0001133884-01-500671.txt : 20011026
0001133884-01-500671.hdr.sgml : 20011026
ACCESSION NUMBER: 0001133884-01-500671
CONFORMED SUBMISSION TYPE: 10QSB
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010831
FILED AS OF DATE: 20011022
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SOFTECH INC
CENTRAL INDEX KEY: 0000354260
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373]
IRS NUMBER: 042453033
STATE OF INCORPORATION: MA
FISCAL YEAR END: 0531
FILING VALUES:
FORM TYPE: 10QSB
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-10665
FILM NUMBER: 1763687
BUSINESS ADDRESS:
STREET 1: 2 HOGHWAY DRIVE
STREET 2: SUITE B 130
CITY: TEWSBURY
STATE: MA
ZIP: 01876
BUSINESS PHONE: 9786406222
MAIL ADDRESS:
STREET 1: 4695 44TH STREET N E
STREET 2: SUITE B 130
CITY: GRAND RAPIDS
STATE: MI
ZIP: 49512
10QSB
1
g10qsb-26066.txt
Form 10-QSB
Page 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------
For the Quarter Ended Commission File Number
August 31, 2001 0-10665
SOFTECH, INC.
State of Incorporation IRS Employer Identification
Massachusetts 04-2453033
2 Highwood Drive, Tewksbury, MA 01876
Telephone (978)640-6222
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 September 30,
2001 was 10,741,784 shares.
Form 10-QSB
Page 2
SOFTECH, INC.
-------------
INDEX
-----
PART I. Financial Information Page Number
-----------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
August 31, 2001 (unaudited) and May 31, 2001 3
Consolidated Condensed Statements of Operations -
Three Months Ended August 31, 2001 (unaudited) and
2000 (unaudited) 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended August 31, 2001 (unaudited)
and 2000 (unaudited) 5
Notes to Consolidated Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Form 10-QSB
Page 3
PART I. FINANCIAL INFORMATION
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(dollars in thousands)
August 31, May 31,
2001 2001
(unaudited) (audited)
------------- -----------
ASSETS
------
Cash and cash equivalents $ 617 $ 548
Accounts receivable, net 1,901 2,103
Prepaid expenses and other assets 230 168
------------- -----------
Total current assets 2,748 2,819
------------- -----------
Property and equipment, net (Note B) 581 702
Capitalized software costs, net 10,564 10,972
Goodwill, net 2,907 3,131
Other assets 297 297
------------- -----------
TOTAL ASSETS $ 17,097 $ 17,921
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable $ 878 $ 710
Accrued expenses 771 1,048
Deferred maintenance revenue 2,308 2,738
Current portion of capital lease obligations 64 64
Current portion of long term debt 632 632
------------- -----------
Total current liabilities 4,653 5,192
------------- -----------
Capital lease obligations, net of current portion 91 101
Long-term debt, net of current portion 10,838 10,701
------------- -----------
Total long-term debt 10,929 10,802
------------- -----------
Stockholders' equity (Note B) 1,515 1,927
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,097 $ 17,921
============= ===========
See accompanying notes to consolidated condensed financial statements.
Form 10-QSB
Page 4
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Unaudited)
(in thousands, except for per share data)
Three Months Ended
-----------------------------------------
August 31, August 31,
2001 2000
--------------- ---------------
Revenue
Products $ 692 $ 2,389
Services 1,747 2,122
--------------- ---------------
Total revenue 2,439 4,511
Cost of products sold 20 198
Cost of services provided 141 411
--------------- ---------------
Gross margin 2,278 3,902
Research and development expenses 858 1,295
Selling, general and administrative 1,533 2,784
--------------- ---------------
Loss from operations (113) (177)
Interest expense 308 287
--------------- ---------------
Loss from operations before income taxes (421) (464)
Provision for income taxes - -
--------------- ---------------
Net loss $ (421) $ (464)
=============== ===============
Basic and diluted net loss per common share $ (0.04) $ (0.04)
Weighted average common shares outstanding 10,742 10,742
See accompanying notes to consolidated condensed financial statements.
Form 10-QSB
Page 5
SOFTECH, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Three Months Ended
-----------------------------------
August 31, August 31,
2001 2000
------------- -------------
Cash flows from operating activities:
Net loss $ (421) $ (464)
------------- -------------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 764 815
Change in current assets and liabilities:
Accounts receivable 202 531
Unbilled costs and fees - (464)
Prepaid expenses and other assets (62) 103
Accounts payable and accrued expenses (109) (455)
Deferred maintenance revenue (430) (771)
------------- -------------
Total adjustments 365 (241)
------------- -------------
Net cash used by operating activities (56) (705)
------------- -------------
Cash flows used by investing activities:
Capital expenditures (2) (38)
------------- -------------
Net cash used by investing activities (2) (38)
------------- -------------
Cash flows from financing activities:
Principal payments under capital lease obligations (10) (42)
Proceeds from line of credit agreements, net of repayments 137 421
------------- -------------
Net cash provided by financing activities 127 379
------------- -------------
Increase (decrease) in cash and cash equivalents 69 (364)
Cash and cash equivalents, beginning of period 548 1,278
------------- -------------
Cash and cash equivalents, end of period $ 617 $ 914
============= =============
See accompanying notes to consolidated condensed financial statements.
Form 10-QSB
Page 6
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(A) The consolidated condensed financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission 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. It is recommended that
these consolidated condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in the
Company's fiscal year 2001 Annual Report on Form 10-K.
(B) Details of certain balance sheet captions are as follows:
August 31, May 31,
2001 2001
(unaudited)
--------------- -----------
Property and equipment $ 3,550 $ 3,548
Accumulated depreciation
And amortization (2,969) (2,846)
--------------- -----------
Property and equipment, net $ 581 $ 702
--------------- -----------
Common stock, $.10 par value $ 1,128 $ 1,128
Capital in excess of par value 19,690 19,690
Other accumulated comprehensive loss (82) (91)
Accumulated deficit (17,660) (17,239)
Less treasury stock (1,561) (1,561)
--------------- -----------
Stockholders' equity $ 1,515 $ 1,927
--------------- -----------
(C) LOSS PER SHARE
Basic net income (loss) per share is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding.
Diluted net income (loss) per share is computed by dividing net income
(loss) by the weighted-average number of common and equivalent dilutive
common shares outstanding. Common stock equivalents have been excluded
from the weighted average shares outstanding computation as inclusion
would be anti-dilutive.
August 31, August 31,
2001 2000
(unaudited) (unaudited)
------------ ------------
Basic weighted average shares outstanding
during the quarter 10,741,784 10,741,784
Effect of employee stock options outstanding -- --
------------ ------------
Diluted 10,741,784 10,741,784
========== ==========
(D) COMPREHENSIVE LOSS
Other accumulated comprehensive loss represents accumulated foreign
currency translation adjustments at August 31, 2001 and May 31, 2001.
Comprehensive loss for the three months ended August 31, 2001 and 2000
was $(412) and $(451), respectively, and included net loss and
translation gain for the respective periods.
Form 10-QSB
Page 7
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(E) SEGMENT INFORMATION
The Company operates in one reportable segment and is engaged in the
development, marketing, distribution and support of CAD/CAM and Product
Data Management computer solutions. The Company's operations are
organized geographically with foreign offices in England, France,
Germany and Italy. Components of revenue and long-lived assets
(consisting primarily of intangible assets, capitalized software and
property, plant and equipment) by geographic location, are as follows:
Three Months Ended Three Months Ended
August 31, August 31,
Revenue: 2001 2000
(unaudited) (unaudited)
------------------------------- ----------------------
North America $1,874 $3,883
Europe 669 779
Eliminations (104) (151)
------ ------
Consolidated Total $2,439 $4,511
====== ======
August 31,
Long-Lived Assets: 2001 May 31,
(unaudited) 2001
------------------------------- ----------------------
North America $14,157 $14,896
Europe 192 206
--- ---
Consolidated Total $14,349 $15,102
============== ==============
(F) NEW ACCOUNTING PRONOUNCEMENTS:
On July 20, 2001, FASB issued SFAS 141, "Business Combination", and SFAS
No. 142, "Goodwill and Intangible Assets". SFAS 141 is effective for all
business combinations initiated after June 30, 2001. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001; however,
certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date
of SFAS 142. Major provisions of these Statements and their effective
dates for the Company are as follows:
o All business combinations initiated after June 30, 2001 must use
the purchase method of accounting. The pooling of interests
method of accounting is prohibited;
o Intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from contractual
or other legal rights or are separable from the acquired entity
and can be sold, transferred, licensed, rented or exchanged,
either individually or as part of a related contract, asset or
liability;
o Goodwill, as well as intangible assets with indefinite lives,
acquired after June 30, 2001, will not be amortized. Effective
January 1, 2002, all previously recognized goodwill and
intangible assets with indefinite lives will no longer be
subject to amortization;
o Effective January 1, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and
whenever there is an impairment indicator;
o All acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting.
Form 10-QSB
Page 8
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(F) NEW ACCOUNTING PRONOUNCEMENTS (Continued):
As of this filing, the Company is continuing to evaluate the impact of
these Statements. The Company's Cadra product line has net intangible
assets of approximately $10.2 million which have been amortized using
the straight line method over 10 years since acquisition in May 1998.
The annual amortization for this product line is equal to approximately
$1.9 million. The Company's AMT product line has net intangible assets
of approximately $3.3 million which have been amortized primarily under
the straight line method since acquisition in November 1997. The annual
amortization for the AMT product line is approximately $.9 million.
Form 10-QSB
Page 9
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
---------------------
Total revenue for the three-month period ended August 31, 2001 was $2.4
million as compared to $4.5 million for the same period in the prior
fiscal year. This represents a decrease from the first quarter of fiscal
2001 to fiscal 2002 of $2.1 million or 46.7%. Product revenue decreased
by approximately $1.7 million in the first quarter of fiscal 2002 as
compared to the same period in the prior year or about 71.0%. Service
revenue decreased by about $.4 million or 17.7% in the first quarter of
fiscal 2002 as compared to the first quarter of fiscal 2001.
Product revenue in fiscal 2002 is composed primarily of licensing our
technology to end users. Approximately $200,000 of the prior year
product revenue was generated from the sale of third party technology.
The remaining decrease of approximately $1.5 million in product revenue
was due to proportionate decreases in both our CAD and CAM product
offerings. This decrease is the direct result of extreme weakness in the
worldwide manufacturing sector and the resulting impact on technology
spending.
Service revenue is composed of software maintenance on our proprietary
software and revenue generated from services performed by our engineers
such as installation, training and consulting. For the quarter ended
August 31, 2001 software maintenance revenue on our proprietary
technology was $1.6 million as compared to $1.8 million for the same
period in the prior fiscal year. Service revenue generated from
engineering services during the quarter ended August 31, 2001 was
$139,000 as compared to approximately $300,000 for the same period in
the prior fiscal year.
Product gross margin as a percent of revenue was 97.1% for the first
quarter of fiscal 2002 as compared to 91.7% for the same period in
fiscal 2001. This gross margin improvement is due to the Company's
decision to cease offering third party technologies. Fiscal 2001 Q1
results included approximately $200,000 of third party software which
reduced the gross margin as a percent of revenue. The gross margin
generated on service revenue for the first quarter of fiscal 2002 was
about 91.9% as compared to 80.6% for the same period in fiscal 2001.
This is due to a higher percentage of software maintenance revenue in
service revenue in the current fiscal year as compared to the prior
fiscal year. Software maintenance revenue carries a higher gross margin
as a percent of sales than does other types of service revenue such as
training, installation and consulting. Overall gross margin as a percent
of revenue increased to 93.3% in the current quarter as compared to
86.5% in the same period of fiscal 2001.
Research and development expenditures for the first quarter of fiscal
2002 were approximately $858,000 as compared to $1.3 million in fiscal
2001, a decrease of approximately 33.7%. R&D as a percent of revenue was
35.2% in the current fiscal quarter as compared to approximately 28.7%
in the comparable quarter in fiscal 2001. The decrease in expenditures
is the result of efficiencies realized by combining the development
groups for our CAD and CAM operations under one Vice President
responsible for all of our proprietary technology and the resulting
reduction in headcount.
Selling, general and administrative expenses totaled approximately $1.5
million in the first quarter of fiscal year 2002 as compared to $2.8
million in fiscal 2001, a decrease of approximately 44.9%. The reduced
spending in SG&A in the current quarter as compared to the same quarter
in fiscal 2001 was due to headcount reductions, office consolidation and
the elimination of numerous management positions all of which were
necessitated by the economic slowdown in the manufacturing sector.
Interest expense for the first quarter of fiscal year 2002 was $308,000
as compared to approximately $287,000 for the same period in the prior
fiscal year. The increase in interest expense is due to an average
borrowing in the current quarter of approximately $1.0 million more than
in the same period in the previous fiscal year.
The net loss for the current fiscal year was $421,000 as compared to
$464,000 in the same period in fiscal 2001. There was no change in the
number of shares outstanding. The net loss per share for both periods
was $.04.
Form 10-QSB
Page 10
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Capital Resources and Liquidity
-------------------------------
The Company ended the first quarter of fiscal 2002 with cash of
approximately $617,000, an increase of $69,000 from year-end 2001.
Operating activities used approximately $56,000 of cash during the first
quarter. The net loss adjusted for non-cash expenditures related to
amortization and depreciation generated cash of $343,000. A net decrease
in accounts receivables generated and additional $202,000. These
positive cash flows were offset by a net reduction of approximately
$601,000 in accounts payable, accrued expenses and deferred revenue as
well as a small increase in other assets. Financing activities provided
approximately $127,000 during the quarter through additional net
borrowings from the Company's debt facility.
Our current quarter performance of generating positive free cash flow
(Net loss adjusted for non-cash expenditures less capital expenditures)
of $341,000 was the best quarterly cash generating performance since the
quarter ended November 30, 1999. With cost cutting measures that
continued throughout the first four months of fiscal 2002 we have
reduced our quarterly cash spending to between $1.8 and $2.0 million for
Q2. Our current plan is to minimize cash spending until such time as the
manufacturing sector shows signs of recovery. Our quarterly software
maintenance contracts and other services revenue should generate between
$1.5 and $1.6 million which would then require between $200,000 and
$500,000 of license revenue to achieve cash break even.
In January 2001, we announced the signing of a Letter of Intent with an
undisclosed third party (the "Buyer") to sell our CAM product line in
order to generate liquidity to pay down debt and provide working capital
for our new product initiatives. However, we have been unable to
complete the sale due to the inability of the Buyer to raise the
necessary capital in a timely manner. We have taken action in September
2001 to align the cash spending in that product line to the current
activity level so as to generate predictable positive cash flows on a
consistent basis. Based on this restructuring and our current view of
the difficult capital market, the Company's Board of Directors has opted
to retain this product line and to operate it as a technology offering
within the SofTech product family.
The Company believes that the cash on hand together with cash flow from
operations and its available borrowings under its credit facility will
be sufficient for meeting its liquidity and capital resource needs for
the next year. At August 31, 2001, the Company had available borrowings
on its debt facilities of approximately $2.5 million.
The statements made above with respect to SofTech's outlook for fiscal
2002 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. These include, among other risks and
uncertainties, general business and economic conditions, generating
sufficient cash flow from operations to fund working capital needs,
potential obsolescence of the Company's CAD and CAM technologies,
maintaining existing relationships with the Company's lenders,
remaining in compliance with debt covenants, successful introduction and
market acceptance of planned new products and the ability of the Company
to attract and retain qualified personnel both in our existing markets
and in new territories.
Form 10-QSB
Page 11
PART II. OTHER INFORMATION
--------------------------
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three-month period
ended August 31, 2001.
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: October 22, 2001 /s/ Joseph P. Mullaney
----------------------- ------------------------------------
Joseph P. Mullaney
President
Chief Operating Officer