER
5 1,000 6-MOS MAY-31-1996 NOV-30-1995 1,641 0 13,018 0 1,968 19,697 5,521 3,258 26,047 7,279 0 0 0 450 18,318 26,047 22,380 22,380 17,221 23,940 0 0 0 (1,560) 86 (1,646) (303) 0 0 (1,949) (0.48) (0.48)
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